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Difficulties of Section 382 of the Internal Revenue Code (IRC) are considered a critical aspect of tax planning for businesses proceeding with ownership changes. Do not hesitate to join DimovTax as the nuances of this often misunderstood but indispensable tool for preserving tax attributes are unravelled.
What is Section 382?
The use of certain tax attributes like net operating losses and built-in losses after an ownership change action in a corporation is limited by Section 382 of the IRC. When there is a significant change in the ownership of a corporation’s stock by 50% or more by certain shareholders over a three year time period, an ownership change eventuates.
In order to determine if the mentioned tax attributes are usable, an Internal Revenue Code Section 382 analysis is required.
In a nutshell:
The Importance
Business models that face ownership changes including mergers, acquisitions or significant stock transactions should consider understanding and properly applying Section 382 rules as they are vital. Otherwise, these rules might as well result in the loss of valuable tax benefits, leading to increased tax liabilities and decreased shareholder value.
Key points include:
If such a change occurs, the corporation’s ability to use any pre-change net operating losses each year is limited to the value of the corporation’s stock immediately before the ownership change multiplied by the applicable long term tax exempted rate under the Section 382 limitation.
Recent Issues and Considerations
Changes in the tax laws have increased the importance for corporations to analyze the implications of Section 382:
Key Points in Section 382 Analysis
It would be difficult to confirm the availability of the net operating losses of a corporation without a formal Section 382 analysis. This analysis is exclusively important in most cases to confirm the availability of net operating losses before the Tax Cuts and Jobs Act.
If only a small portion of recently generated net operating losses is used by a company, to shortcut a Section 382 analysis may be desired. Yet, the mentioned approach would be suitable in limited situations and generally, it is not recommended since it can be a trap for the unwary due to the complexities of Section 382.
It should be remembered that an additional reason for a corporation to perform a complete Section 382 analysis is constituted by the 80% utilization limitation rule. This is to make certain that all potential Section 382 limitations on the use of net operating losses before and after the Tax Cuts and Jobs Act are accounted for and considered.
How DimovTax Can Help?
At DimovTax, we specialize in providing custom fit tax services to meet your particular needs. Our services include:
Outcome
For businesses undergoing ownership changes, Section 382 analysis is of utmost importance in tax planning processes. Businesses might easily could maximize tax benefits and preserve shareholder value by understanding the legislation and leveraging the expertise of professionals. DimovTax is ready to help you navigate the complexities of Section 382 Analysis with vital clarity. Contact us today to learn more about how we can assist you in unlocking the full potential of your tax attributes.
Call us today at (833) 829-1120, email us at info@dimovtax.com, or fill out the form and we’ll get in touch immediately.
Dimov Tax is rated 5 stars on all major review platforms including Google, Yelp, Facebook, Angie’s List, Better Business Bureau, TaxBuzz, Thumbtack, Upwork, Bark, and much more.
Call us today at (866) 554-0148, email us at info@dimovtax.com, or fill out the form and we’ll get in touch immediately.
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