L has business assets worth $6,000,000, NOL carryovers of $1,000,000 expiring in 14 years, and NOL carryovers of $1,400,000 expiring in 15 years. 100% of L’s stock is worth $8,000,000. The long-term tax exempt rate is 5%. The current third party market interest rate is 6%. Commercial bank mortgage rates are 3%.
(a) What will the § 382 limitation be if an ownership change occurs with respect to L’s stock? Assuming sufficient taxable income, how long will it take to fully utilize the NOLs?
(b) Same questions and facts as (a) above, except L has minimal assets and 100% of its stock is worth $2,000,000.
4. A owns all of the stock of X. The stock’s basis is $2,300. X has a total of current earnings and profits of $1,500 but accumulated earnings and profits of negative $500 (i.e., an accumulated deficit).
a) X distributes $1,200 cash to A “with respect to his stock” (i.e., as a state law “dividend”). How is the $1,200 distribution treated for tax purposes?
b) Alternatively, X distributes $4,000 cash to A “with respect to his stock” (i.e., as a state law “dividend”). How is the $4,000 distribution treated for tax purposes?
1. A contributes property worth $2,000 to X, a newly formed corporation, in exchange for 67 shares of X stock. As part of the same transaction, B contributes services worth $1,000 to X in exchange for X’s remaining 33 shares of stock.
a) Does § 351 apply to the contributions of A and B? Why or why not?
b) How much gain does X Corporation recognize on the transaction with B?