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On March 1, Cream Corporation transfers all of its assets to Coffee Corporation in exchange...

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Accounting

On March 1, Cream Corporation transfers all of its assets to Coffee Corporation in exchange for 10% of its common voting stock. At the time of the reorganization, Cream has assets valued at $4 million (basis of $3 million) and its earnings and profits account shows a deficit of $650,000. Coffees earnings and profits as of March 1 were $420,000. Due to the reorganization, Coffee has an NOL for the current year of $150,000. Coffee still declares its usual dividends of $100,000, paid on April 30, August 31, and December 31 ($300,000 of total dividends).

a. How are the Coffee shareholders taxed on the distribution?

b. What portion of the current-year NOL may be carried back to prior Coffee and/or Cream tax years?

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