Question -
Part 1 - A has always owned all the common stock of L Corp, the only class of stock. L Corp is a retail chain that has lost money over the past 5 years and current has a NOL carry forward of 1.2 million dollars. P Corp, which is in direct competition with L, is a profitable company making on average $500,000 per year. What effect does L Corp's NOL have on the following transaction?
A) A contributes sufficient capital to L Corp to purchase the assets of P Corp?
B) A contributes sufficient capital to L Corp to purchase the stock of P Corp?
C) L Corp sells all its assets to X Corp, and then L Corp uses the proceeds to buy P Corp stock?
D) A has always owned both L Corp and P Corp, 100%. A causes P to merge into L.
E) What if P Corp purchases L Corp's stock and makes a §338 election?
Part 2 - L Corp has business assets worth $8 million and NOL carry forwards of $1 million expiring in 14 years and $2 million expiring in 15 years, and 100% of L stock is worth $10 million. If L sells its business assets in the U.S. without recognizes gain or loss, L can invest its $8 million liquid assets in US Treasury Bonds earning 10% so that L can use the NOLs at the rate of $800,000 per year. The long term tax-exempt rate is 8%.
A) What will the §382 limitation be if an ownership change occurs with respect to Ls stock?
B) What is L has minimal assets and 100% of its stock is worth $1 million, would your answer above change?