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ARTICLE · 02 MARCH 2004

The Sometimes Hidden Implications of Section 382

Gardner Carton & Douglas
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As Corporations contemplate entering into corporate mergers or making acquisitions, a ready knowledge of the impact of Section 382 on the acquiring and/or the target company’s tax attributes will help the structuring and diligence processes proceed more smoothly.

United StatesTax

Executive Overview

As Corporations contemplate entering into corporate mergers or making acquisitions, a ready knowledge of the impact of Section 382 on the acquiring and/or the target company’s tax attributes will help the structuring and diligence processes proceed more smoothly. In this issue, we will provide a high level review of some of the more hidden aspects of the implications of Section 382 on companies in a merger or acquisition context.

Section 382, which requires limits on the use of net operating loss carryforwards, was added to the Internal Revenue Code in 1954 and significantly revised in 1986. Since then, both Section 382 and the accompanying Treasury regulations have been a source of confusion for many corporations seeking to determine if and when they experienced an "ownership change" that will trigger a Section 382 limitation. The reason? In general, corporations may begin to focus on Section 382 only when they become profitable after many years of

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