Mariano owns all of Alpha Corporation, which owns 100% of Beta Corporation's single class of stock. On January 1, Alpha and Beta Corporations report a consolidated NOL carryover from prior years. What is the maximum percentage of Alpha Corporation's single class of stock that Mariano can sell to a single shareholder without triggering the Sec. 382 loss limitation?
A)0%
B)50%
C)75%
D)80%

Question

Quizplus · Accepted Answer

Mariano can sell up to 50% of Alpha Corporation's single class of stock without triggering the Sec. 382 loss limitation. This is because Beta Corporation is a wholly owned subsidiary and therefore, their NOL carryover will be fully consolidated with Alpha Corporation's NOL carryover. Sec. 382 limits the amount of NOLs that can be used to offset taxable income to prevent loss trafficking, which occurs when a change in ownership of a corporation results in a limitation of the use of the corporation's NOLs. The limitation is triggered if there is an ownership change of more than 50% of a corporation's stock, so Mariano can sell up to 50% without triggering the limitation.

Mariano Owns All of Alpha Corporation, Which Owns 100% of Beta