Ownership changes trigger restrictions on use of corporation's NOL carryover

Article Abstract:

The Tax Reform Act of 1986 has made significant changes in the use of net operating loss (NOL) carryovers when there are changes in the stock ownership of the corporation possessing loss carryovers. The new NOL limitations apply when the ownership of a corporation has changed by more than 50 percent over a three-year period. When a change of ownership occurs, the taxable income that may be offset by NOL is limited to the long-term tax exempt rate multiplied by the value of the corporation prior to the ownership change. The loss corporation must file an information statement with its annual tax return verifying that it is a loss corporation. The constructive ownership rules of Section 318 are generally used to determine the ownership of the loss corporation. The new rules apply to changes in ownership that have occurred after 1986.

Methods, Tax accounting, Stockholders

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Affiliated groups get few breaks in new regs

Article Abstract:

The IRS has modified existing loss disallowance regulations by implementing new regulations that limit consolidated groups' deductions for losses realized on the sale of subsidiaries' stock. The new regulations likely will have the practical effect that losses from the disposition of a consolidated subsidiary will be disallowed on dispositions after 31 Jan 91. The intent of the investment adjustment rules is to prevent the duplication of a subsidiary's income or loss by the parent after the disposition of the stock of the subsidiary through adjustments of the subsidiary's operations contained in the consolidated return of the group.

Subsidiary corporations, Subsidiaries

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Prop. regs. limit net operating losses in controlled groups

Article Abstract:

The IRS has issued Proposed Regulations affecting the treatment of losses in consolidated groups that have the effect of limiting their net operating losses. The Proposed Regulations apply Section 382 of the Internal Revenue Code with a single entity approach to consolidated groups in those years that are not separate return limitation rule years. The single entity approach treats subsidiaries as divisions of a single taxpayer, with the parent recognized as the agent for each division. While the Proposed Regulations are favorable for taxpayers, they are complex.

Analysis, Tax administration and procedure, Tax administration, Loss deductions

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