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

According to the information given, Blue and Gold corporations are members of the affiliated group and have reported a consolidated NOL in the previous year. When Blue's 100% stock is purchased by Robert Martin and additional funds are contributed to acquire Green's stock, Blue-Gold affiliated group becomes a part of a new affiliated group. As per the tax laws, the NOL of the previous year can be carried back or carried forward. In this case, since Blue and Gold have reported small taxable income amounts in separate tax returns filed in prior years, it is likely that the NOL will be carried forward. However, since there is a change in ownership, the NOL carryover is subject to the Sec. 382 limitation, which limits the use of NOLs in case of an ownership change. Thus, option C is correct, as it states that 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 is subject to the Sec. 382 limitation.

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