Lemon Corporation is having financial difficulties.Its liabilities now amount to $600,000 and its assets are only valued at $200,000.Further,Lemon has capital loss carryovers of $80,000 and NOL carryovers amounting to $350,000 at the time of its restructuring.Through a bankruptcy proceeding (Type G reorganization),Citrus Corporation becomes the successor corporation to Lemon.Which of the following statements is true with regard to the described transaction?

Question

Quizplus · Accepted Answer

Citrus is required to reduce tax attributes carried over from Lemon Corporation to the extent of the cancellation of debt income relief ($400,000).The NOL is reduced before the capital loss carryovers.Therefore,the NOL is reduced to zero,and the capital loss is reduced by $50,000 ($400,000 - $350,000)to $30,000 ($80,000 - $50,000).

Lemon Corporation Is Having Financial Difficulties