Gato Corporation Exchanged 25% of Its Stock with Lobo for All

Multiple Choice

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets. The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock. Lobo then liquidated. At the time of the acquisition by Gato, the value of Lobo was $3 million, and the Federal long-term tax-exempt rate was 4%. In the current year, Gato has $500,000 of taxable income. Lobo has excess credits from prior years amounting to $150,000. What amount of Lobo's credits may Gato use in computing its Federal income tax for the year, if Gato is in the 34% tax bracket?

A) $150,000
B) $120,000
C) $51,000
D) $20,000
E) None of the above