IRC 382 NOL Limitation on Ownership Changes: Section 382 Annual Limit, NUBIG, NUBIL, and Testing Practitioner Guide

IRC 382 is the primary statutory mechanism Congress uses to limit the ability of acquiring corporations to exploit pre-existing net operating loss (NOL) carryforwards in a purchased loss corporation. When a loss corporation undergoes an "ownership change" (as defined in IRC 382(g)(1)), the amount of its taxable income that can be offset by pre-change NOL carryforwards in any post-change year is capped at the "Section 382 limitation" for that year. That limitation is calculated as the product of the fair market value (FMV) of the loss corporation (immediately before the ownership change) and the long-term tax-exempt rate (LTTER) published monthly by the IRS. The LTTER changes each month; the current rate is always at IRS.gov in the applicable monthly Revenue Ruling. IRC 382 also reaches built-in losses (NUBIL) that the loss corporation holds at the time of the ownership change, and the companion provisions of Sections 383 and 384 extend the same framework to capital loss carryforwards, tax credits, and cross-entity transactions. In the post-OBBBA M&A environment, where 100% QPP bonus depreciation makes stepped-up asset basis from a Section 338 election immediately valuable, practitioners advising on acquisition structure must model the Section 382 limitation carefully before treating inherited NOLs as deal currency.

This guide is a companion to the net operating loss practitioner guide on this site, which covers NOL carryforward mechanics, the 80% taxable income limitation, and Form 1139/1045 refund procedures. The Section 382 ownership change analysis described here applies whenever a loss corporation's NOL carryforwards are at stake in any change-of-control transaction, recapitalization, or large stock issuance.

This guide is informational and does not constitute tax advice for any specific client situation. All IRC citations, regulatory references, and planning strategies should be verified against current law and IRS.gov guidance before application in practice.

Section 1: What IRC 382 Is and When It Applies

Purpose: stopping NOL trafficking

Congress enacted IRC 382 to prevent "trafficking" in corporations with large NOL carryforwards. Before the modern Section 382 framework, an acquiring corporation could purchase a loss corporation for less than its standalone value, import the target's NOL carryforwards into the combined entity, and immediately shelter the acquirer's income -- converting the purchase price into a leveraged tax benefit. IRC 382 closes that arbitrage by capping the rate at which pre-change NOLs can be absorbed in any post-change year. The cap is calibrated to the economic return that would be generated if the loss corporation had, instead of being sold, invested its equity value (measured by FMV immediately before the ownership change) in long-term tax-exempt bonds, earning the LTTER. That hypothetical return is the annual Section 382 limitation.

Who it affects

IRC 382 applies to any C corporation (the "loss corporation") that has NOL carryforwards, capital loss carryforwards, certain tax credit carryforwards, or net unrealized built-in losses (NUBIL) and that undergoes a more-than-50-percentage-point ownership shift. The term "loss corporation" in the IRC 382 context refers to a corporation entitled to use an NOL carryforward or that has a net unrealized built-in loss, not merely any corporation reporting a current-year loss.

Common triggering contexts

Section 382 ownership changes arise most frequently in the following situations:

• Stock acquisitions in M&A transactions: a buyer acquires more than 50% of a loss corporation's stock in a single transaction or in a series of transactions over a 3-year testing period.
• Recapitalizations: large new share issuances that dilute existing shareholders and shift the ownership percentage of 5-percent shareholders by more than 50 points.
• SPAC transactions: de-SPAC mergers can trigger Section 382 if the combined entity has pre-change NOLs and the ownership shift exceeds the 50-percentage-point threshold.
• Bankruptcy reorganizations: Title 11 reorganizations frequently result in ownership changes; special rules under IRC 382(l)(5) and (l)(6) may provide relief (see Section 7 below).
• Venture-backed company secondary offerings: large secondary stock offerings by venture-backed companies can shift the public group percentage by more than 50 points when existing investors' relative stakes are diluted through new issuances.

IRC 382 versus IRC 1374: keeping the built-in gain regimes separate

IRC 382 governs the limitation on NOL and built-in loss carryforwards of a C corporation after an ownership change. It is a different regime from IRC 1374, which imposes a corporate-level built-in gains tax on an S corporation that converted from C-corp status and recognized appreciation within the 5-year recognition period after conversion. The two regimes share terminology (both use "NUBIG," "NUBIL," and "recognition period") and the two can interact when an S-corp converting from C-corp status also had a prior ownership change subject to IRC 382, but they are separate statutory frameworks with distinct triggering events, limitation calculations, and tax consequences. Practitioners advising on C-to-S conversions with prior ownership changes must analyze both regimes.

Section 2: The Ownership Change Test -- What Triggers Section 382

The 50-percentage-point test

An "ownership change" occurs under IRC 382(g)(1) on any "testing date" if the percentage of the loss corporation's stock (by value) owned by one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage owned by those same shareholders at any point during the preceding 3-year "testing period." The comparison is value-based, not share-count-based; a class of low-vote, high-value preferred stock counts in the ownership percentage calculation. The threshold is more than 50 percentage points -- exactly 50 points of shift does not trigger an ownership change.

Who is a 5-percent shareholder

A "5-percent shareholder" under IRC 382(g)(4) is any person who owns (directly or constructively, applying the attribution rules) 5% or more of the loss corporation's outstanding stock by value. Shareholders who each own less than 5% individually are not tracked separately; they are aggregated into a single "public group" that is treated as one 5-percent shareholder for testing purposes. The public group treatment means that shifts within the group (one small shareholder selling to another small shareholder) do not generate a separate ownership change test -- only the aggregate shift of the public group as a whole is measured.

Testing dates: when the test is applied

The ownership change test is applied on each "testing date," which is the date any owner-shift or equity structure shift occurs (IRC 382(i)). An owner-shift includes any change in the percentage ownership of a 5-percent shareholder, including through stock issuances, redemptions, and transfers. An equity structure shift includes any tax-free reorganization. Because the test is applied on each testing date, a single large stock issuance to a new 5-percent shareholder can trigger an ownership change even in the absence of a formal acquisition, if that issuance (combined with other ownership shifts over the 3-year testing period) results in a more-than-50-percentage-point shift. Hedge all testing-date mechanics and the detailed definition of owner-shifts and equity structure shifts to Treas. Reg. 1.382-2T.

The 3-year testing period

The "testing period" is the 3-year period ending on the testing date. Ownership shifts are measured cumulatively over this rolling window. A single transaction that moves exactly 40 percentage points of stock to a new 5-percent shareholder does not, by itself, cause an ownership change. But if that same shareholder acquired another 15 percentage points in the prior year, the cumulative 3-year shift exceeds 50 points and an ownership change occurs. The 3-year look-back is why practitioners in M&A and capital markets transactions must maintain a running record of ownership shifts at the loss corporation level. Hedge all testing period mechanics to Treas. Reg. 1.382-2T and Treas. Reg. 1.382-2(a).

Constructive ownership rules

Attribution from family members, related entities, and option holders can result in stock being treated as owned by a 5-percent shareholder even if not held directly. The constructive ownership rules applicable to the Section 382 analysis are based on IRC 318, with certain modifications provided in the Section 382 regulations. The constructive ownership rules are particularly significant in closely held loss corporations where family members, trusts, and related entities each hold pieces of the equity structure. Hedge all constructive ownership mechanics to Treas. Reg. 1.382-2T and IRC 318.

Segregation rules: one of the most complex areas in Section 382

In certain circumstances, the "public group" of small shareholders is "segregated" into multiple separate groups for Section 382 testing purposes. The segregation rules are one of the most technically complex aspects of the Section 382 regulations. They generally apply when the loss corporation issues new stock that is acquired by new investors who join the public group, or when a former 5-percent shareholder drops below the 5% threshold. The purpose of the segregation rules is to prevent an ownership change from being obscured by the absorption of a large new shareholder into the public group, which would otherwise appear to dilute the ownership shift percentage. For any transaction involving significant stock issuances or complex capital structures, the segregation rule analysis must be performed with reference to Treas. Reg. 1.382-2T. Do not attempt to apply the segregation rules without a close reading of the current regulatory text and, in complex cases, specialized tax counsel.

Section 3: Computing the Section 382 Limitation

The formula

Under IRC 382(b)(1), the annual Section 382 limitation for any post-change year equals:

This limitation is the maximum amount of pre-change NOL carryforwards that can offset the loss corporation's taxable income in any single post-change year. If the loss corporation's taxable income in a given post-change year is less than the Section 382 limitation, only the income amount is used up; the remainder carries forward and increases the following year's available limitation (IRC 382(b)(2)).

The long-term tax-exempt rate (LTTER)

The LTTER is published monthly by the IRS in a Revenue Ruling. It is based on the long-term applicable federal rate (AFR) for the month of the ownership change. The LTTER changes every month. Never state a specific LTTER percentage in client advice or in any written communication without hedging to the current month's IRS.gov Revenue Ruling. For the applicable rate in the month of the ownership change, retrieve the current Revenue Ruling directly from IRS.gov before computing the Section 382 limitation.

FMV determination

The FMV used in the Section 382 limitation formula is the FMV of the loss corporation's outstanding stock immediately before the ownership change (IRC 382). In a negotiated stock acquisition, the purchase price is generally a reliable indicator of FMV for this purpose. In an IPO or secondary offering, the market price at the time of the triggering transaction is generally acceptable. In other contexts (a private placement, a recapitalization, or a large stock issuance without a market price reference), a formal valuation may be required. Hedge the FMV determination methodology to IRC 382 and applicable regulations, and obtain a defensible valuation in non-sale situations where the FMV is not established by an arm's-length transaction.

Unused limitation carryforward

If the loss corporation's taxable income in a post-change year is less than the annual Section 382 limitation, the unused portion of the limitation carries forward to the following year, increasing that year's limitation by the unused amount (IRC 382(b)(2)). This carryforward provision prevents permanent waste of the limitation in low-income years, but note that it does not accelerate the use of NOLs beyond the rate permitted by the annual limitation plus accumulated carryforwards. Hedge the carryforward mechanics to IRC 382(b)(2) and IRS.gov.

The value nullification and anti-stuffing rules (IRC 382(l)(1))

Two anti-stuffing provisions in IRC 382(l)(1) limit the FMV used to compute the Section 382 limitation in certain situations:

• Nonbusiness assets: if the loss corporation holds significant portfolio investments or other nonbusiness assets that represent more than one-third of its total FMV, the FMV used to compute the Section 382 limitation must be reduced to exclude those assets. This prevents acquirers from inflating the Section 382 limitation by injecting liquid investment assets into the loss corporation before the ownership change.
• Capital contributions within 2 years: contributions of cash or property to the loss corporation within the 2-year period before the ownership change may be disregarded in computing FMV for Section 382 purposes, if those contributions were made in anticipation of the ownership change. This rule similarly targets pre-change injections of value designed to increase the Section 382 limitation artificially.

Hedge both anti-stuffing provisions to IRC 382(l)(1) and applicable regulations before applying them in a specific transaction.

Section 4: The COBE Requirement -- Business Continuity or Zero Limitation

The rule: two years of business continuity or the limitation is zero

IRC 382(c) imposes a business continuity requirement as a condition for any Section 382 limitation to apply. If the loss corporation does not continue its historic business (or does not use a significant portion of its business assets in a business) for the 2-year period following the ownership change, the Section 382 limitation for every post-change taxable year is ZERO. A zero Section 382 limitation means the pre-change NOL carryforwards cannot offset any post-change taxable income -- the entire stock of NOLs is effectively extinguished as a useful tax attribute.

What constitutes continuing the business

The COBE standard under IRC 382(c) is similar in concept to the COBE requirement for tax-free reorganizations, but it is not identical. The loss corporation must either (1) continue conducting the same trade or business it conducted before the ownership change, or (2) use a significant portion of its assets in a business. The continuity standard does not require the business to be run in exactly the same manner, but a complete abandonment of the prior business and a pivot to an entirely different activity will not satisfy it. In practical M&A terms, if the acquirer retains the target's key operations, employees, and customers and continues the target's core business under new management, the COBE requirement is generally met. A complete shut-down and liquidation of the target's operations fails it. The specific factual analysis depends on the nature of the business and the post-acquisition plan. Hedge all COBE specifics to IRC 382(c) and Treas. Reg. 1.382-2(a).

Practical due diligence implication

In a stock acquisition where NOL value is part of the deal rationale, the buyer's post-acquisition operating plan must be analyzed against the COBE requirement before the NOL is priced into the transaction. If the buyer's plan is to integrate the target's operations into its own platform in a way that effectively discontinues the target's stand-alone business, the COBE analysis may eliminate the NOL value even if the Section 382 limitation would otherwise be substantial. Tax due diligence on a target with significant NOLs must include a COBE memo.

Section 5: NUBIG and NUBIL -- The Built-In Gain and Loss Adjustment

NUBIG: when the loss corporation has appreciated assets

If the loss corporation has a net unrealized built-in gain (NUBIG) at the time of the ownership change, meaning the aggregate FMV of its assets exceeds their aggregate adjusted tax basis (reduced by certain liabilities), the Section 382 limitation for each year during the 5-year "recognition period" following the ownership change is increased by the amount of "recognized built-in gains" in that year, subject to the total NUBIG ceiling (IRC 382(h)(1)(A)). This is favorable for the loss corporation: it allows more NOLs to be used in years when pre-change asset appreciation is recognized, because the recognized gain is treated as income that can be offset by the expanded limitation.

NUBIL: when the loss corporation has depreciated assets

If the loss corporation has a net unrealized built-in loss (NUBIL) at the time of the ownership change, meaning the aggregate adjusted tax basis of its assets exceeds their aggregate FMV, the recognized built-in losses during the 5-year recognition period are treated as if they were pre-change losses (IRC 382(h)(1)(B)). This is unfavorable: those built-in losses are not freely deductible in the post-change period; instead, they are subject to the Section 382 limitation as if they were NOL carryforwards from the pre-change period. The NUBIL rule prevents loss corporations from trafficking in pre-built-in-loss assets as a substitute for selling the NOLs themselves.

The 5-year recognition period

Built-in gains and built-in losses must be recognized within the 5-year period beginning on the ownership change date to be subject to the NUBIG or NUBIL rules (IRC 382(h)(7)(A)). Built-in gains or losses recognized after the 5-year recognition period are not subject to the NUBIG/NUBIL adjustment, regardless of the magnitude of the pre-change appreciation or depreciation.

The de minimis threshold

The NUBIG and NUBIL rules do not apply unless the net unrealized built-in gain or net unrealized built-in loss exceeds a de minimis threshold. Specifically, the NUBIG or NUBIL rules are triggered only if the net unrealized amount exceeds the lesser of 15% of the FMV of the loss corporation's assets or $10 million. If NUBIG or NUBIL falls below this threshold, the NUBIG/NUBIL rules do not apply. Hedge the specific threshold amounts to IRC 382(h)(3)(B) and IRS.gov; confirm current law before advising on whether the threshold is met in a specific ownership change.

Notice 2003-65: the two safe harbor computation methods

Notice 2003-65 provides two alternative safe harbor methods for computing NUBIG and NUBIL, as well as for identifying which items of income, gain, deduction, and loss constitute "recognized built-in gains" or "recognized built-in losses" during the recognition period:

• Section 1374 approach: applies rules similar to those used under IRC 1374 (the S-corp built-in gains tax) to identify built-in items. Under this approach, an item is a recognized built-in gain or loss if it arises from an asset held at the time of the ownership change and would have been recognized if the loss corporation had sold all of its assets immediately before the ownership change at FMV. The Section 1374 approach generally includes depreciation deductions attributable to pre-change depreciation in the built-in loss category.
• Section 338 approach: treats the ownership change as if it were an IRC 338 deemed asset acquisition, using hypothetical asset sale proceeds at FMV. Under this method, the adjusted grossed-up basis of the assets (as would be determined in an actual Section 338 election) provides the baseline for identifying built-in items. The Section 338 approach can produce materially different NUBIG and NUBIL figures than the Section 1374 approach, particularly for assets with significant accrued depreciation or complex tax attributes.

Practitioners must elect one method; the two cannot be mixed within a single ownership change computation. The two methods can produce significantly different results in terms of total NUBIG/NUBIL and the timing and character of recognized built-in items during the recognition period. Model both before selecting the method that produces the most favorable outcome for the client. Cite Notice 2003-65. Hedge all NUBIG/NUBIL computation mechanics to Notice 2003-65 and IRS.gov.

Section 6: Sections 383 and 384 -- Credits, Capital Losses, and Cross-Entity Limitations

Section 383: credits and capital loss carryforwards

IRC 383 extends the Section 382 limitation framework to tax attributes beyond NOL carryforwards. Specifically, Section 383 applies to:

• Net capital loss carryforwards of the loss corporation.
• Foreign tax credit carryforwards.
• General business credit carryforwards.
• Other excess credit carryforwards subject to the Section 383 regulations.

The credit carryforward limitation under Section 383 is the "tax equivalent" of the Section 382 limitation: the annual Section 382 limitation multiplied by the applicable corporate tax rate. Credits cannot be used beyond this cap in any post-change year. Because the credit limitation operates in tax-dollar terms rather than income-dollar terms (as with NOL carryforwards), the interaction of the Section 382 and Section 383 limitations requires careful coordination in any year when both NOL carryforwards and credit carryforwards are available. Cite IRC 383 and Treas. Reg. 1.383-1; hedge the credit limitation mechanics to Treas. Reg. 1.383-1.

Section 384: limiting cross-entity attribute trafficking

IRC 384 addresses a different but related avoidance strategy: using a loss corporation's pre-change NOLs or built-in losses to shelter the built-in gains of an acquired gain corporation. Specifically, if an acquiring corporation (which itself has pre-change NOLs or built-in losses) acquires a corporation with built-in gains, Section 384 limits the ability of the acquiring corporation to use its pre-change attributes against the acquired corporation's recognized built-in gains during the 5-year recognition period (IRC 384). Section 384 prevents the "stuffing" strategy: a loss corporation should not be able to acquire a gain corporation and immediately shelter the gain corporation's locked-in appreciation with the loss corporation's NOLs.

The interaction between Sections 382, 383, and 384 in complex M&A transactions can be extraordinarily intricate. In any transaction involving two or more corporations with significant tax attributes (NOLs, built-in gains, credit carryforwards, capital loss carryforwards), the combined attribute profile of both parties must be modeled before structuring the deal. Cite IRC 384; hedge all Section 384 specifics to IRC 384 and applicable regulations.

Section 7: M&A and Deal Structuring Considerations

Stock purchase versus asset purchase (or Section 338 election)

A stock purchase of a loss corporation triggers an ownership change under Section 382 and limits the rate at which the buyer can use the target's NOLs. The Section 382 limitation (FMV times LTTER) is the annual cap, and in many transactions that cap is modest relative to the face value of the NOL carryforward. The net present value of the restricted NOLs is substantially less than their face amount -- and may be further reduced if the loss corporation has no profitable operations generating taxable income against which the NOLs can be used each year.

The alternative is an asset purchase (or a deemed asset purchase via a Section 338(h)(10) or Section 336(e) election), which gives the buyer a stepped-up asset basis equal to FMV at the acquisition price. The stepped-up basis generates immediate depreciation and amortization deductions, which provide tax value in the years immediately following the acquisition without the Section 382 annual limitation constraint. The cost of the Section 338 election at the target level is recognition of built-in gain on all of the target's assets, taxable to the target's shareholders (or to the target itself, depending on the election structure). A Section 338(h)(10) election is not available for all acquisition structures; verify eligibility with the applicable IRC 338 and Treasury regulations. Where no IRC 338 guide is currently available on this site, consult IRC 338 and the applicable regulations directly.

The OBBBA factor: 100% QPP expensing tips the scales toward Section 338

The One Big Beautiful Budget Act (OBBBA) permanently restored 100% qualified production property (QPP) bonus expensing under IRC 168(n) and also extended 100% bonus depreciation under IRC 168(k). When a buyer steps up the target's asset basis through a Section 338(h)(10) election (or Section 336(e) election), tangible personal property, equipment, and qualifying real property components in that stepped-up basis are immediately deductible under OBBBA's 100% expensing provisions, generating deductions in the year of acquisition. Contrast this with inheriting Section 382-limited NOLs: those NOLs can only offset taxable income at the rate of FMV times LTTER per year, with no ability to accelerate the deductions.

In many post-OBBBA acquisition structures, the economic analysis favors a Section 338 asset step-up over a stock purchase with inherited Section 382-limited NOLs. The comparison is not always simple: it depends on the composition of the target's assets (the QPP-eligible portion of the stepped-up basis), the applicable corporate tax rate, the target's existing NOL face amount and remaining carryforward period, the current LTTER (hedge to IRS.gov), and the acquirer's projected taxable income profile over the NOL use period. Model both alternatives with the full attribute profile and asset schedules before committing to a deal structure. Hedge to enacted OBBBA and IRS.gov.

Seller's perspective: pricing the Section 382 limitation into the deal

From the seller's perspective, if the target company has significant NOL carryforwards, an ownership change triggered by the stock sale will limit the buyer's ability to use those NOLs. If the buyer knows the NOLs will be severely restricted by the Section 382 limitation, the buyer will not pay full face value for the NOL benefit in the purchase price. Sellers should understand the Section 382 limitation that applies to their loss corporation's NOL before entering negotiations, so they can present an accurate picture of the economic value of the NOL to a buyer under the limitation, rather than the face value of the carryforward.

NUBIG planning: triggering gains early in the recognition period

In a Section 382 ownership change transaction where the loss corporation has a large NUBIG, the increased Section 382 limitation available during the recognition period (due to recognized built-in gains) may create an incentive to dispose of appreciated assets earlier in the recognition period rather than later. The recognized built-in gain in a given year increases the Section 382 limitation for that year, allowing more NOLs to be used against the recognized gain. If appreciation is deferred past the 5-year recognition period, the benefit of the NUBIG adjustment is permanently lost. Careful modeling of the gain recognition timing, the NOL absorption schedule, and the after-tax outcome across all post-change years is required to evaluate whether early gain recognition during the recognition period is beneficial.

Bankruptcy: special rules under IRC 382(l)(5) and (l)(6)

Loss corporations in Title 11 bankruptcy reorganizations are subject to two special sets of rules under IRC 382 that may substantially modify or eliminate the normal Section 382 limitation:

• IRC 382(l)(5): if a bankruptcy reorganization satisfies the requirements of the (l)(5) exception (including that historic shareholders and qualifying creditors receive at least 50% of the stock of the reorganized corporation), the ownership change resulting from the reorganization does NOT trigger any Section 382 annual limitation. The loss corporation's NOLs are preserved without a Section 382 cap, but with a reduction for pre-bankruptcy interest deductions attributable to the cancellation of debt. This is the more favorable election. However, if the reorganized corporation undergoes a subsequent ownership change within 2 years of the bankruptcy reorganization, the NOLs are eliminated entirely.
• IRC 382(l)(6): if the (l)(5) exception is not elected (or the corporation does not qualify), the (l)(6) rule applies: the Section 382 limitation is computed using the FMV of the loss corporation after (not before) the ownership change, which reflects the reorganization value of the corporation post-cancellation of debt. The (l)(6) limitation is often higher than the standard limitation because the post-reorganization value includes the cancellation of debt. This is the fallback rule when (l)(5) is not elected or does not apply. The interaction between IRC 382(l)(5)/(l)(6) and the IRC 108 COD income exclusion rules is a central issue in bankruptcy tax planning; see the IRC 108 COD income and debt discharge guide on this site for the cancellation of debt income framework that accompanies bankruptcy reorganizations.

Hedge all bankruptcy-specific Section 382 mechanics to IRC 382(l)(5) and (l)(6) and applicable regulations. Bankruptcy tax practitioners should complete this analysis before applying the standard Section 382 framework to a Title 11 reorganization.

Section 8: Consolidated Group Considerations

Separate ownership change analyses for consolidated group members

When the loss corporation is a member of a consolidated group, the Section 382 ownership change analysis applies at both the group level and, in certain circumstances, at the level of individual group members. The consolidated Section 382 regulations (Treas. Reg. 1.1502-91 et seq.) provide detailed rules for how Section 382 applies within consolidated groups, including rules for identifying loss corporations in a consolidated context, applying the ownership change test to the consolidated group as a unit, and determining the Section 382 limitation for the group's consolidated NOLs. The interaction of the consolidated return regulations and Section 382 is one of the most technically demanding areas of corporate tax; hedge all consolidated group mechanics to Treas. Reg. 1.1502-91 et seq. Do not apply the standard stand-alone Section 382 analysis to a consolidated group member without first reviewing the consolidated return regulations.

SRLY rules: a parallel limitation

The "separate return limitation year" (SRLY) rules under Treas. Reg. 1.1502-21(c) impose a separate limitation on the use of a consolidated group member's pre-affiliation losses (losses incurred when the member was filing separately or in a different consolidated group) against the group's consolidated taxable income. In certain circumstances, the SRLY limitation and the Section 382 limitation overlap: when an ownership change of a subsidiary that is also the member whose SRLY losses are at issue occurs, a special rule (sometimes called the "SRLY/382 overlap rule") may cause the Section 382 limitation to apply in place of the SRLY limitation, or vice versa. Hedge all SRLY mechanics and the SRLY/382 overlap analysis to Treas. Reg. 1.1502-21(c) and the consolidated Section 382 regulations (Treas. Reg. 1.1502-91 et seq.). The SRLY analysis is a threshold issue in any acquisition of a new group member with prior-period losses.

Frequently Asked Questions

Related Practitioner Guides

• Net Operating Loss Practitioner Guide -- NOL carryforward mechanics, the 80% taxable income limitation, Form 1139 and Form 1045 refund procedures, and the interaction with the Section 382 annual cap.
• IRC 368 Tax-Free Reorganization Types A, B, C, D, G Practitioner Guide -- a tax-free reorganization under IRC 368 can trigger an ownership change under IRC 382 even though the transaction itself is nonrecognition at the corporate level; practitioners must run the IRC 382 ownership change test on every IRC 368 reorganization involving a loss corporation and compute the applicable annual limitation before the deal closes; the IRC 382(l)(5) and (l)(6) bankruptcy exceptions apply specifically to Type G reorganizations.
• IRC 1374 Built-In Gains Tax: C-Corp to S-Corp Conversion Practitioner Guide -- the parallel built-in gains regime applicable to S-corps that converted from C-corp status; the 5-year recognition period, NUBIG, installment sale traps, and NOL offsets under IRC 1374.
• IRC 108 COD Income and Debt Discharge Practitioner Guide -- cancellation of debt income, the Form 982 insolvency and bankruptcy exclusions, and the attribute reduction rules that operate alongside IRC 382(l)(5) and (l)(6) in bankruptcy reorganizations.
• Corporate Alternative Minimum Tax and Form 4626 Practitioner Guide -- the CAMT AFSI computation and the interaction between Section 382 NOL limitations and the CAMT NOL adjustment for large corporations subject to both regimes.
• IRC 338 deemed asset sale 338(h)(10) 336(e) OBBBA bonus depreciation M&A guide -- the alternative to inheriting Section 382-limited NOLs in a stock purchase; covers the 338(g), 338(h)(10), and Section 336(e) elections, the IRC 1060 ADSP allocation, and the OBBBA 100% QPP bonus depreciation step-up that frequently outperforms Section 382-limited NOL inheritance.
• IRC 355 corporate spin-off split-off active business device test anti-Morris Trust guide -- the tax-free corporate separation regime; post-spin-off, the controlled corporation's ownership may change and Section 382 may apply to its NOL carryforwards, making the divisive reorganization and the ownership-change limitation analysis interdependent.
• IRC 332/336/337 Corporate Complete Liquidation and Gain Recognition Guide -- the decision to pursue an IRC 338 step-up versus a tax-free IRC 332 liquidation directly determines whether Section 382 NOL limitations survive; a 338 deemed asset sale eliminates old T's NOLs while an IRC 332 tax-free liquidation causes the subsidiary's NOLs to carry over to the parent subject to Section 382 and Section 384; modelling the IRC 332 liquidation mechanics alongside the Section 382 annual limitation is required for any acquisition where target NOLs have economic value.
• IRC 304 Related Corporation Redemption Practitioner Guide -- a stock acquisition by a related corporation under IRC 304 can trigger an ownership change under IRC 382 when the transaction causes one or more 5-percent shareholders to increase their aggregate ownership of the loss corporation by more than 50 percentage points; practitioners who advise on multi-entity ownership transfers must run both the IRC 304 recharacterization analysis and the IRC 382 ownership-change test simultaneously, because the deemed redemption structure under IRC 304 may create the very ownership shift that triggers an IRC 382 limitation on the loss corporation's NOL carryforwards.
• IRC 280G Golden Parachute Payments and IRC 4999 Excise Tax Guide -- the same ownership change event that triggers the IRC 382 NOL limitation often simultaneously triggers the IRC 280G golden parachute analysis; when more than 50% of a corporation's stock changes hands in a three-year period, practitioners must run both the IRC 382 ownership change test and the IRC 280G change-of-ownership test, which use related but distinct definitions of control; deal teams frequently run both analyses in parallel as part of M&A tax due diligence.