ParentCo purchased all of the stock of ChildCo on January 2, 2011, and the two companies filed consolidated returns for 2011 and thereafter. Both entities were incorporated in 2010. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No § 382 limit applies. To what extent can SubCo's 2010 losses be used by the group in 2013?
A) $125,000.
B) $75,000.
C) $10,000.
D) $0.

Question

ParentCo purchased all of the stock of ChildCo on January 2, 2011, and the two companies filed consolidated returns for 2011 and thereafter. Both entities were incorporated in 2010. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No § 382 limit applies.  To what extent can SubCo's 2010 losses be used by the group in 2013?
A) $125,000. 
B) $75,000. 
C) $10,000. 
D) $0.

Quizplus · Accepted Answer

The group can use SubCo's 2010 losses to offset its 2013 taxable income up to a maximum of $75,000. This is because the carryforward period for net operating losses (NOLs) is generally 20 years, and the NOLs can only offset 80% of taxable income in a given year. Therefore, the group can use $75,000 (i.e., 80% of $100,000) of SubCo's 2010 losses to offset its 2013 taxable income.

ParentCo Purchased All of the Stock of ChildCo on January