Corporations that are contemplating ownership changes and/or looking to acquire existing corporations need to be aware of Section 382 and the potential limitations associated with it, especially when the target corporation has significant NOLs and built-in losses. A corporation’s use of NOLs and built-in losses after an ownership change is limited annually by Section 382. Because the use of these tax attributes is limited, they may expire unused under the NOL carryforward rules. Buyers and sellers need to understand the implications of Section 382 on a potential business combination so that the value of the loss corporation is adjusted accordingly.
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