PART V—CARRYOVERS
Editorial Notes
Amendments
1987—
1986—
1984—
1981—
1977—
1971—
§381. Carryovers in certain corporate acquisitions
(a) General rule
In the case of the acquisition of assets of a corporation by another corporation—
(1) in a distribution to such other corporation to which section 332 (relating to liquidations of subsidiaries) applies; or
(2) in a transfer to which section 361 (relating to nonrecognition of gain or loss to corporations) applies, but only if the transfer is in connection with a reorganization described in subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1),
the acquiring corporation shall succeed to and take into account, as of the close of the day of distribution or transfer, the items described in subsection (c) of the distributor or transferor corporation, subject to the conditions and limitations specified in subsections (b) and (c). For purposes of the preceding sentence, a reorganization shall be treated as meeting the requirements of subparagraph (D) or (G) of section 368(a)(1) only if the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met.
(b) Operating rules
Except in the case of an acquisition in connection with a reorganization described in subparagraph (F) of section 368(a)(1)—
(1) The taxable year of the distributor or transferor corporation shall end on the date of distribution or transfer.
(2) For purposes of this section, the date of distribution or transfer shall be the day on which the distribution or transfer is completed; except that, under regulations prescribed by the Secretary, the date when substantially all of the property has been distributed or transferred may be used if the distributor or transferor corporation ceases all operations, other than liquidating activities, after such date.
(3) The corporation acquiring property in a distribution or transfer described in subsection (a) shall not be entitled to carry back a net operating loss or a net capital loss for a taxable year ending after the date of distribution or transfer to a taxable year of the distributor or transferor corporation.
(c) Items of the distributor or transferor corporation
The items referred to in subsection (a) are:
(1) Net operating loss carryovers
The net operating loss carryovers determined under section 172, subject to the following conditions and limitations:
(A) The taxable year of the acquiring corporation to which the net operating loss carryovers of the distributor or transferor corporation are first carried shall be the first taxable year ending after the date of distribution or transfer.
(B) In determining the net operating loss deduction, the portion of such deduction attributable to the net operating loss carryovers of the distributor or transferor corporation to the first taxable year of the acquiring corporation ending after the date of distribution or transfer shall be limited to an amount which bears the same ratio to the taxable income (determined without regard to a net operating loss deduction) of the acquiring corporation in such taxable year as the number of days in the taxable year after the date of distribution or transfer bears to the total number of days in the taxable year.
(C) For the purpose of determining the amount of the net operating loss carryovers under section 172(b)(2), a net operating loss for a taxable year (hereinafter in this subparagraph referred to as the "loss year") of a distributor or transferor corporation which ends on or before the end of a loss year of the acquiring corporation shall be considered to be a net operating loss for a year prior to such loss year of the acquiring corporation. For the same purpose, the taxable income for a "prior taxable year" (as the term is used in section 172(b)(2)) shall be computed as provided in such section; except that, if the date of distribution or transfer is on a day other than the last day of a taxable year of the acquiring corporation—
(i) such taxable year shall (for the purpose of this subparagraph only) be considered to be 2 taxable years (hereinafter in this subparagraph referred to as the "pre-acquisition part year" and the "post-acquisition part year");
(ii) the pre-acquisition part year shall begin on the same day as such taxable year begins and shall end on the date of distribution or transfer;
(iii) the post-acquisition part year shall begin on the day following the date of distribution or transfer and shall end on the same day as the end of such taxable year;
(iv) the taxable income for such taxable year (computed with the modifications specified in section 172(b)(2)(A) but without a net operating loss deduction) shall be divided between the pre-acquisition part year and the post-acquisition part year in proportion to the number of days in each;
(v) the net operating loss deduction for the pre-acquisition part year shall be determined as provided in section 172(b)(2)(B),1 but without regard to a net operating loss year of the distributor or transferor corporation; and
(vi) the net operating loss deduction for the post-acquisition part year shall be determined as provided in section 172(b)(2)(B).1
(2) Earnings and profits
In the case of a distribution or transfer described in subsection (a)—
(A) the earnings and profits or deficit in earnings and profits, as the case may be, of the distributor or transferor corporation shall, subject to subparagraph (B), be deemed to have been received or incurred by the acquiring corporation as of the close of the date of the distribution or transfer; and
(B) a deficit in earnings and profits of the distributor, transferor, or acquiring corporation shall be used only to offset earnings and profits accumulated after the date of transfer. For this purpose, the earnings and profits for the taxable year of the acquiring corporation in which the distribution or transfer occurs shall be deemed to have been accumulated after such distribution or transfer in an amount which bears the same ratio to the undistributed earnings and profits of the acquiring corporation for such taxable year (computed without regard to any earnings and profits received from the distributor or transferor corporation, as described in subparagraph (A) of this paragraph) as the number of days in the taxable year after the date of distribution or transfer bears to the total number of days in the taxable year.
(3) Capital loss carryover
The capital loss carryover determined under section 1212, subject to the following conditions and limitations:
(A) The taxable year of the acquiring corporation to which the capital loss carryover of the distributor or transferor corporation is first carried shall be the first taxable year ending after the date of distribution or transfer.
(B) The capital loss carryover shall be a short-term capital loss in the taxable year determined under subparagraph (A) but shall be limited to an amount which bears the same ratio to the capital gain net income (determined without regard to a short-term capital loss attributable to capital loss carryover), if any, of the acquiring corporation in such taxable year as the number of days in the taxable year after the date of distribution or transfer bears to the total number of days in the taxable year.
(C) For purposes of determining the amount of such capital loss carryover to taxable years following the taxable year determined under subparagraph (A), the capital gain net income in the taxable year determined under subparagraph (A) shall be considered to be an amount equal to the amount determined under subparagraph (B).
(4) Method of accounting
The acquiring corporation shall use the method of accounting used by the distributor or transferor corporation on the date of distribution or transfer unless different methods were used by several distributor or transferor corporations or by a distributor or transferor corporation and the acquiring corporation. If different methods were used, the acquiring corporation shall use the method or combination of methods of computing taxable income adopted pursuant to regulations prescribed by the Secretary.
(5) Inventories
In any case in which inventories are received by the acquiring corporation, such inventories shall be taken by such corporation (in determining its income) on the same basis on which such inventories were taken by the distributor or transferor corporation, unless different methods were used by several distributor or transferor corporations or by a distributor or transferor corporation and the acquiring corporation. If different methods were used, the acquiring corporation shall use the method or combination of methods of taking inventory adopted pursuant to regulations prescribed by the Secretary.
(6) Method of computing depreciation allowance
The acquiring corporation shall be treated as the distributor or transferor corporation for purposes of computing the depreciation allowance under sections 167 and 168 on property acquired in a distribution or transfer with respect to so much of the basis in the hands of the acquiring corporation as does not exceed the adjusted basis in the hands of the distributor or transferor corporation.
[(7) Repealed. June 15, 1955, ch. 143, §2(1), 69 Stat. 134 ]
(8) Installment method
If the acquiring corporation acquires installment obligations (the income from which the distributor or transferor corporation reports on the installment basis under section 453) the acquiring corporation shall, for purposes of section 453, be treated as if it were the distributor or transferor corporation.
(9) Amortization of bond discount or premium
If the acquiring corporation assumes liability for bonds of the distributor or transferor corporation issued at a discount or premium, the acquiring corporation shall be treated as the distributor or transferor corporation after the date of distribution or transfer for purposes of determining the amount of amortization allowable or includible with respect to such discount or premium.
(10) Treatment of certain mining development and exploration expenses of distributor or transferor corporation
The acquiring corporation shall be entitled to deduct, as if it were the distributor or transferor corporation, expenses deferred under section 616 (relating to certain development expenditures) if the distributor or transferor corporation has so elected.
(11) Contributions to pension plans, employees' annuity plans, and stock bonus and profit-sharing plans
The acquiring corporation shall be considered to be the distributor or transferor corporation after the date of distribution or transfer for the purpose of determining the amounts deductible under section 404 with respect to pension plans, employees' annuity plans, and stock bonus and profit-sharing plans.
(12) Recovery of tax benefit items
If the acquiring corporation is entitled to the recovery of any amounts previously deducted by (or allowable as credits to) the distributor or transferor corporation, the acquiring corporation shall succeed to the treatment under section 111 which would apply to such amounts in the hands of the distributor or transferor corporation.
(13) Involuntary conversions under section 1033
The acquiring corporation shall be treated as the distributor or transferor corporation after the date of distribution or transfer for purposes of applying section 1033.
(14) Dividend carryover to personal holding company
The dividend carryover (described in section 564) to taxable years ending after the date of distribution or transfer.
[(15) Repealed. Pub. L. 101–508, title XI, §11801(c)(10)(A), Nov. 5, 1990, 104 Stat. 1388–526 ]
(16) Certain obligations of distributor or transferor corporation
If the acquiring corporation—
(A) assumes an obligation of the distributor or transferor corporation which, after the date of the distribution or transfer, gives rise to a liability, and
(B) such liability, if paid or accrued by the distributor or transferor corporation, would have been deductible in computing its taxable income,
the acquiring corporation shall be entitled to deduct such items when paid or accrued, as the case may be, as if such corporation were the distributor or transferor corporation. This paragraph shall not apply if such obligations are reflected in the amount of stock, securities, or property transferred by the acquiring corporation to the transferor corporation for the property of the transferor corporation.
(17) Deficiency dividend of personal holding company
If the acquiring corporation pays a deficiency dividend (as defined in section 547(d)) with respect to the distributor or transferor corporation, such distributor or transferor corporation shall, with respect to such payments, be entitled to the deficiency dividend deduction provided in section 547.
(18) Percentage depletion on extraction of ores or minerals from the waste or residue of prior mining
The acquiring corporation shall be considered to be the distributor or transferor corporation for the purpose of determining the applicability of section 613(c)(3) (relating to extraction of ores or minerals from the ground).
(19) Charitable contributions in excess of prior years' limitations
Contributions made in the taxable year ending on the date of distribution or transfer and the 4 prior taxable years by the distributor or transferor corporation in excess of the amount deductible under section 170(b)(2) for such taxable years shall be deductible by the acquiring corporation for its taxable years which begin after the date of distribution or transfer, subject to the limitations imposed in section 170(b)(2). In applying the preceding sentence, each taxable year of the distributor or transferor corporation beginning on or before the date of distribution or transfer shall be treated as a prior taxable year with reference to the acquiring corporation's taxable years beginning after such date.
(20) Carryforward of disallowed business interest
The carryover of disallowed business interest described in section 163(j)(2) to taxable years ending after the date of distribution or transfer.
[(21) Repealed. Pub. L. 94–455, title XIX, §1901(b)(16), Oct. 4, 1976, 90 Stat. 1796 ]
(22) Successor insurance company
If the acquiring corporation is an insurance company taxable under subchapter L, there shall be taken into account (to the extent proper to carry out the purposes of this section and of subchapter L, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of subchapter L in respect of the distributor or transferor corporation.
(23) Deficiency dividend of regulated investment company or real estate investment trust
If the acquiring corporation pays a deficiency dividend (as defined in section 860(f)) with respect to the distributor or transferor corporation, such distributor or transferor corporation shall, with respect to such payments, be entitled to the deficiency dividend deduction provided in section 860.
(24) Credit under section 38
The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and section 38, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of section 38 in respect of the distributor or transferor corporation.
(25) Credit under section 53
The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and section 53, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of section 53 in respect of the distributor or transferor corporation.
(26) Enterprise zone provisions
The acquiring corporation shall take into account (to the extent proper to carry out the purposes of this section and subchapter U, and under such regulations as may be prescribed by the Secretary) the items required to be taken into account for purposes of subchapter U in respect of the distributor or transferor corporation.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 172(b)(2)(B), referred to in subsec. (c)(1)(C)(v), (vi), was amended by
Amendments
2018—Subsec. (c)(16).
2017—Subsec. (c)(20).
Subsec. (d).
1996—Subsec. (c)(26), (27).
1993—Subsec. (c)(26).
1990—Subsec. (c)(6).
Subsec. (c)(15).
Subsec. (c)(24) to (26).
1989—Subsec. (c)(26), (27).
1988—Subsec. (c)(24).
1987—Subsec. (c)(8).
1986—Subsec. (c)(10).
Subsec. (c)(12).
Subsec. (c)(25), (26).
Subsec. (c)(27).
1984—Subsec. (c)(23).
Subsec. (c)(24).
Subsec. (c)(25).
Subsec. (c)(26).
Subsec. (c)(27).
Subsec. (c)(28), (29).
Subsec. (c)(30).
Subsec. (d).
1983—Subsec. (c)(28), (29).
Subsec. (c)(30).
1982—Subsec. (a)(1).
1981—Subsec. (c)(28).
Subsec. (c)(29).
1980—Subsec. (a).
Subsec. (a)(2).
Subsec. (c)(8).
Subsec. (c)(27).
1978—Subsec. (c)(25).
1977—Subsec. (c)(26).
1976—Subsec. (b)(2).
Subsec. (c)(3).
Subsec. (c)(4), (5).
Subsec. (c)(10).
Subsec. (c)(15).
Subsec. (c)(20).
Subsec. (c)(21).
Subsec. (c)(22) to (24).
Subsec. (c)(25).
1971—Subsec. (c)(24).
1969—Subsec. (b)(3).
Subsec. (c)(6).
Subsec. (c)(10).
1968—Subsec. (c)(22).
1964—Subsec. (c)(15).
Subsec. (c)(19).
1962—Subsec. (c)(23).
1959—Subsec. (c)(22).
Subsec. (d).
1958—Subsec. (c)(21).
1956—Subsec. (c)(20). Act Jan. 28, 1956 added par. (20).
1955—Subsec. (c)(7). Act June 15, 1955, repealed par. (7) which related to carryover of prepaid income.
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13301 of
Effective Date of 1990 Amendment
Amendment by section 11812(b)(6) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 231(d)(3)(F) of
Amendment by section 411(b)(2)(C)(iii) of
Amendment by section 701(e)(1) of
Amendment by section 1812(a)(3) of
Effective Date of 1984 Amendment
Amendment by section 211(b)(4) of
Amendment by section 474(r)(11) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 208 of
Amendment by section 221(b)(1)(B) of
Amendment by section 331(d)(1)(B) of
Effective Date of 1980 Amendments
Amendment by
For effective date of amendment by
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
For effective date of amendment by section 1601(e) of
Amendment by section 1901(a)(54), (b)(16), (17), (21)(B), (33)(N) of
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Amendment by section 504(c)(2) of
Amendment by section 512(c) of
Amendment by section 521(f) of
Effective Date of 1968 Amendment
Amendment by
Effective Date of 1964 Amendment
Amendment by section 225(i)(3) of
Amendment by section 209(d)(2) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1959 Amendment
Effective Date of 1958 Amendment
For effective date of amendment by
Effective Date of 1956 Amendment
Act Jan. 28, 1956, ch. 15, §2,
Effective Date of 1955 Amendment
Act June 15, 1955, ch. 143, §3,
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by
Act June 15, 1955, ch. 143, §4,
"(a)
"(1) the amount of any tax required to be paid for any taxable year ending on or before the date of the enactment of this Act [June 15, 1955] is increased by reason of the enactment of this Act [amending this section and repealing sections 452 and 462], and
"(2) the last date prescribed for payment of such tax (or any installment thereof) is before December 15, 1955, then the taxpayer shall, on or before December 15, 1955, file a statement which shows the increase in the amount of such tax required to be paid by reason of the enactment of this Act.
"(b)
"(1)
"(2)
"(3)
"(c)
"(1)
"(2)
"(3)
"(A) the taxpayer is required to make a payment (or an additional payment) to another person by reason of the enactment of this Act, and
"(B) the Internal Revenue Code of 1986 [this title] prescribes a period, which expires after the close of the taxable year, within which the taxpayer must make such payment (or additional payment) if the amount thereof is to be taken into account (as a deduction or otherwise) in computing taxable income for such taxable year,
then, subject to such regulations as the Secretary of the Treasury or his delegate may prescribe, if such payment (or additional payment) is made on or before December 15, 1955, it shall be treated as having been made within the period prescribed by such Code.
"(4)
"(5)
"(6)
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(e)(1) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 See References in Text note below.
§382. Limitation on net operating loss carryforwards and certain built-in losses following ownership change
(a) General rule
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.
(b) Section 382 limitation
For purposes of this section—
(1) In general
Except as otherwise provided in this section, the section 382 limitation for any post-change year is an amount equal to—
(A) the value of the old loss corporation, multiplied by
(B) the long-term tax-exempt rate.
(2) Carryforward of unused limitation
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.
(3) Special rule for post-change year which includes change date
In the case of any post-change year which includes the change date—
(A) Limitation does not apply to taxable income before change
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.
(B) Limitation for period after change
For purposes of applying the limitation of subsection (a) to the remainder of the taxable income for such year, the section 382 limitation shall be an amount which bears the same ratio to such limitation (determined without regard to this paragraph) as—
(i) the number of days in such year after the change date, bears to
(ii) the total number of days in such year.
(c) Carryforwards disallowed if continuity of business requirements not met
(1) In general
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.
(2) Exception for certain gains
The section 382 limitation for any post-change year shall not be less than the sum of—
(A) any increase in such limitation under—
(i) subsection (h)(1)(A) for recognized built-in gains for such year, and
(ii) subsection (h)(1)(C) for gain recognized by reason of an election under section 338, plus
(B) any increase in such limitation under subsection (b)(2) for amounts described in subparagraph (A) which are carried forward to such year.
(d) Pre-change loss and post-change year
For purposes of this section—
(1) Pre-change loss
The term "pre-change loss" means—
(A) 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
(B) 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.
Except as provided in subsection (h)(5) and in regulations, the net operating loss shall, for purposes of subparagraph (B), be allocated ratably to each day in the year.
(2) Post-change year
The term "post-change year" means any taxable year ending after the change date.
(3) Application to carryforward of disallowed interest
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).
(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.
(2) Special rule in the case of redemption or other corporate contraction
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.
(3) Treatment of foreign corporations
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.
(f) Long-term tax-exempt rate
For purposes of this section—
(1) In general
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.
(2) Adjusted Federal long-term rate
For purposes of paragraph (1), the term "adjusted Federal long-term rate" means the Federal long-term rate determined under section 1274(d), except that—
(A) paragraphs (2) and (3) thereof shall not apply, and
(B) such rate shall be properly adjusted for differences between rates on long-term taxable and tax-exempt obligations.
(g) Ownership change
For purposes of this section—
(1) In general
There is an ownership change if, immediately after any owner shift involving a 5-percent shareholder or any equity structure shift—
(A) 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
(B) the lowest percentage of stock of the loss corporation (or any predecessor corporation) owned by such shareholders at any time during the testing period.
(2) Owner shift involving 5-percent shareholder
There is an owner shift involving a 5-percent shareholder if—
(A) there is any change in the respective ownership of stock of a corporation, and
(B) 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.
(3) Equity structure shift defined
(A) In general
The term "equity structure shift" means any reorganization (within the meaning of section 368). Such term shall not include—
(i) any reorganization described in subparagraph (D) or (G) of section 368(a)(1) unless the requirements of section 354(b)(1) are met, and
(ii) any reorganization described in subparagraph (F) of section 368(a)(1).
(B) Taxable reorganization-type transactions, etc.
To the extent provided in regulations, the term "equity structure shift" includes taxable reorganization-type transactions, public offerings, and similar transactions.
(4) Special rules for application of subsection
(A) Treatment of less than 5-percent shareholders
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.
(B) Coordination with equity structure shifts
For purposes of determining whether an equity structure shift (or subsequent transaction) is an ownership change—
(i) Less than 5-percent shareholders
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.
(ii) Acquisitions of stock
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.
(C) Coordination with other owner shifts
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.
(D) Treatment of worthless stock
If any stock held by a 50-percent shareholder is treated by such shareholder as becoming worthless during any taxable year of such shareholder and such stock is held by such shareholder as of the close of such taxable year, for purposes of determining whether an ownership change occurs after the close of such taxable year, such shareholder—
(i) shall be treated as having acquired such stock on the 1st day of his 1st succeeding taxable year, and
(ii) shall not be treated as having owned such stock during any prior period.
For purposes of the preceding sentence, the term "50-percent shareholder" means any person owning 50 percent or more of the stock of the corporation at any time during the 3-year period ending on the last day of the taxable year with respect to which the stock was so treated.
(h) Special rules for built-in gains and losses and section 338 gains
For purposes of this section—
(1) In general
(A) Net unrealized built-in gain
(i) In general
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.
(ii) Limitation
The increase under clause (i) for any recognition period taxable year shall not exceed—
(I) the net unrealized built-in gain, reduced by
(II) recognized built-in gains for prior years ending in the recognition period.
(B) Net unrealized built-in loss
(i) In general
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.
(ii) Limitation
Clause (i) shall apply to recognized built-in losses for any recognition period taxable year only to the extent such losses do not exceed—
(I) the net unrealized built-in loss, reduced by
(II) recognized built-in losses for prior taxable years ending in the recognition period.
(C) Special rules for certain section 338 gains
If an election under section 338 is made in connection with an ownership change and the net unrealized built-in gain is zero by reason of paragraph (3)(B), then, with respect to such change, the section 382 limitation for the post-change year in which gain is recognized by reason of such election shall be increased by the lesser of—
(i) the recognized built-in gains by reason of such election, or
(ii) the net unrealized built-in gain (determined without regard to paragraph (3)(B)).
(2) Recognized built-in gain and loss
(A) Recognized built-in gain
The term "recognized built-in gain" means any gain recognized during the recognition period on the disposition of any asset to the extent the new loss corporation establishes that—
(i) such asset was held by the old loss corporation immediately before the change date, and
(ii) such gain does not exceed the excess of—
(I) the fair market value of such asset on the change date, over
(II) the adjusted basis of such asset on such date.
(B) Recognized built-in loss
The term "recognized built-in loss" means any loss recognized during the recognition period on the disposition of any asset except to the extent the new loss corporation establishes that—
(i) such asset was not held by the old loss corporation immediately before the change date, or
(ii) such loss exceeds the excess of—
(I) the adjusted basis of such asset on the change date, over
(II) the fair market value of such asset on such date.
Such term includes any amount allowable as depreciation, amortization, or depletion for any period within the recognition period except to the extent the new loss corporation establishes that the amount so allowable is not attributable to the excess described in clause (ii).
(3) Net unrealized built-in gain and loss defined
(A) Net unrealized built-in gain and loss
(i) In general
The terms "net unrealized built-in gain" and "net unrealized built-in loss" mean, with respect to any old loss corporation, the amount by which—
(I) the fair market value of the assets of such corporation immediately before an ownership change is more or less, respectively, than
(II) the aggregate adjusted basis of such assets at such time.
(ii) Special rule for redemptions or other corporate contractions
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.
(B) Threshold requirement
(i) In general
If the amount of the net unrealized built-in gain or net unrealized built-in loss (determined without regard to this subparagraph) of any old loss corporation is not greater than the lesser of—
(I) 15 percent of the amount determined for purposes of subparagraph (A)(i)(I), or
(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in loss shall be zero.
(ii) Cash and cash items not taken into account
In computing any net unrealized built-in gain or net unrealized built-in loss under clause (i), except as provided in regulations, there shall not be taken into account—
(I) any cash or cash item, or
(II) any marketable security which has a value which does not substantially differ from adjusted basis.
(4) Disallowed loss allowed as a carryforward
If a deduction for any portion of a recognized built-in loss is disallowed for any post-change year, such portion—
(A) 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
(B) shall be subject to limitation under this section in the same manner as a pre-change loss.
(5) Special rules for post-change year which includes change date
For purposes of subsection (b)(3)—
(A) 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
(B) 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.
(6) Treatment of certain built-in items
(A) Income items
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.
(B) Deduction items
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.
(C) Adjustments
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.
(7) Recognition period, etc.
(A) Recognition period
The term "recognition period" means, with respect to any ownership change, the 5-year period beginning on the change date.
(B) Recognition period taxable year
The term "recognition period taxable year" means any taxable year any portion of which is in the recognition period.
(8) Determination of fair market value in certain cases
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.
(9) Tax-free exchanges or transfers
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).
(i) Testing period
For purposes of this section—
(1) 3-year period
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.
(2) Shorter period where there has been recent ownership change
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.
(3) Shorter period where all losses arise after 3-year period begins
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)).
(j) Change date
For purposes of this section, the change date is—
(1) 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
(2) in the case where the last component of an ownership change is an equity structure shift, the date of the reorganization.
(k) Definitions and special rules
For purposes of this section—
(1) Loss corporation
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.
(2) Old loss corporation
The term "old loss corporation" means any corporation—
(A) with respect to which there is an ownership change, and
(B) which (before the ownership change) was a loss corporation.
(3) New 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.
(4) Taxable income
Taxable income shall be computed with the modifications set forth in section 172(d).
(5) Value
The term "value" means fair market value.
(6) Rules relating to stock
(A) Preferred stock
Except as provided in regulations and subsection (e), the term "stock" means stock other than stock described in section 1504(a)(4).
(B) Treatment of certain rights, etc.
The Secretary shall prescribe such regulations as may be necessary—
(i) to treat warrants, options, contracts to acquire stock, convertible debt interests, and other similar interests as stock, and
(ii) to treat stock as not stock.
(C) Determinations on basis of value
Determinations of the percentage of stock of any corporation held by any person shall be made on the basis of value.
(7) 5-percent shareholder
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.
(l) Certain additional operating rules
For purposes of this section—
(1) Certain capital contributions not taken into account
(A) In general
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.
(B) Certain contributions treated as part of plan
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).
(2) Ordering rules for application of section
(A) Coordination with section 172(b) carryover rules
In the case of any pre-change loss for any taxable year (hereinafter in this subparagraph referred to as the "loss year") subject to limitation under this section, for purposes of determining under the 2nd sentence of section 172(b)(2) the amount of such loss which may be carried to any taxable year, taxable income for any taxable year shall be treated as not greater than—
(i) the section 382 limitation for such taxable year, reduced by
(ii) the unused pre-change losses for taxable years preceding the loss year.
Similar rules shall apply in the case of any credit or loss subject to limitation under section 383.
(B) Ordering rule for losses carried from same taxable year
In any case in which—
(i) a pre-change loss of a loss corporation for any taxable year is subject to a section 382 limitation, and
(ii) a net operating loss of such corporation from such taxable year is not subject to such limitation,
taxable income shall be treated as having been offset first by the loss subject to such limitation.
(3) Operating rules relating to ownership of stock
(A) Constructive ownership
Section 318 (relating to constructive ownership of stock) shall apply in determining ownership of stock, except that—
(i) 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,
(ii) paragraph (2) of section 318(a) shall be applied—
(I) without regard to the 50-percent limitation contained in subparagraph (C) thereof, and
(II) except as provided in regulations, by treating stock attributed thereunder as no longer being held by the entity from which attributed,
(iii) paragraph (3) of section 318(a) shall be applied only to the extent provided in regulations,
(iv) 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
(v) in attributing stock from an entity under paragraph (2) of section 318(a), there shall not be taken into account—
(I) in the case of attribution from a corporation, stock which is not treated as stock for purposes of this section, or
(II) in the case of attribution from another entity, an interest in such entity similar to stock described in subclause (I).
A rule similar to the rule of clause (iv) shall apply in the case of any contingent purchase, warrant, convertible debt, put, stock subject to a risk of forfeiture, contract to acquire stock, or similar interests.
(B) Stock acquired by reason of death, gift, divorce, separation, etc.
If—
(i) the basis of any stock in the hands of any person is determined—
(I) under section 1014 (relating to property acquired from a decedent),
(II) section 1015 (relating to property acquired by a gift or transfer in trust), or
(III) section 1041(b)(2) (relating to transfers of property between spouses or incident to divorce),
(ii) stock is received by any person in satisfaction of a right to receive a pecuniary bequest, or
(iii) stock is acquired by a person pursuant to any divorce or separation instrument (within the meaning of section 121(d)(3)(C)),
such person shall be treated as owning such stock during the period such stock was owned by the person from whom it was acquired.
(C) Certain changes in percentage ownership which are attributable to fluctuations in value not taken into account
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.
(4) Reduction in value where substantial nonbusiness assets
(A) In general
If, immediately after an ownership change, the new loss corporation has substantial nonbusiness assets, the value of the old loss corporation shall be reduced by the excess (if any) of—
(i) the fair market value of the nonbusiness assets of the old loss corporation, over
(ii) the nonbusiness asset share of indebtedness for which such corporation is liable.
(B) Corporation having substantial nonbusiness assets
For purposes of subparagraph (A)—
(i) In general
The old loss corporation shall be treated as having substantial nonbusiness assets if at least 1/3 of the value of the total assets of such corporation consists of nonbusiness assets.
(ii) Exception for certain investment entities
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.
(C) Nonbusiness assets
For purposes of this paragraph, the term "nonbusiness assets" means assets held for investment.
(D) Nonbusiness asset share
For purposes of this paragraph, the nonbusiness asset share of the indebtedness of the corporation is an amount which bears the same ratio to such indebtedness as—
(i) the fair market value of the nonbusiness assets of the corporation, bears to
(ii) the fair market value of all assets of such corporation.
(E) Treatment of subsidiaries
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.
(5) Title 11 or similar case
(A) In general
Subsection (a) shall not apply to any ownership change if—
(i) the old loss corporation is (immediately before such ownership change) under the jurisdiction of the court in a title 11 or similar case, and
(ii) 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).
(B) Reduction for interest payments to creditors becoming shareholders
In any case to which subparagraph (A) applies, the pre-change losses and excess credits (within the meaning of section 383(a)(2)) which may be carried to a post-change year shall be computed as if no deduction was allowable under this chapter for the interest paid or accrued by the old loss corporation on indebtedness which was converted into stock pursuant to title 11 or similar case during—
(i) any taxable year ending during the 3-year period preceding the taxable year in which the ownership change occurs, and
(ii) the period of the taxable year in which the ownership change occurs on or before the change date.
(C) Coordination with section 108
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).
(D) Section 382 limitation zero if another change within 2 years
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.
(E) Only certain stock taken into account
For purposes of subparagraph (A)(ii), stock transferred to a creditor shall be taken into account only to the extent such stock is transferred in satisfaction of indebtedness and only if such indebtedness—
(i) was held by the creditor at least 18 months before the date of the filing of the title 11 or similar case, or
(ii) 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.
(F) Title 11 or similar case
For purposes of this paragraph, the term "title 11 or similar case" has the meaning given such term by section 368(a)(3)(A).
(G) Election not to have paragraph apply
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.
(6) Special rule for insolvency transactions
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.
(7) Coordination with alternative minimum tax
The Secretary shall by regulation provide for the application of this section to the alternative tax net operating loss deduction under section 56(d).
(8) Predecessor and successor entities
Except as provided in regulations, any entity and any predecessor or successor entities of such entity shall be treated as 1 entity.
(m) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section and section 383, including (but not limited to) regulations—
(1) 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
(2) providing for the application of this section and section 383 in the case of a short taxable year,
(3) 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,
(4) providing for the application of subsection (g)(4) where there is only 1 corporation involved, and
(5) 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.
(n) Special rule for certain ownership changes
(1) In general
The limitation contained in subsection (a) shall not apply in the case of an ownership change which is pursuant to a restructuring plan of a taxpayer which—
(A) 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
(B) 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.
(2) Subsequent acquisitions
Paragraph (1) shall not apply in the case of any subsequent ownership change unless such ownership change is described in such paragraph.
(3) Limitation based on control in corporation
(A) In general
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.
(B) Treatment of related persons
(i) In general
Related persons shall be treated as a single person for purposes of this paragraph.
(ii) Related persons
For purposes of clause (i), a person shall be treated as related to another person if—
(I) such person bears a relationship to such other person described in section 267(b) or 707(b), or
(II) such persons are members of a group of persons acting in concert.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Emergency Economic Stabilization Act of 2008, referred to in subsec. (n)(1)(A), is div. A of
Amendments
2017—Subsec. (d)(3).
Subsec. (k)(1).
Subsec. (l)(3)(B)(iii).
2014—Subsec. (l)(5)(F) to (H).
2009—Subsec. (n).
2004—Subsec. (l)(4)(B)(ii).
1996—Subsec. (l)(4)(B)(ii).
1993—Subsec. (l)(5)(C).
"(i)
"(ii)
1989—Subsec. (h)(3)(B)(i).
Subsec. (h)(6)(B).
Subsec. (h)(6)(C).
Subsec. (l)(3)(B)(i)(III).
Subsec. (l)(3)(C).
Subsec. (l)(3)(C)(ii).
Subsec. (l)(3)(D).
Subsec. (l)(5)(F).
1988—Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (g)(1)(A).
Subsec. (g)(1)(B).
Subsec. (g)(4)(C).
Subsec. (h)(1)(C).
"(i) the amount of such gain, over
"(ii) the portion of such gain taken into account in computing recognized built-in gains for such taxable year."
Subsec. (h)(3)(A)(ii).
Subsec. (h)(3)(B)(ii).
Subsec. (h)(4).
Subsec. (h)(5)(A).
Subsec. (h)(6).
Subsec. (h)(9).
Subsec. (i)(3).
Subsec. (k)(1).
Subsec. (k)(2).
"(A) which (before the ownership change) was a loss corporation, or
"(B) with respect to which there is a pre-change loss described in subsection (d)(1)(B)."
Subsec. (l)(3)(A)(iv), (v).
Subsec. (l)(3)(C)(ii).
Subsec. (l)(4)(B)(ii).
Subsec. (l)(5)(A)(ii).
Subsec. (l)(5)(B).
Subsec. (l)(5)(C).
Subsec. (l)(5)(E).
Subsec. (l)(5)(F).
Subsec. (l)(5)(F)(i)(I).
Subsec. (l)(5)(F)(ii)(III).
Subsec. (l)(5)(F)(iii)(I).
Subsec. (l)(6).
Subsec. (l)(8).
Subsec. (m)(4).
Subsec. (m)(5).
1987—Subsec. (g)(4)(D).
Subsec. (h)(2)(B).
1986—
1984—Subsec. (b)(1).
1981—Subsec. (b)(7).
1980—Subsec. (b)(7).
1976—
1964—Subsec. (a)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11051(b)(3)(F) of
Amendment by section 13301(b)(2), (3) of
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2009 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7205(a) of
Amendment by sections 7811(c)(5)(A) and 7815(h) of
Effective Date of 1988 Amendment
Amendment by section 1006(d)(2)–(10), (18)–(27), (29), (t)(22)(A) of
"(1)
"(2)
Effective Date of 1987 Amendment
"(1)
"(2)
Effective Date of 1986 Amendment; Savings Provisions
"(1)
"(A)
"(i)
"(ii)
"(B)
"(i) 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
"(ii) 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.
In no event shall sections 382(a) and (b) of such Code (as so in effect) apply to any ownership change described in subparagraph (A).
"(C)
"(2)
"(A)
"(B)
"(i) 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
"(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.
"(C)
"(i) 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
"(ii) 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.
"(D)
"(3)
"(A) May 6, 1986, or
"(B) 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.
"(4)
"(A) 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
"(B) 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.
Any regulations prescribed under section 382 of the Internal Revenue Code of 1986 (as added by subsection (a)) which have the effect of treating a group of shareholders as a separate 5-percent shareholder by reason of a public offering shall not apply to any public offering before January 1, 1989, for the benefit of institutions described in section 591 of such Code. Unless the corporation otherwise elects, an underwriter of any offering of stock in a corporation before September 19, 1986 (January 1, 1989, in the case of an offering for the benefit of an institution described in the preceding sentence), shall not be treated as acquiring any stock of such corporation by reason of a firm commitment underwriting to the extent the stock is disposed of pursuant to the offering (but in no event later than 60 days after the initial offering).
"(5)
"(6)
"(A) 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,
"(B) 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,
"(C) 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
"(D) 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.
"(7)
"(A) 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
"(B) 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,
but only if the ownership change occurs on or before the later of March 31, 1987, or such 90th day. The aggregate reduction in tax for any taxable year by reason of this paragraph shall not exceed $10,000,000. The testing period for determining whether a subsequent ownership change has occurred shall not begin before the 1st day following an ownership change to which this paragraph applies.
"(8) 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.
"(9)
[
Effective Date of 1984 Amendment
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Effective Date of 1964 Amendment
Amendment by
Delay in Effective Date of 1976 Amendment
Clarification of Regulations Related to Limitations on Certain Built-In Losses Following an Ownership Change
"(a)
"(1) 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.
"(2) Internal Revenue Service Notice 2008–83 is inconsistent with the congressional intent in enacting such section 382(m).
"(3) The legal authority to prescribe Internal Revenue Service Notice 2008–83 is doubtful.
"(4) 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.
"(b)
"(1)
"(A) 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
"(B) shall have no force or effect with respect to any ownership change after such date.
"(2)
"(A) is pursuant to a written binding contract entered into on or before such date, or
"(B) 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."
Report on Depreciation and Built-In Deductions; Report on Bankruptcy Workouts
§383. Special limitations on certain excess credits, etc.
(a) Excess credits
(1) In general
Under regulations, if an ownership change occurs with respect to a corporation, the amount of any excess credit for any taxable year which may be used in any post-change year shall be limited to an amount determined on the basis of the tax liability which is attributable to so much of the taxable income as does not exceed the section 382 limitation for such post-change year to the extent available after the application of section 382 and subsections (b) and (c) of this section.
(2) Excess credit
For purposes of paragraph (1), the term "excess credit" means—
(A) any unused general business credit of the corporation under section 39, and
(B) any unused minimum tax credit of the corporation under section 53.
(b) Limitation on net capital loss
If an ownership change occurs with respect to a corporation, the amount of any net capital loss under section 1212 for any taxable year before the 1st post-change year which may be used in any post-change year shall be limited under regulations which shall be based on the principles applicable under section 382. Such regulations shall provide that any such net capital loss used in a post-change year shall reduce the section 382 limitation which is applied to pre-change losses under section 382 for such year.
(c) Foreign tax credits
If an ownership change occurs with respect to a corporation, the amount of any excess foreign taxes under section 904(c) for any taxable year before the 1st post-change taxable year shall be limited under regulations which shall be consistent with purposes of this section and section 382.
(d) Pro ration rules for year which includes change
For purposes of this section, rules similar to the rules of subsections (b)(3) and (d)(1)(B) of section 382 shall apply.
(e) Definitions
Terms used in this section shall have the same respective meanings as when used in section 382, except that appropriate adjustments shall be made to take into account that the limitations of this section apply to credits and net capital losses.
(Added
Editorial Notes
Amendments
1986—
"(1) the ownership and business of a corporation are changed in the manner described in section 382(a)(1), or
"(2) in the case of a reorganization specified in paragraph (2) of section 381(a), there is a change in ownership described in section 382(b)(1)(B),
then the limitations provided in section 382 in such cases with respect to the carryover of net operating losses shall apply in the same manner, as provided under regulations prescribed by the Secretary, with respect to any unused business credit of the corporation which can otherwise be carried forward under section 39, to any unused credit of the corporation which could otherwise be carried forward under section 30(g)(2), to any excess foreign taxes of the corporation which could otherwise be carried forward under section 904(c), and to any net capital loss of the corporation which can otherwise be carried forward under section 1212."
1984—
1981—
1980—
1977—
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by section 621(b) of
Repeal of amendment by section 806(f)(1) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by section 221(b)(1)(C), (D) of
Amendment by section 331(d)(1)(C), (D) of
Effective Date of 1980 Amendments
Amendment by
Amendment by
Effective Date of 1976 Amendment
For effective date of amendment by section 1031(b)(5) of
For purposes of applying this section (as it relates to
Effective Date
Delay in Effective Date of 1976 Amendment
For election by taxpayer for application of prior law with respect to any acquisition or reorganization occurring before the end of the taxpayer's first taxable year beginning after June 30, 1978, see section 368 of
§384. Limitation on use of preacquisition losses to offset built-in gains
(a) General rule
If—
(1)(A) a corporation acquires directly (or through 1 or more other corporations) control of another corporation, or
(B) the assets of a corporation are acquired by another corporation in a reorganization described in subparagraph (A), (C), or (D) of section 368(a)(1), and
(2) either of such corporations is a gain corporation,
income for any recognition period taxable year (to the extent attributable to recognized built-in gains) shall not be offset by any preacquisition loss (other than a preacquisition loss of the gain corporation).
(b) Exception where corporations under common control
(1) In general
Subsection (a) shall not apply to the preacquisition loss of any corporation if such corporation and the gain corporation were members of the same controlled group at all times during the 5-year period ending on the acquisition date.
(2) Controlled group
For purposes of this subsection, the term "controlled group" means a controlled group of corporations (as defined in section 1563(a)); except that—
(A) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears,
(B) the ownership requirements of section 1563(a) must be met both with respect to voting power and value, and
(C) the determination shall be made without regard to subsection (a)(4) of section 1563.
(3) Shorter period where corporations not in existence for 5 years
If either of the corporations referred to in paragraph (1) was not in existence throughout the 5-year period referred to in paragraph (1), the period during which such corporation was in existence (or if both, the shorter of such periods) shall be substituted for such 5-year period.
(c) Definitions
For purposes of this section—
(1) Recognized built-in gain
(A) In general
The term "recognized built-in gain" means any gain recognized during the recognition period on the disposition of any asset except to the extent the gain corporation (or, in any case described in subsection (a)(1)(B), the acquiring corporation) establishes that—
(i) such asset was not held by the gain corporation on the acquisition date, or
(ii) such gain exceeds the excess (if any) of—
(I) the fair market value of such asset on the acquisition date, over
(II) the adjusted basis of such asset on such date.
(B) Treatment of certain income items
Any item of income which is properly taken into account for any recognition period taxable year but which is attributable to periods before the acquisition date shall be treated as a recognized built-in gain for the taxable year in which it is properly taken into account and shall be taken into account in determining the amount of the net unrealized built-in gain.
(C) Limitation
The amount of the recognized built-in gains for any recognition period taxable year shall not exceed—
(i) the net unrealized built-in gain, reduced by
(ii) the recognized built-in gains for prior years ending in the recognition period which (but for this section) would have been offset by preacquisition losses.
(2) Acquisition date
The term "acquisition date" means—
(A) in any case described in subsection (a)(1)(A), the date on which the acquisition of control occurs, or
(B) in any case described in subsection (a)(1)(B), the date of the transfer in the reorganization.
(3) Preacquisition loss
(A) In general
The term "preacquisition loss" means—
(i) any net operating loss carryforward to the taxable year in which the acquisition date occurs, and
(ii) any net operating loss for the taxable year in which the acquisition date occurs to the extent such loss is allocable to the period in such year on or before the acquisition date.
Except as provided in regulations, the net operating loss shall, for purposes of clause (ii), be allocated ratably to each day in the year.
(B) Treatment of recognized built-in loss
In the case of a corporation with a net unrealized built-in loss, the term "preacquisition loss" includes any recognized built-in loss.
(4) Gain corporation
The term "gain corporation" means any corporation with a net unrealized built-in gain.
(5) Control
The term "control" means ownership of stock in a corporation which meets the requirements of section 1504(a)(2).
(6) Treatment of members of same group
Except as provided in regulations and except for purposes of subsection (b), all corporations which are members of the same affiliated group immediately before the acquisition date shall be treated as 1 corporation. To the extent provided in regulations, section 1504 shall be applied without regard to subsection (b) thereof for purposes of the preceding sentence.
(7) Treatment of predecessors and successors
Any reference in this section to a corporation shall include a reference to any predecessor or successor thereof.
(8) Other definitions
Except as provided in regulations, the terms "net unrealized built-in gain", "net unrealized built-in loss", "recognized built-in loss", "recognition period", and "recognition period taxable year", have the same respective meanings as when used in section 382(h), except that the acquisition date shall be taken into account in lieu of the change date.
(d) Limitation also to apply to excess credits or net capital losses
Rules similar to the rules of subsection (a) shall also apply in the case of any excess credit (as defined in section 383(a)(2)) or net capital loss.
(e) Ordering rules for net operating losses, etc.
(1) Carryover rules
If any preacquisition loss may not offset a recognized built-in gain by reason of this section, such gain shall not be taken into account in determining under section 172(b)(2) the amount of such loss which may be carried to other taxable years. A similar rule shall apply in the case of any excess credit or net capital loss limited by reason of subsection (d).
(2) Ordering rule for losses carried from same taxable year
In any case in which—
(A) a preacquisition loss for any taxable year is subject to limitation under subsection (a), and
(B) a net operating loss from such taxable year is not subject to such limitation,
taxable income shall be treated as having been offset 1st by the loss subject to such limitation.
(f) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations to ensure that the purposes of this section may not be circumvented through—
(1) the use of any provision of law or regulations (including subchapter K of this chapter), or
(2) contributions of property to a corporation.
(Added
Editorial Notes
Amendments
1989—Subsec. (e)(1).
1988—Subsec. (a).
Subsec. (b).
"(1) in any case described in subsection (a)(1), by members of the affiliated group referred to in subsection (a)(1), or
"(2) in any case described in subsection (a)(2), by the acquiring corporation or members of such acquiring corporation's affiliated group.
For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account."
Subsec. (c)(1)(A).
Subsec. (c)(2).
Subsec. (c)(4) to (8).
Subsecs. (e), (f).
Statutory Notes and Related Subsidiaries
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date
"(1) a binding written contract in effect on or before December 15, 1987, or
"(2) a letter of intent or agreement of merger signed on or before December 15, 1987."