Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 3% and Brain's discount factor is 7%, what is the maximum amount that Brain can use of Heart's NOL this year?
A) $12,500
B) $30,000
C) $100,000
D) $250,000

Question

Quizplus · Accepted Answer

The maximum amount of Heart's NOL that Brain can use this year is determined by the Section 382 limitation. This limitation is calculated as the value of the old loss corporation's stock immediately before the ownership change multiplied by the long-term tax-exempt rate. Since Heart Corporation has net assets valued at $1 million, and assuming this value reflects the value of its stock, the calculation is $1,000,000 * 3% = $30,000. Therefore, the maximum NOL that can be utilized by Brain Corporation this year is $30,000.

Heart Corporation Has Net Assets Valued at $1 Million and an NOL