Question

Last year, Loss Corporation transferred all of its assets (value of $8.2 million; basis of $2.7 million) and
liabilities ($3.7 million) to Gain Corporation in exchange for 40% of Gain’s voting stock. Loss then liquidated.
At the time of the reorganization, Loss had NOLs and excess credits that may be carried forward. For the
current year, Gain has taxable income of $770,000 before considering the $150,000 NOL and $30,000 in
excess credits carried to this year. If the Federal long-term tax-exempt rate was 4% at the time of the
reorganization, what is the amount of NOL and credit carryovers Gain Corporation may utilize in the
current year assuming a combined state and Federal tax rate of 25%? How much credit carries over to next year?

Answer 1

	Particular	$
	Taxable income	$            770,000.00
Less	NOL	$          (150,000.00)
Less	Excess credit c/f	$            (30,000.00)
		$            590,000.00
Less	Federal Long term Exempt rate 4%	$               23,600.00
	Net Taxable income	$            566,400.00
Less	Tax amount	$            141,600.00
	credit carries over to next year	$            424,800.00