Through a \"Type B\" reorganization, Golden Corporation acquired 80% of DragonCo

Question

Through a "Type B" reorganization, Golden Corporation acquired 80% of DragonCo stock by September 25 of the current tax year ending December 31. At the time the 80% was acquired, DragonCo was worth $900,000, and the Federal long-term tax-exempt rate was 3%. DragonCo holds capital loss carryovers of $40,000. Golden reports taxable income of $200,000 which includes $10,000 capital gains. DragonCo reports reports taxable income of $200,000 which includes $1,000 capital gains. If an amount is zero, enter "0". Enter the correct amount for each the following:

How much of the DragonCo capital loss carryover may Golden use in the current year to offset its income? $-------------

How much of DragonCo capital loss carryover may DragonCo use in the current year to offset its income? $---------------

Explanation / Answer

In type B reorganisation, Dragon Co is still in existence so Golden Co can not use capital loss in the current year to offset its income. However, Dragon Co can.

Thus, answers are Zero and $ 40000

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