IRS Issues Significant Guidance On Losses Available After An Ownership Change

This week the IRS modified and potentially expanded the amount of losses available to offset taxable income after an ownership change.

Internal Revenue Code Section 382 generally provides that a corporation that undergoes a more than 50% change in ownership is limited in its use of pre-change net operating losses to offset post-change taxable income. The annual limitation for such losses generally is the product of the value of the loss corporation before the ownership change and the long term tax-exempt rate. In determining the value of the loss corporation, the Code provides that capital contributions received by the loss corporation pursuant to a plan a principal purpose of which is to avoid or increase the limitation under Code Section 382 shall not be taken into account, and contributions made during the two year period before the ownership change shall, except as provided in regulations, be treated as part of such a plan. Code Section 382 also generally