Deer Corporation was acquired last year by Lobo Corporation in a transaction causing an ownership change.At the time of the acquisition,the fair market value of Deer was $1.5 million and the Federal long-term tax-exempt rate was 5%.In the current year,Lobo has $600,000 of taxable income and excess credits carryovers from Deer amounting to $40,000.What is Lobo's Federal income tax for the year if Lobo is in the 34% tax bracket?

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Quizplus · Accepted Answer

Lobo's tax before credits is $204,000 ($600,000 F1F1F1S1F1F1F10 34%).The § 382 limitation for the current year is $75,000 ($1.5 million F1F1F1S1F1F1F10 5%).The § 382 limitation credit equivalent is $25,500 ($75,000 F1F1F1S1F1F1F10 34%).Therefore,Lobo's tax liability for the current year is $178,500 ($204,000 - $25,500).

Deer Corporation Was Acquired Last Year by Lobo Corporation in a Transaction