Section 382 Ownership Change

There are two main components of this section which are limitation and ownership change.

Section 382 ownership change. When there is an ownership change the corporation is now considered to be a new loss corporation and it is subject to the section 382 limitations. Ownership change happens when it s a loss corporation and after the end of the testing date the stock percentage of the business owned by 1 or 5 shareholders has increased by 50 points. An ownership change is defined generally as a greater than 50 change in the ownership of stock among certain 5 shareholders over a three year period sec.

A section 382 ownership change generally occurs if the percentage of the stock of. Section 382 together with section 383 generally affects corporations that undergo a greater than 50 change in ownership during any three year period and that have significant net operating loss. Convertible preferred stock certain convertible debt instruments common stock and stock options.

Stock includes the following. 382 to limit the use of corporate nols following an ownership change. Accordingly an ownership change occurs as a result of the merger.

Section 382 l 3 c provides that except as provided in regulations any change in proportionate ownership of the stock of a loss corporation attributable solely to fluctuations in the relative fair market values of different classes of stock shall not be taken into account. 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. On september 9 2019 the treasury department treasury and the internal revenue service irs proposed regulations proposed regulations addressing items of income and deduction that are included in the calculation of built in gains and losses under section 382 of the internal revenue code.

Ownership occurs when there is a shift in the owners or in the equity structure exceeding ownership rights of 50. In the event of an ownership change use of the loss corporation s nols and certain built in losses is limited to the value of the loss corporation multiplied by the adjusted federal long term. The loss corporation owned by one or more 5 percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of the loss corporation owned by such shareholders at any time during the relevant testing.

The regulations under 382 do not provide any specific guidance. In an effort to limit loss trafficking congress enacted sec.