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WHAT GENERALLY IS THE LIMITATION ON BUYER OF NOL STOCK

Customer Question
WHAT GENERALLY IS THE...

WHAT GENERALLY IS THE LIMITATION ON BUYER OF NOL STOCK COMPANY?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

MY CLIENT LOOKING AT BUYING C CORP STOCK THAT IS DORMANT BUT HAS $700K NOL. CAN MY CLIENT USE THE NOL CARRYOVERS? WHAT ARE THE LIMITATIONS.

Accountant's Assistant: Is there anything else important you think the Accountant should know?

NO...MEQUON SAYS IF 50% CHANGE IN OWNERSHIP, THERE ARE LIMITATIONS ON USE OF NOL.

Submitted: 8 months ago.Category: Tax
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12/5/2017
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 8 months ago
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,311
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Hey! I'm Carter. I'm a CPA and would love to help you out on this.

Yes, there are limitations. They can be very complex and can be very fact specific. I suggest you check out the law where the limitations come from.

You need to look to IRC 382 (https://www.law.cornell.edu/uscode/text/26/382). William Mette also provides a great break down on these very complex rules available here: http://www.willamette.com/insights_journal/11/winter_2011_12.pdf

Hope that helps. I can help clarify anything on this for you. IF not, please leave a rating. Thanks!

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Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 8 months ago

Here's a quick example:

IRC sections 382 and 383 provide that, where the ownership of a company changes by more than 50 percentage points in any 3-year period, the ability of the company to deduct its tax carryforwards in any future year is limited to the value of the company on the date the 50-percentage point threshold is crossed multiplied by a fluctuating rate that is currently around 4%. In other words, if the value of the company is $1 million at the time of the ownership change, then its ability to use its loss carryforwards is limited to $40,000 per year, no matter how large its carryforward may be.

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