On Oct 30, 5:37*am, "removeps-gro...[at]yahoo.com" <removeps-
gro...[at]yahoo.com> wrote:
- quote -


If the stock is privately held, you get an appraisal. Accounting and
appraisal firms do this all the time.

Katie in San Diego

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On Oct 25, 2:37 pm, Katie <katiej_1...[at]yahoo.com> wrote:

- quote -

How does one determine the value of the old corporation? Is it just
the price per share times the number of shares? And what if the
company is private? Or is it the sum of all assets on the balance
sheet (which will probably be less than the multiplication above)?
The text from section 382 suggests that it is the share price times
number of shares, but what if the company is private? If some
accountants try to figure out the value of the stock, how do they do
it?

<Quote
(e) Value of old loss corporation
For purposes of this section -
(1) In general
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.

</Quote
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On Oct 23, 6:57*pm, "Will" <westes-...[at]noemail.nospam> wrote:
- quote -


The current version of IRC Sec. 382, which includes the limitation on
NOL carryforwards to which you refer, dates back to the Tax Reform Act
of 1986. It has been amended several times since, but the basics are
the same as the '86 Act version. To understand what happens to NOL
carryforwards when the ownership of a corporation changes, you really
have to read Secs. 382 and 383 and the regulations under those
sections.

Here's a short version: A corporation that has unused NOLs is an "old
loss corporation." If it undergoes a change of ownership (see below),
it becomes a "new loss corporation." The new loss corporation may be
the same entity as the old loss corporation, or it may be a different
entity that has acquired the old loss corporation by purchasing its
stock and liquidating it, by merger, or by some other form of
reorganization. So it really doesn't matter whether the buyer
purchases the target's stock and continues to operate it as a
subsidiary, or merges it into an existing corporation or a Newco.
It's the change of ownership of the target's stock that creates the
limitation.

A change of ownership occurs if there is any change in the stock
ownership of the old loss corporation (target), and if that change
increases or decreases the percentage owned by any person who owns
more than 5% of the stock either before or after the change.

If there is a change of ownership, the new loss corporation can
utilize the NOLs of the old loss corporation, subject to this
limitation: The maximum amount of NOL that can be utilized in any
year is calculated by multiplying the value of the old loss
corporation immediately before the change of ownership by the federal
long-term tax-exempt rate that was in effect at the date of change.
The idea is to limit annual utilization of the loss to the income the
old loss corporation would have earned if it had sold all its assets
and invested the proceeds in long-term tax-exempt securities.

The long-term tax-exempt rate is published monthly by the IRS. The
rate for November 2008, for example, is 4.94%. So, for example, if
the value of the old loss corporation at the date of change is
$100,000, and the change of ownership occurs in November 2008, the
maximum NOL amount that can be utilized by the new loss corporation in
any year is $4,940. If the new loss corporation does not have enough
income in a year to absorb the maximum amount, the excess is carried
over and can be utilized in following years.

In addition to the dollar limitation, the new loss corporation must
continue the business enterprise of the old loss corporation for at
least 2 years after the change date. If not, the NOL utilization
amount for any year is zero.

There are many more complexities to these rules, particularly if the
old loss corporation has built-in losses (i.e., property that is worth
less than its tax basis) or built-in gains. But knowing how to
calculate the maximum allowable annual deduction gives you a quick and
dirty method to evaluate a proposed transaction. If you are really
going to do something, you should be sure to consult a competent tax
advisor who is thoroughly conversant with Subchapter C of the IRC
before you make any commitments.

There were limitations on NOL utilization after change of ownership
before 1986; however, they were less restrictive than the current
rules.

Katie in San Diego

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On Oct 24, 12:33*pm, "removeps-gro...[at]yahoo.com" <removeps-
gro...[at]yahoo.com> wrote:

- quote -


Section 708 of The Emergency Economic Stabilization Act of 2008 (HR
1424; Public Law 110-343) amended IRC Section 172 to add provisions
for NOLs "attributable to federally declared disasters."

Interested people are invited to visit http://thomas.loc.gov and do
their own research.

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"Will" <westes-usc[at]noemail.nospam> wrote in message
news:SdWdnVtYiMc4bZ3UnZ2dnUVZ_jmdnZ2d[at]giganews.com...
- quote -

I think that the treatment may have been altered by some recent legislation
signed into law this year. Therefore, be careful with regard to answers you
receive on this topic.

In California, there has also been a change in state law affecting NOLs.

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On Oct 23, 6:57 pm, "Will" <westes-...[at]noemail.nospam> wrote:

- quote -

This topic is outside of my grade, but I did find

<Quote source="http://www4.law.cornell.edu/uscode/uscode26/
usc_sec_26_00000172----000-.html"
(E) Excess interest loss
(i) In general If—
(I) there is a corporate equity reduction transaction, and
(II) an applicable corporation has a corporate equity reduction
interest loss for any loss limitation year ending after August 2,
1989,
then the corporate equity reduction interest loss shall be a net
operating loss carryback and carryover to the taxable years described
in subparagraph (A), except that such loss shall not be carried back
to a taxable year preceding the taxable year in which the corporate
equity reduction transaction occurs.
(ii) Loss limitation year For purposes of clause (i) and subsection
(h), the term “loss limitation year” means, with respect to any
corporate equity reduction transaction, the taxable year in which such
transaction occurs and each of the 2 succeeding taxable years.
(iii) Applicable corporation For purposes of clause (i), the term
“applicable corporation” means—
(I) a C corporation which acquires stock, or the stock of which is
acquired in a major stock acquisition,
(II) a C corporation making distributions with respect to, or
redeeming, its stock in connection with an excess distribution, or
(III) a C corporation which is a successor of a corporation described
in subclause (I) or (II).
(iv) Other definitions
For definitions of terms used in this subparagraph, see subsection
(h).

</Quote
If the parent C corp acquires a company with a large NOL and that NOL
is no longer allowed, then the parent C corp's equity would be
reduced, and the reduction in equity would be an NOL for the parent C
corp. But the word "interest" in " corporate equity reduction
interest loss" gives me pause, as it seems to mean that only the
interest on the loss is deductible (whatever that means). Later on in
the same page they define what a major transaction is (can be 50% or
more of the corporation).

The following URL has more discussion of acquisitions. There is a
section on net operating loss carryovers. It's a bit complicated. I
don't have time to figure it out right now.

http://www4.law.cornell.edu/uscode/u...1----000-.html

But do seek highly paid professional advice before deciding on
anything.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I would like some help understanding any major limitations that are placed
on an acquiring C Corporation taking over another C Corporation that has
large net operating loss (NOL) carryforwards.

I'm looking at a C corporation that is a good candidate for a takeover.
The company has billions of dollars of NOL carryforwards that it built up
during the heyday of the 1990s. The company is now profitable and uses up
that NOL at a trickle. As I understand it, once upon a time a C
Corporation could take over such a company and then apply its NOL
carryforwards all at once towards its own earnings. Apparently sometime in
the 1980s the IRS decided it was time to turn another part of the tax code
into a false promise and put limitations on such usage. Could someone
summarize how much of the NOL carryforward the acquirer can use each year on
its own income?

In trying to understand this situation some more, could the acquirer better
utilize the NOL carryforward by leaving the company it is purchasing intact
and running as a wholly owned subsidiary? They could extract cost out of
the acquired company by moving over sales and engineering personnel to the
parent company, and then allow the wholly owned child to thus become more
profitable and use up its NOL carryforwards at a faster pace. Is such a
scenario feasible, and are there additional limitations on the NOL
carryforward usage for such cases?

--
Will

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >