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d.

Plus gain recognized by transferor

C.

Sec. 362: Transferee corporation takes carryover basis in property(ies) received from transferor, increased by gain, if any, recognized by transferor.

D.

Subsequent operations of new sub—

a.

If new sub joins consolidated group, parent reports all income/loss of subsidiary on consolidated return

b.

Parent’s basis in subsidiary stock is adjusted as follows:

i.

Increase by income reported on consolidated return

ii.

Increase by tax-exempt income received by subsidiary

iii.

Decrease by expenses deducted on consolidated return

iv.

Decrease by nondeductible expenses incurred by subsidiary

v.

Increase by subsidiary’s share of taxes paid by parent on sub’s behalf (and not reimbursed by sub)

vi.

Decrease by distributions received from subsidiary (except for reimbursement of subsidiary’s share of taxes—treated as a nondeductible expense of the sub paid to IRS, rather than to parent)

10/06/2009 – Limitations on Loss Carryforwards (and built-in losses)

VI.

Sec. 382—imposes limitation on utilization of NOL c/fs following “change in ownership”

A.

Change in ownership is defined as change in shares owned by “5-percent” shareholders increases by 50 percentage points over a 12-month period

B.

5-percent shareholder is a shareholder that owns 5% or more of the corporation’s outstanding shares

VII.

Sec. 382(b)—limitation is equal to:

A.

“Value” of “old loss corporation” multiplied by

B.

Long-term tax exempt rate (published by IRS monthly)

VIII.

Sec. 382(b)(2)—limitation is cumulative

IX.

Sec. 382(b)(3)—where change in ownership occurs in middle of year:

A.

limitation is pro-rated to period of year following change in ownership

B.

limitation does not apply to portion of year preceding ownership change

X.

Sec. 382(h)—effect of net unrealized gains or losses inherent in corporation’s balance sheet as of date of ownership change:

A.

Net unrealized built-in gains may be offset by NOL c/fs without regard to Sec. 382

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