Learn when IRC Section 382 applies when there is an ownership change.
Under IRC § 382 "the amount of the taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the § 382 limitation for such year." Under prior law the general approach was to limit or reduce the amount of NOL carryovers in certain acquisitions. Under current laws the carryovers remain intact but the post-acquisition income against which they can be applied is limited. The theory of the law is that the post-acquisition use of the carryovers should be limited to the use that the old loss corporation could have made of them if the acquisition had not occurred. It is assumed that the old loss corporation could have earned income each year equal to a reasonable return on its value, and the post-acquisition income against which the old loss corporation's carryovers can be applied is therefore limited each year to a percentage of the old loss corporation's value on the acquisition date deemed to represent a reasonable rate of return. This white paper reviews when § 382 applies after a change in ownership.
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