By Ms Taci Darnell
Research and development activity is at the core of technology companies. As these companies are spending millions on developing the next big thing, they often incur large losses. The expectation is that these losses will be available in the future when the companies have taxable income. These net operating losses (NOLs) are deferred tax assets, because their benefit will not be utilized until the future.
Generally, companies put a lot of effort into protecting and managing their assets. For example, insurance is purchased to replace damaged property and intangible assets are protected through patents. However, many technical companies do not focus attention on managing their net operating losses. Without proper management of their NOLs they may lose the full value of the NOLs. NOLs can be limited through the application of Internal Revenue Code (IRC) Section 382 or simply through the expiration of the NOLs.
