§ 382 of the Internal Revenue Code states the general rule that the amount of taxable income of any “new loss corporation” for any post-change year that may be offset by pre-change losses shall not exceed the § 382 limitation for such year. Where an “ownership change” (significant shareholders have increased their stock ownership by more than fifty percentage points) occurs, the amount of the corporation’s net operating loss carry forwards (NOLS) as well as its built-in losses and operating losses incurred prior to the ownership change, allowed for a post-change year is limited to the value of the corporation times the long-term tax-exempt rate contained in § 1274(d).
Where a corporation is valued for tax attributes such as NOLS, this tax code provision must be considered carefully. Chapter 16 of Business Succession Planning covers the limitation of § 382 and also discusses certain exceptions, including those for buy-sell agreements.
