ExpertHard1 markMultiple Choice
CPA · Question 27 · Area II: Entity Tax Compliance
LossCo, a C Corporation, has a $1,000,000 NOL carryforward. On January 1, Year 1, ProfitCo acquires 100% of LossCo's stock. The long-term tax-exempt rate is 3%. The value of LossCo's stock at acquisition is $2,000,000. LossCo has no net unrealized built-in gains. What is the maximum amount of the NOL that can be utilized in Year 1?
LossCo, a C Corporation, has a $1,000,000 NOL carryforward. On January 1, Year 1, ProfitCo acquires 100% of LossCo's stock. The long-term tax-exempt rate is 3%. The value of LossCo's stock at acquisition is $2,000,000. LossCo has no net unrealized built-in gains. What is the maximum amount of the NOL that can be utilized in Year 1?
Answer options:
A.
$60,000
B.
$1,000,000
C.
$30,000
D.
$0
How to approach this question
Calculate the Section 382 Limitation: Value of Loss Corp * Long-Term Tax-Exempt Rate. $2,000,000 * 3% = $60,000.
Full Answer
A.$60,000✓ Correct
IRC §382. The annual limitation on NOL utilization after an ownership change is the value of the old loss corporation immediately before the change ($2,000,000) multiplied by the long-term tax-exempt rate (3%). $2,000,000 * 0.03 = $60,000.
Common mistakes
Using the NOL amount as the base instead of the stock value.
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