The NUBIG or NUBIL is the difference between the fair market value of the loss corporation’s pre-change in ownership assets and the aggregate adjusted basis of the assets on the date of the ownership changes. Notice 2003-65 provides an excellent outline of how this analysis is performed and applied. To do so requires consideration of whether the loss corporation has net unrealized built-in gains (NUBIG) or net unrealized built in losses (NUBIL) at the time of the sale. Loss corporations are required to adjust the base limitation amount by the value of certain pre-sale built-in gains or losses. This amount is often referred to as the “382 limitation” but that is not the end of the story. This is accomplished by determining the loss corporation’s base limitation amount, which is the fair value of the pre-sale loss corporation multiplied by the federal long-term tax exempt rate. After an ownership change occurs, loss corporations calculate the maximum amount of their pre-sale losses that can be utilized each year going forward (until expiration or utilization of the NOL). It does this by establishing limitations on the tax benefits for losses that a loss corporation can take following a change in ownership.įor Section 382 purposes, a change in ownership occurs when there is a purchase, sale or reissuance of equity, and there is a 50 percent increase in ownership by 5 percent shareholders during a three-year testing period. Section 382 is designed to prevent a company from being acquired solely for the use of tax benefits and looks to the substance of the transaction. Loss corporations, entities that have a NOL or built-in-gain or loss are eligible to use a NOL subject to Section 382. The Mechanics of Section 382Īnalyzing the impact of the CCA decision starts with an understanding of the mechanics of Section 382. All loss corporations and entities that acquire them should pay careful attention to the CCA ruling, as it affects cases where the loss corporation has deferred revenue obligations. The IRS’s Chief Counsel Advice (CCA) issued guidance on a case that could have an impact on loss corporations calculating their built-in gain or loss when considering Section 382 limitations. For loss corporations, calculating the limitations of Section 382 seems relatively simple at first, but over the years this analysis has become somewhat complicated, as a recent Chief Counsel Advice demonstrates.
#Irc 382 code
The limitations are outlined in Internal Revenue Code Section 382 (Section 382). But there may be limits to the tax benefits of these losses when a loss corporation is acquired by another entity. Defined Contribution Administration ServicesĬorporations operating at a loss can utilize these losses in the future to offset taxable income – the net operating loss (NOL) carryover.Defined Benefit Administration Services.Litigation Support & Expert Testimony Valuation.Healthcare Enterprise Modeling & Operational Consulting.Litigation Support, Economic Damages & Expert Testimony.COVID-19 Loan & Capital Assistance Services.
Accounting, Bookkeeping and Business Process Outsourcing.Frequently Asked Questions About Cost Segregation.Section 382: Use of Net Operating Losses.
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