Code Sections or Case Law if it applies to the situation need to be included. Question 1) Part 1. A has always owned all the common stock of L Corp, the only class of stock. L Corp is a retail chain that has lost money over the past 5 years and current has a NOL carry forward of 1.2 million dollars. P Corp, which is in direct competition with L, is a profitable company making on average $500,000 per year. What effect does L Corp’s NOL have on the following transaction? A) A contributes sufficient capital to L Corp to purchase the assets of P Corp? B) A contributes sufficient capital to L Corp to purchase the stock of P Corp? C) L Corp sells all its assets to X Corp, and then L Corp uses the proceeds to buy P Corp stock? D) A has always owned both L Corp and P Corp, 100%. A causes P to merge into L. E) What if P Corp purchases L Corp’s stock and makes a §338 election? Part 2. L Corp has business assets worth $8 million and NOL carry forwards of $1 million expiring in 14 years and $2 million expiring in 15 years, and 100% of L stock is worth $10 million. If L sells its business assets in the U.S. without recognizes gain or loss, L can invest its $8 million liquid assets in US Treasury Bonds earning 10% so that L can use the NOLs at the rate of $800,000 per year. The long term tax-exempt rate is 8%. A) What will the §382 limitation be if an ownership change occurs with respect to Ls stock? B) What is L has minimal assets and 100% of its stock is worth $1 million, would your answer above change? Question 2: A and B each has owned 50% of the stock of X Corp for many years. A’s stock basis is $800 with a FMV of $1,000 and B’s stock basis is $1,200 with a FMV of $1,000. X Corp is engaged in two lines of business, both for over 5 years, the manufacture of electronics equipment (Electro), and the manufacture of air conditioners (Airco). The assets of each division have a FMV of $1,000 and an adjusted basis of $500. X Corp has no liabilities and an E&P of $1,000. What are the tax consequences of the following transactions? A) X Corp transfers all its Electro assets into a newly formed Y Corp for all of Y Corp’s stock and all the Airco assets into a newly formed Z Corp for all of Z Corp’s stock. Immediately thereafter, X Corp liquidates and distributes Y Corp and Z Corp stock ratably between the shareholders. B) Would your answer be different if the Y Corp stock was distributed to A and the Z Corp stock was distributed to B? C) What if the same occurred in B above, but Y Corp assets were sold immediately after the transfer? D) X Corp transfers the Electro assets to Y Corp, a newly formed corp., in exchange for all of Y Corp’s stock. Immediately thereafter, X transfers all of Y Corp’s stock to B for all of B’s stock. What are the ramifications? E) What if under D above, B sells Y Corp’s stock to another unrelated party immediately after the split? 2 years after the split? 5 years after the split? Question 3) A owns all the stock of T Corp. The only asset of T Corp. is land worth $150,000 with a basis of $60,000. A’s basis in T’s stock is $50,000. T Corp is a C Corporation for federal income tax purposes. Y Corp, a publicly traded company, wishes to purchase the land with either $150,000 of Y Corp stock in a taxable transaction or $130,000 of Y Corp stock in a non-taxable transaction. A) Can A avoid gain recognition by a like kind exchange of T Corp stock for Y Corp stock? B) Can you think of any scenario in which the transaction could be tax-free? C) What would be the tax ramifications if T Corp accepts the taxable transaction, and immediately liquidates? The effective tax rate for T Corp is 21% and for A is 35% for ordinary income and 20% for capital gains. D) Would you answer to C be different if T Corp was an S Corporation? E) Why is Y Corp willing to give only $130,000 worth of stock for a tax-free exchange? 4. Your client, ABC Corporation is looking at acquiring XYZ Corporation. The fair market value of XYZ Corporation is $1,500,000, with a net tax basis of $700,000. XYZ Corporation has a number of shareholders, more than 80% of the shareholders are willing to exchange their stock for ABC Corporation stock. The remaining 15% of the shareholders want cash or want to keep their XYZ Corporation since they love the company. XYZ Corporation used to manufacture and sell asbestos materials in Navy shipbuilding. ABC Corporation has come to you seeking guidance on the best method to acquire XYZ Corporation. They are looking for a number of avenues, with both pros and cons of each. ABC Corporation has the ability to issue shares of ABC Corporation for the acquisition or paying cash.