586 MODULE 36 TAXES: CORPORATE

EXAMPLE: Pursuant to a merger of Corporation T into Corporation P, Smith exchanged 100 shares ofT that he had
purchasedfor $1,000, for 80 shares of P having a FMV of $1,500 and also received $2QO cash. Smith's realized gain of
$700 is recognized to the extent of the cash received of $200, and is treated as a capital gain. Smith's basis for his P
stock is $1,000 ($1,000 + $200 recognized gain - $200 cash received).
. ,
7. Carryover of tax attributes
8. The tax attributes of the acquired corporation (e.g., NOL carryovers, earnings and profits, account-
ing methods, etc.) generally carry over to the acquiring corporation in an acquisitive reorganiza-
tion.
9. The amount of an acquired corporation's NOL carryovers that can be utilized by the acquiring
corporation for its' first taxable year ending after the date of acquisition is limited by Sec. 381 to
. Acquiring corporation's TI before Days after acguisition date
NOL deduction x Total days in taxable year
EXAMPLE: Corporation P (on a calendar year) acquired Corporation T in a statutory merger on October 19,
2009, with the former T shareholders receiving 60% of P's stock. 1fT had an NOL carryover of $70, 000, and P
has taxable income (before an NOL deduction) of $91,500, the amount of T's $70,000 NOL carryover that can be
deducted by P for 2009 would be limited to
73
$91,500 x ~ = $18,300

10. If there is a more than 50 % change in ownership of a loss corporation, the taxable income for
any year of the new loss (or surviving) corporation may be reduced by an NOL carryover from the
old loss corporation only to the extent of the value of the old loss corporation's stock on the date
of the ownership change multiplied by the "long-term tax-exempt rate" (Sec. 382 limitation).
(1) An ownership change has occurred when the percentage of stock owned by an entity's 5% or
more shareholders has increased by more than 50 percentage points relative to the lowest per-

centage owned by such shareholders at any time during the preceding three-year testing pe-
riod.
(2) For the year of acquisition, the Sec. 382 limitation amount is available only to the extent allo-
cable to days after the acquisition date.
Section 382 limitation x Days after acguisition date
Total days in taxable year
EXAMPLE: 1fT'sformer shareholders received only 30% of P's stock in the preceding example, there would
be a more than 50 percentage point change in ownership ofT Corporation, and T's NOL carryover would be
a
subject to Sec. 382 limitation. 1fthe FMV of T's stock on October 19,2009, was $500,000 and the long-term
tax-exempt rate were 5%, the Sec. 382 limitation for 2009 would be ($500,000 x 5%) x (73/365 days) =
$5,000.
Thus, only $5,000 of T's NOL carryover could be deducted by P for 2009. The remaining $70,000-
$5,000 = $65,000 of T's NOL would be carriedforward by P and can be used to offset P's taxable income for
2010 to the extent of the Sec. 382 limitation (i.e., $500,000 x 5% = $25,000).