26 U.S.C. § 382: Limitation on net operating loss carryforwards and certain built-in losses following ownership change

The amount of the taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the section 382 limitation for such year. the value of the old loss corporation, multiplied by the long-term tax-exempt rate. If the section 382 limitation for any post-change year exceeds the taxable income of the new loss corporation for such year which was offset by pre-change losses, the section 382 limitation for the next post-change year shall be increased by the amount of such excess. Subsection (a) shall not apply to the portion of the taxable income for such year which is allocable to the period in such year on or before the change date. Except as provided in subsection (h)(5) and in regulations, taxable income shall be allocated ratably to each day in the year. the number of days in such year after the change date, bears to the total number of days in such year. Except as provided in paragraph (2), if the new loss corporation does not continue the business enterprise of the old loss corporation at all times during the 2-year period beginning on the change date, the section 382 limitation for any post-change year shall be zero. subsection (h)(1)(A) for recognized built-in gains for such year, and subsection (h)(1)(C) for gain recognized by reason of an election under section 338, plus any increase in such limitation under subsection (b)(2) for amounts described in subparagraph (A) which are carried forward to such year. any net operating loss carryforward of the old loss corporation to the taxable year ending with the ownership change or in which the change date occurs, and the net operating loss of the old loss corporation for the taxable year in which the ownership change occurs to the extent such loss is allocable to the period in such year on or before the change date. The term “post-change year” means any taxable year ending after the change date. The term “pre-change loss” shall include any carryover of disallowed interest described in section 163(j)(2) under rules similar to the rules of paragraph (1). Except as otherwise provided in this subsection, the value of the old loss corporation is the value of the stock of such corporation (including any stock described in section 1504(a)(4)) immediately before the ownership change. If a redemption or other corporate contraction occurs in connection with an ownership change, the value under paragraph (1) shall be determined after taking such redemption or other corporate contraction into account. Except as otherwise provided in regulations, in determining the value of any old loss corporation which is a foreign corporation, there shall be taken into account only items treated as connected with the conduct of a trade or business in the United States. The long-term tax-exempt rate shall be the highest of the adjusted Federal long-term rates in effect for any month in the 3-calendar-month period ending with the calendar month in which the change date occurs. paragraphs (2) and (3) thereof shall not apply, and such rate shall be properly adjusted for differences between rates on long-term taxable and tax-exempt obligations. the percentage of the stock of the loss corporation owned by 1 or more 5-percent shareholders has increased by more than 50 percentage points, over the lowest percentage of stock of the loss corporation (or any predecessor corporation) owned by such shareholders at any time during the testing period. there is any change in the respective ownership of stock of a corporation, and such change affects the percentage of stock of such corporation owned by any person who is a 5-percent shareholder before or after such change. any reorganization described in subparagraph (D) or (G) of section 368(a)(1) unless the requirements of section 354(b)(1) are met, and any reorganization described in subparagraph (F) of section 368(a)(1). To the extent provided in regulations, the term “equity structure shift” includes taxable reorganization-type transactions, public offerings, and similar transactions. Except as provided in subparagraphs (B)(i) and (C), in determining whether an ownership change has occurred, all stock owned by shareholders of a corporation who are not 5-percent shareholders of such corporation shall be treated as stock owned by 1 5-percent shareholder of such corporation. Subparagraph (A) shall be applied separately with respect to each group of shareholders (immediately before such equity structure shift) of each corporation which was a party to the reorganization involved in such equity structure shift. Unless a different proportion is established, acquisitions of stock after such equity structure shift shall be treated as being made proportionately from all shareholders immediately before such acquisition. Except as provided in regulations, rules similar to the rules of subparagraph (B) shall apply in determining whether there has been an owner shift involving a 5-percent shareholder and whether such shift (or subsequent transaction) results in an ownership change. shall be treated as having acquired such stock on the 1st day of his 1st succeeding taxable year, and shall not be treated as having owned such stock during any prior period. If the old loss corporation has a net unrealized built-in gain, the section 382 limitation for any recognition period taxable year shall be increased by the recognized built-in gains for such taxable year. the net unrealized built-in gain, reduced by recognized built-in gains for prior years ending in the recognition period. If the old loss corporation has a net unrealized built-in loss, the recognized built-in loss for any recognition period taxable year shall be subject to limitation under this section in the same manner as if such loss were a pre-change loss. the net unrealized built-in loss, reduced by recognized built-in losses for prior taxable years ending in the recognition period. the recognized built-in gains by reason of such election, or the net unrealized built-in gain (determined without regard to paragraph (3)(B)). such asset was held by the old loss corporation immediately before the change date, and the fair market value of such asset on the change date, over the adjusted basis of such asset on such date. such asset was not held by the old loss corporation immediately before the change date, or the adjusted basis of such asset on the change date, over the fair market value of such asset on such date. the fair market value of the assets of such corporation immediately before an ownership change is more or less, respectively, than the aggregate adjusted basis of such assets at such time. If a redemption or other corporate contraction occurs in connection with an ownership change, to the extent provided in regulations, determinations under clause (i) shall be made after taking such redemption or other corporate contraction into account. 15 percent of the amount determined for purposes of subparagraph (A)(i)(I), or $10,000,000, any cash or cash item, or any marketable security which has a value which does not substantially differ from adjusted basis. shall be carried forward to subsequent taxable years under rules similar to the rules for the carrying forward of net operating losses (or to the extent the amount so disallowed is attributable to capital losses, under rules similar to the rules for the carrying forward of net capital losses), but shall be subject to limitation under this section in the same manner as a pre-change loss. in applying subparagraph (A) thereof, taxable income shall be computed without regard to recognized built-in gains to the extent such gains increased the section 382 limitation for the year (or recognized built-in losses to the extent such losses are treated as pre-change losses), and gain described in paragraph (1)(C), for the year, and in applying subparagraph (B) thereof, the section 382 limitation shall be computed without regard to recognized built-in gains, and gain described in paragraph (1)(C), for the year. Any item of income which is properly taken into account during the recognition period but which is attributable to periods before the change date shall be treated as a recognized built-in gain for the taxable year in which it is properly taken into account. Any amount which is allowable as a deduction during the recognition period (determined without regard to any carryover) but which is attributable to periods before the change date shall be treated as a recognized built-in loss for the taxable year for which it is allowable as a deduction. The amount of the net unrealized built-in gain or loss shall be properly adjusted for amounts which would be treated as recognized built-in gains or losses under this paragraph if such amounts were properly taken into account (or allowable as a deduction) during the recognition period. The term “recognition period” means, with respect to any ownership change, the 5-year period beginning on the change date. The term “recognition period taxable year” means any taxable year any portion of which is in the recognition period. If 80 percent or more in value of the stock of a corporation is acquired in 1 transaction (or in a series of related transactions during any 12-month period), for purposes of determining the net unrealized built-in loss, the fair market value of the assets of such corporation shall not exceed the grossed up amount paid for such stock properly adjusted for indebtedness of the corporation and other relevant items. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection where property held on the change date was acquired (or is subsequently transferred) in a transaction where gain or loss is not recognized (in whole or in part). Except as otherwise provided in this section, the testing period is the 3-year period ending on the day of any owner shift involving a 5-percent shareholder or equity structure shift. If there has been an ownership change under this section, the testing period for determining whether a 2nd ownership change has occurred shall not begin before the 1st day following the change date for such earlier ownership change. The testing period shall not begin before the earlier of the 1st day of the 1st taxable year from which there is a carryforward of a loss or of an excess credit to the 1st post-change year or the taxable year in which the transaction being tested occurs. Except as provided in regulations, this paragraph shall not apply to any loss corporation which has a net unrealized built-in loss (determined after application of subsection (h)(3)(B)). in the case where the last component of an ownership change is an owner shift involving a 5-percent shareholder, the date on which such shift occurs, and in the case where the last component of an ownership change is an equity structure shift, the date of the reorganization. The term “loss corporation” means a corporation entitled to use a net operating loss carryover or having a net operating loss for the taxable year in which the ownership change occurs. Such term shall include any corporation entitled to use a carryforward of disallowed interest described in section 381(c)(20). Except to the extent provided in regulations, such term includes any corporation with a net unrealized built-in loss. with respect to which there is an ownership change, and which (before the ownership change) was a loss corporation. The term “new loss corporation” means a corporation which (after an ownership change) is a loss corporation. Nothing in this section shall be treated as implying that the same corporation may not be both the old loss corporation and the new loss corporation. Taxable income shall be computed with the modifications set forth in section 172(d). The term “value” means fair market value. Except as provided in regulations and subsection (e), the term “stock” means stock other than stock described in section 1504(a)(4). to treat warrants, options, contracts to acquire stock, convertible debt interests, and other similar interests as stock, and to treat stock as not stock. Determinations of the percentage of stock of any corporation held by any person shall be made on the basis of value. The term “5-percent shareholder” means any person holding 5 percent or more of the stock of the corporation at any time during the testing period. Any capital contribution received by an old loss corporation as part of a plan a principal purpose of which is to avoid or increase any limitation under this section shall not be taken into account for purposes of this section. For purposes of subparagraph (A), any capital contribution made during the 2-year period ending on the change date shall, except as provided in regulations, be treated as part of a plan described in subparagraph (A). the section 382 limitation for such taxable year, reduced by the unused pre-change losses for taxable years preceding the loss year. a pre-change loss of a loss corporation for any taxable year is subject to a section 382 limitation, and a net operating loss of such corporation from such taxable year is not subject to such limitation, paragraphs (1) and (5)(B) of section 318(a) shall not apply and an individual and all members of his family described in paragraph (1) of section 318(a) shall be treated as 1 individual for purposes of applying this section, without regard to the 50-percent limitation contained in subparagraph (C) thereof, and except as provided in regulations, by treating stock attributed thereunder as no longer being held by the entity from which attributed, paragraph (3) of section 318(a) shall be applied only to the extent provided in regulations, except to the extent provided in regulations, an option to acquire stock shall be treated as exercised if such exercise results in an ownership change, and in the case of attribution from a corporation, stock which is not treated as stock for purposes of this section, or in the case of attribution from another entity, an interest in such entity similar to stock described in subclause (I). under section 1014 (relating to property acquired from a decedent), section 1015 (relating to property acquired by a gift or transfer in trust), or section 1041(b)(2) (relating to transfers of property between spouses or incident to divorce), stock is received by any person in satisfaction of a right to receive a pecuniary bequest, or stock is acquired by a person pursuant to any divorce or separation instrument (within the meaning of section 121(d)(3)(C)), Except as provided in regulations, any change in proportionate ownership which is attributable solely to fluctuations in the relative fair market values of different classes of stock shall not be taken into account. the fair market value of the nonbusiness assets of the old loss corporation, over the nonbusiness asset share of indebtedness for which such corporation is liable. The old loss corporation shall be treated as having substantial nonbusiness assets if at least ⅓ of the value of the total assets of such corporation consists of nonbusiness assets. A regulated investment company to which part I of subchapter M applies, a real estate investment trust to which part II of subchapter M applies, or a REMIC to which part IV of subchapter M applies, shall not be treated as a new loss corporation having substantial nonbusiness assets. For purposes of this paragraph, the term “nonbusiness assets” means assets held for investment. the fair market value of the nonbusiness assets of the corporation, bears to the fair market value of all assets of such corporation. For purposes of this paragraph, stock and securities in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary’s assets. For purposes of the preceding sentence, a corporation shall be treated as a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock entitled to vote, and 50 percent or more of the total value of shares of all classes of stock. the old loss corporation is (immediately before such ownership change) under the jurisdiction of the court in a title 11 or similar case, and the shareholders and creditors of the old loss corporation (determined immediately before such ownership change) own (after such ownership change and as a result of being shareholders or creditors immediately before such change) stock of the new loss corporation (or stock of a controlling corporation if also in bankruptcy) which meets the requirements of section 1504(a)(2) (determined by substituting “50 percent” for “80 percent” each place it appears). any taxable year ending during the 3-year period preceding the taxable year in which the ownership change occurs, and the period of the taxable year in which the ownership change occurs on or before the change date. In applying section 108(e)(8) to any case to which subparagraph (A) applies, there shall not be taken into account any indebtedness for interest described in subparagraph (B). If, during the 2-year period immediately following an ownership change to which this paragraph applies, an ownership change of the new loss corporation occurs, this paragraph shall not apply and the section 382 limitation with respect to the 2nd ownership change for any post-change year ending after the change date of the 2nd ownership change shall be zero. was held by the creditor at least 18 months before the date of the filing of the title 11 or similar case, or arose in the ordinary course of the trade or business of the old loss corporation and is held by the person who at all times held the beneficial interest in such indebtedness. For purposes of this paragraph, the term “title 11 or similar case” has the meaning given such term by section 368(a)(3)(A). A new loss corporation may elect, subject to such terms and conditions as the Secretary may prescribe, not to have the provisions of this paragraph apply. If paragraph (5) does not apply to any reorganization described in subparagraph (G) of section 368(a)(1) or any exchange of debt for stock in a title 11 or similar case (as defined in section 368(a)(3)(A)), the value under subsection (e) shall reflect the increase (if any) in value of the old loss corporation resulting from any surrender or cancellation of creditors’ claims in the transaction. The Secretary shall by regulation provide for the application of this section to the alternative tax net operating loss deduction under section 56(d). Except as provided in regulations, any entity and any predecessor or successor entities of such entity shall be treated as 1 entity. providing for the application of this section and section 383 where an ownership change with respect to the old loss corporation is followed by an ownership change with respect to the new loss corporation, and providing for the application of this section and section 383 in the case of a short taxable year, providing for such adjustments to the application of this section and section 383 as is necessary to prevent the avoidance of the purposes of this section and section 383, including the avoidance of such purposes through the use of related persons, pass-thru entities, or other intermediaries, providing for the application of subsection (g)(4) where there is only 1 corporation involved, and providing, in the case of any group of corporations described in section 1563(a) (determined by substituting “50 percent” for “80 percent” each place it appears and determined without regard to paragraph (4) thereof), appropriate adjustments to value, built-in gain or loss, and other items so that items are not omitted or taken into account more than once. is required under a loan agreement or a commitment for a line of credit entered into with the Department of the Treasury under the Emergency Economic Stabilization Act of 2008, and is intended to result in a rationalization of the costs, capitalization, and capacity with respect to the manufacturing workforce of, and suppliers to, the taxpayer and its subsidiaries. Paragraph (1) shall not apply in the case of any subsequent ownership change unless such ownership change is described in such paragraph. Paragraph (1) shall not apply in the case of any ownership change if, immediately after such ownership change, any person (other than a voluntary employees’ beneficiary association under section 501(c)(9)) owns stock of the new loss corporation possessing 50 percent or more of the total combined voting power of all classes of stock entitled to vote, or of the total value of the stock of such corporation. Related persons shall be treated as a single person for purposes of this paragraph. such person bears a relationship to such other person described in section 267(b) or 707(b), or such persons are members of a group of persons acting in concert. The amendment made by subsection (a) [amending this section] shall apply to acquisition after December 31, 1988 . The amendment made by subsection (a) shall not apply to acquisitions after December 31, 1988 , pursuant to a binding written contract entered into on or before October 21, 1988 .” The amendment made by subsection (a) [amending this section] shall apply in the case of stock treated as becoming worthless in taxable years beginning after December 31, 1987 . The amendment made by subsection (b) [amending this section] shall apply in the case of ownership changes (as defined in section 382 of the Internal Revenue Code of 1986 as amended by subsection (a)) after December 15, 1987 ; except that such amendment shall not apply in the case of any ownership change pursuant to a binding written contract which was in effect on December 15, 1987 , and at all times thereafter before such ownership change.” The amendments made by subsections (a), (b), and (c) [amending this section and sections 318 and 383 of this title] shall apply to any ownership change after December 31, 1986 . For purposes of clause (i), any equity structure shift pursuant to a plan of reorganization adopted before January 1, 1987 , shall be treated as occurring when such plan was adopted. section 382(a) of the Internal Revenue Code of 1954 (as in effect before the amendment made by subsection (a) and the amendments made by section 806 of the Tax Reform Act of 1976 [ section 806 of Pub. L. 94–455 ]) shall not apply to any increase in percentage points occurring after December 31, 1988 , and section 382(b) of such Code (as so in effect) shall not apply to any reorganization occurring pursuant to a plan of reorganization adopted after December 31, 1986 . For purposes of section 382(i) of the Internal Revenue Code of 1986 (as added by this section), any equity structure shift pursuant to a plan of reorganization adopted before January 1, 1987 , shall be treated as occurring when such plan was adopted. The repeals made by subsection (e)(1) [repealing amendments by Pub. L. 94–455, § 806(e) , (f), amending this section and sections 108, 368, and 383 of this title] and the amendment made by subsection (e)(2) [repealing section 806(g)(2), (3) of Pub. L. 94–455 , formerly set out as an Effective Date of 1976 Amendment note below] shall take effect on January 1, 1986 . If a taxpayer described in clause (ii) elects to have the provisions of this subparagraph apply, the amendments made by subsections (e) and (f) of section 806 of the Tax Reform Act of 1976 [amending this section and sections 108, 368, and 383 of this title] shall apply to the reorganization described in clause (ii). A taxpayer is described in this clause if the taxpayer filed a title 11 or similar case on December 8, 1981 , filed a plan of reorganization on February 5, 1986 , filed an amended plan on March 14, 1986 , and received court approval for the amended plan and disclosure statement on April 16, 1986 . the amendments made by subsections (a), (b), and (c) shall not apply to any debt restructuring of such debt which was approved by the debtor’s Board of Directors and the lenders in 1986, and the amendments made by subsections (e) and (f) of section 806 of the Tax Reform Act of 1976 shall not apply to such debt restructuring, except that the amendment treated as part of such subsections under section 59(b) of the Tax Reform Act of 1984 (relating to qualified workouts) shall apply to such debt restructuring. In the case of a Texas corporation incorporated on July 23, 1935 , in applying section 382 of the Internal Revenue Code of 1986 (as in effect before and after the amendments made by subsections (a), (b), and (c)) to a loan restructuring agreement during 1985, section 382(a)(5)(C) of the Internal Revenue Code of 1954 (as added by the amendments made by subsections (e) and (f) of section 806 of the Tax Reform Act of 1976) shall be applied as if it were in effect with respect to such restructuring. For purposes of the preceding sentence, in applying section 382 (as so in effect), if a person has a warrant to acquire stock, such stock shall be considered as owned by such person. May 6, 1986 , or in the case of an ownership change which occurs after May 5, 1986 , and to which the amendments made by subsections (a), (b), and (c) do not apply, the first day following the date on which such ownership change occurs. stock-for-debt exchanges and stock sales made pursuant to a plan of reorganization with respect to a petition for reorganization filed by a corporation under chapter 11 of title 11, United States Code, on August 26, 1982 , and which filed with a United States district court a first amended and related plan of reorganization before March 1, 1986 , or ownership change of a Delaware corporation incorporated in August 1983, which may result from the exercise of put or call option under an agreement entered into on September 14, 1983 , but only with respect to taxable years beginning after 1991 regardless of when such ownership change takes place. Unless the taxpayer elects not to have the provisions of this paragraph apply, in the case of a reorganization described in subparagraph (G) of section 368(a)(1) of the Internal Revenue Code of 1986 or an exchange of debt for stock in a title 11 or similar case, as defined in section 368(a)(3) of such Code, the amendments made by subsections (a), (b), and (c) shall not apply to any ownership change resulting from such a reorganization or proceeding if a petition in such case was filed with the court before August 14, 1986 . The determination as to whether an ownership change has occurred during the period beginning January 1, 1987 , and ending on the final settlement of any reorganization or proceeding described in the preceding sentence shall be redetermined as of the time of such final settlement. the acquisition of a corporation the stock of which is acquired pursuant to a plan of divestiture which identified such corporation and its assets, and was agreed to by the board of directors of such corporation’s parent corporation on May 17, 1985 , a merger which occurs pursuant to a merger agreement (entered into before September 24, 1985 ) and an application for approval by the Federal Home Loan Bank Board was filed on October 4, 1985 , a reorganization involving a party to a reorganization of a group of corporations engaged in enhanced oil recovery operations in California, merged in furtherance of a plan of reorganization adopted by a board of directors vote on September 24, 1985 , and a Delaware corporation whose principal oil and gas producing fields are located in California, or the conversion of a mutual savings and loan association holding a Federal charter dated March 22, 1985 , to a stock savings and loan association pursuant to the rules and regulations of the Federal Home Loan Bank Board. on July 16, 1986 , at least 40 percent of the outstanding common stock (excluding all preferred stock, whether or not convertible) of such carrier had been acquired by a parent corporation incorporated in March 1980 under the laws of Delaware, and the acquisition (by or for such parent corporation) or retirement of the remaining common stock of such carrier is completed before the later of March 31, 1987 , or 90 days after the requisite governmental approvals are finally granted, The amendments made by subsections (a), (b), and (c) shall not apply to any ownership change resulting from the conversion of a Minnesota mutual savings bank holding a Federal charter dated December 31, 1985 , to a stock savings bank pursuant to the rules and regulations of the Federal Home Loan Bank Board, and from the issuance of stock pursuant to that conversion to a holding company incorporated in Delaware on February 21, 1984 . For purposes of determining whether any ownership change occurs with respect to the holding company or any subsidiary thereof (whether resulting from the transaction described in the preceding sentence or otherwise), any issuance of stock made by such holding company in connection with the transaction described in the preceding sentence shall not be taken into account. Except as otherwise provided, terms used in this subsection shall have the same meaning as when used in section 382 of the Internal Revenue Code of 1986 (as amended by this section).” The delegation of authority to the Secretary of the Treasury under section 382(m) of the Internal Revenue Code of 1986 does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers. Internal Revenue Service Notice 2008–83 is inconsistent with the congressional intent in enacting such section 382(m). The legal authority to prescribe Internal Revenue Service Notice 2008–83 is doubtful. However, as taxpayers should generally be able to rely on guidance issued by the Secretary of the Treasury legislation is necessary to clarify the force and effect of Internal Revenue Service Notice 2008–83 and restore the proper application under the Internal Revenue Code of 1986 of the limitation on built-in losses following an ownership change of a bank. shall be deemed to have the force and effect of law with respect to any ownership change (as defined in section 382(g) of the Internal Revenue Code of 1986) occurring on or before January 16, 2009 , and shall have no force or effect with respect to any ownership change after such date. is pursuant to a written binding contract entered into on or before such date, or is pursuant to a written agreement entered into on or before such date and such agreement was described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required by reason of such ownership change.”