On September 9, 2019, the Treasury Department and Internal
Revenue Service ("IRS") issued proposed regulations that
may significantly limit a corporation's use of its net
operating losses and similar tax attributes (collectively,
"NOLs") following a substantial change in ownership.
Coupled with additional limits on NOL usage adopted in the 2017 Tax
Cuts and Jobs Act, the proposed regulations would withdraw
favorable guidance taxpayers have relied upon since 2003 and
dramatically reduce the value of NOLs in many cases. These rules
are critically important in the distressed, M&A (including
private equity), and start-up contexts.
Very generally, if a corporation experiences a more than 50%
change in ownership over a rolling three-year period, section 382
of the Internal Revenue Code imposes an annual limit on the
corporation's ability to offset future income with existing
NOLs. This limit is tied to equity value and interest rates and
therefore may be extremely low,
