Net Operating Loss Carryovers
Following Changes in
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Internal Revenue Code § 382
In general, the rules of section 382 apply to limit a corporation's
to utilize existing net operating loss ("NOL") carryovers once the
corporation experiences an "ownership change."
Generally, an ownership change occurs when, within a span of 36
months (or, if shorter, the period beginning the day after the most
ownership change), there is an increase in the stock ownership by one
more shareholders of more than 50 percentage points.
For example, if Shareholder A owned 25 percent of Corporation X,
within a space of three years, acquired another 51 percent, there
an ownership change, triggering section 382.
In general, the rules of section 382 allow post-change corporations to
pre-change NOLs, but limit the amount that may be used annually to a
percentage of the entity value of the corporation at the date of
ownership. That percentage is the highest
"federal long-term tax-exempt rate,"
the month during which the change in ownership occurs and the
two months; the
federal long-term tax-exempt rate
is determined monthly by the IRS along with other
"applicable federal rates."
Numerous special rules and limitations apply, including provisions
with "built-in gains and losses."
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