Answered: What will the “the §382 limitation” be…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Leader has business assets worth $8 million and NOL carryovers of $1million expiring in 14 years and of $2 million expiring in 15 years, and 100 percent of Leader’s stock is worth $10 million. If Leader sells its business assets without recognizing gain or loss, Leader can invest its $8 million liquid assets in US T-Bills earning 2.1% so that Leader can use its NOLs at the rate of $168,000 per year. The long-term tax-exempt rate is 1.71%. What will the “the §382 limitation” be if an ownership change occurs with respect to Leader’s stock? Will Leader be able to utilize the NOL’s before they expire?

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