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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12679
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Do you know anything about Section 382 NOL Limitation with

Customer Question

Do you know anything about Section 382 NOL Limitation with respect to a reverse merger?
Submitted: 2 years ago.
Category: Tax
Expert:  PDtax replied 2 years ago.
Hi from Just Answer. I'm PDtax, and can assist.
Expert:  PDtax replied 2 years ago.
Can you outline your question, deadline and facts? I can then advise if I can assist, and the price.
Customer: replied 2 years ago.

I understand the basics of Sec. 382. Read most of the rules. I need to get an answer in the morning.

I have a situation where Company A and Company B went through a double reverse merger. The shareholders of both Company A and Company B become shareholders of Company C (and Company C owns 100% of Company A and Company B). Originally, Company B was formed from the same shareholders of Company A, so they have very similar shareholders, but Company has changed over time.

I understand one looks at all the 5% shareholders. I would identify the 5% shareholders of Company A, and the same of Company B. I also understand that for each Company, the remaining shareholders are put into a single class of shareholders.

In the restructuring, only 10% of Company C is owned by "new" shareholders not previously a shareholder of either Company A or Company B.

Since many of the 5% shareholders of Company A are also 5% shareholders of Company B, together they retain a significant percentage of Company C.

More importantly, and the need for an answer, some of the non-5% shareholders are also common to both Company A & Company B.

Is it only the 5% shareholder's that you track for the change, but also the pooled group of non-5% shareholders.

If so, is there are rule or regulation that requires, or allows, the creation of a class of non-5% shareholders that are "common" to both Company A and Company B to determine if combined with the common 5% shareholders whether 50% or more of the control has changed.

Can I combine the common 5% shareholders, and the common non-5% shareholders (who had control of Company A & Company B prior to the reverse merger) and see if they have change by more than 50% in the new ownership of Company C.

It seems logical, but cannot determine if it is allowed, required, or whether there is some Rev. Rul, or Regulation that provides for such example.

Expert:  PDtax replied 2 years ago.
This is going to be involved, and require review of the common ownership and Sections 382 and 368 for the reorg section. I will assist, but ask for an addition to the price posted to do so. I will also need more background re: common ownership before/after, the type of reorg you believe this to be, and your deadline. Accept, and I will work on this after dinner tonight.
Customer: replied 2 years ago.

I will have to get back to you

Expert:  Lane replied 2 years ago.
Hi,.... don't think it works exactly that ... and there HAS been some guidance in the last few years on alternate methods,.The aggregation rules DO generally apply to shareholders who each own less than 5% . Shareholders who own less than 5% of the stock collectively are treated as a “public group.” Certain groups of people acting in concert, such that they are treated as an “entity” under the rules, can be a separate 5% shareholder..But the The segregation rules cause a “split” of certain public groups for specified transactions. A portion of the public group is “segregated” into a new separate group.Application of the segregation rules creates additional public groups and may increase the owner shifts. There transactions include, Share issuances (1032 transactions), Small issuance exception, Cash issuance exception, Redemptions, Higher tier entity issuances and redemptions, AND Dispositions by 5% shareholders to non-5% shareholders..Also, Legislative history allows disregarding of:− Contributions on formation− Contributions before loss corporation status exists− Contributions to meet basic operations (e.g. meet payroll or other operating expenses)− H.R. Rep. No. 426, 99th Cong., 2d Sess., II-189 (1985) • For example, in PLR###-##-####capital contributions made so that a life insurance company could maintain minimum capitalization requirements were not excluded from value by the Section 382(i)(1) anti-stuffing rule. − See also TAM(###) ###-#### *****(###) ###-#### *****(###) ###-#### *****(###) ###-#### *****(###) ###-#### *****(###) ###-#### *****###-##-####As you can see this is FAR too involved for this venue..Here's a presentation done (actually a handout to a one-day seminar on the subject, and even that was done at a FAIRLY high level) by the Pepper law firm, but it does a nice job of pulling it all together with some good examples of the testing.. thnk this can provide a GOOD foundation for your research ... NOT a complete answer (again, likely not possible here) but I think CAN point you in the right direction..Lane.