TinCo has product liability problems and has filed for bankruptcy protection in the state court. Currently, its liabilities are $1 million, and its depreciable assets are valued at $550,000 (basis of $400,000). Through the “Type G” reorganization, a new entity, ZinCo, has been created to succeed TinCo. At the time of the restructuring, TinCo has an NOL carryforward of $200,000, general business credits of $50,000, and a capital loss carryforward of $100,000. Explain the tax consequences for TinCo and ZinCo if ZinCo elects to reduce the basis of the depreciable property first in the “Type G” reorganization.
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