An update has been made to make layer group breeding compatible with interspecies breeding and baby stages.
Previously, layer groups could only be passed down from same species parent-child lineage. This included baby stages.
This has now been fixed so that baby stages can inherit layer groups from parent species as long as the layer group has the same name. This also holds true for interspecies breeding (a Red Flower Dog abd a White Kitty can produce a Red Kitty baby if Red is an available layer group for the Kitty species). Rarity is based off of the baby's species settings.