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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I am majority owner of 2 California "C" Corporations, both

Resolved Question:

I am majority owner of 2 California "C" Corporations, both in electronics but different markets. 90+% of the stock in both corproations is owned by the same shareholders. Corporation A has been in business for 25 years, has a large NOL carryforward and is a profitable "cash cow" with slowly declining sales and an aging product line. Corporation B, a rapidly growing company in business for 4 years, has just turned profitable. If the 2 companies merge into 1 entity will the tax loss of Corporation A be carried forward into the merged entity?

Second question, can the merged entity be a new corporation formed in Nevada instead of California?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

If the merger will take the form of an A-type reorganization as defined by Section 368(a)(1)(A). and the stock ownership HAS NOT (very important) of these two companies has not changed at all during the five year period ending on the date of the proposed merger ... then the NOL can be preserved

NPVAdvisor :

When two companies merge and one of the parties to the merger loses its corporate identity, the issue is whether various tax attributes of the distributing corporation the company that lost its corporate identity in the merger carry over to the acquiring (survivor) corporation. Section 381 controls the determination of which attributes carryover and specifies the types of transactions eligible for attribute carry-overs in the first instance.



One of the carried-over attributes specified under Section 381 is the net operating loss. Section 381(c)(1). If the transaction in question is qualified under Section 381, then the net operating loss of distributing corporation iscarried over and is subject to utilization by the acquiring corporation

NPVAdvisor :

Section 381(a)(2) provides that various specified types of tax-free reorganizations, including the A-type reorganization under Section 368(a)(1)(A), allow attribute carryover from the distributing corporation to the acquiring corporation

NPVAdvisor :

Here's an excellet resource on this: http://www.taxresourcegroup.com/library/memo/1023.html

NPVAdvisor :

The question about Nevada doesn't really apply here, UNLESS you re-domiciled one of the two corporations to NV ... and now you have state law (corporate law issues) but remember for 381A to hold, among other things, ownership not changing at all in the previous 5 years is a pre-requisite, and if NV requires formation rather then accepting a move-in (changing the residence/domicile) of the C corp than that would negate the no change in the previous 5 years rule

NPVAdvisor :

Hope this helps

NPVAdvisor :

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3844
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
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Expert:  Lane replied 1 year ago.


Thanks Greg.

One thing you should be aware on in Nevada.

They charge initial filing fees based on shares AUTHORIZED, not ISSUED.

I think the max is like 35000, but they'll nail you just like Delaware does (because other than that it IS a good place to do business) for INCOME tax and other reasons.

Thanks again,
Lane

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