Question

BH, which is publicly-traded, is a conglomerate. It wants to distribute one of its divisions, called Geico, to its shareholders. BH distributes Geico stock pro rata to its shareholders. BH Corporation had a net operating loss (NOL) of $10m at the time of the distribution. What are the federal income tax results of this distribution? Would your answer change if BH had purchased Geico just two years ago? What result if, six months after the distribution, Allstate Corp. acquires 100% of the stock of Geico for $200m? Would your answer to a. change if, 80% of Geico's assets constituted U.S. government bonds and cash?

Answer 1

What are the federal income tax results of this distribution?

Since Geico is one of the divisions of BH Corporation and any loss in this case $10m loss would be adjusted with any income or profits from Geico.

What result if, six months after the distribution, Allstate Corp. acquires 100% of the stock of Geico for $200m?

Sec 384 says losses cant be set off with income or gains from new acquisitions for the next 5 years.

Would your answer to a. change if, 80% of Geico's assets constituted U.S. government bonds and cash?

Gain or loss on sale of Geico will be used to set off distribution income or loss of BH