Treasury Issues Proposed Regulations Under Section 382 That Would Ease Compliance Requirements For Tracking Small Shareholder Ownership

INTRODUCTION

On November 23, 2011, the Internal Revenue Service (the "IRS") issued new Proposed Regulations under Section 382¹ that, if adopted and finalized, would limit the application of the Section 382 segregation rules (discussed in detail below) to public groups in certain circumstances that the IRS has determined are unlikely to implicate the policy concerns underlying the provision.² The Proposed Regulations generally reflect the IRS's first attempt at shifting the approach of the Treasury Regulations promulgated under Section 382 (the "Section 382 Regulations") away from a purely formalistic ownership tracking system and towards a more targeted approach that does not require ownership tracking in circumstances that are unlikely to result in abuses that implicate the provision's purpose, i.e., stopping the inappropriate acceleration of a loss corporation's ability to utilize its net operating loss carryforwards ("NOLs") following a change in ownership.