Blue and Gold Corporations are members of the Blue-Gold affiliated group, which filed a consolidated tax return for last year, reporting a $200,000 consolidated NOL. Small taxable income amounts were reported by Blue and Gold in separate tax returns filed in years prior to last year. Early in the current year, 100% of Blue's stock is purchased by Robert Martin who contributes additional funds to Blue Corporation sufficient to acquire all of Green Corporation's stock. For the current year, the affiliated group reports the following results (excluding the consolidated NOL deduction): Which of the following statements is correct?

Question

Blue and Gold Corporations are members of the Blue-Gold affiliated group, which filed a consolidated tax return for last year, reporting a $200,000 consolidated NOL. Small taxable income amounts were reported by Blue and Gold in separate tax returns filed in years prior to last year. Early in the current year, 100% of Blue's stock is purchased by Robert Martin who contributes additional funds to Blue Corporation sufficient to acquire all of Green Corporation's stock. For the current year, the affiliated group reports the following results (excluding the consolidated NOL deduction):  Which of the following statements is correct?

Quizplus · Accepted Answer

Last year's NOL can be carried back 2 years or carried forward 20 years. However, the question does not ask about the carryback option. The portion of last year's NOL that is not used as a carryback can be carried over against the current consolidated taxable income, but it is subject to the Sec. 382 limitation. This limitation restricts the amount of NOLs that a corporation can use to offset taxable income after undergoing an ownership change such as the purchase of Blue's stock by Robert Martin. This means that the NOL can only be used to offset up to $164,000 of consolidated taxable income in the current year (the consolidated taxable income of $324,000 reduced by the Sec. 382 limitation of $160,000).

Blue and Gold Corporations Are Members of the Blue-Gold Affiliated