Taxterity research

Corporate NOLs after an ownership change: a section 382 testing checklist

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Section 382 does not limit losses because a company was sold. It limits them when an ownership change has occurred, measured mechanically, and the four gates are independent. Regulations section 1.382-2T(a)(1) provides that a corporation is a new loss corporation subject to limitation only if an ownership change has occurred, which happens where the corporation is a loss corporation on a testing date and, immediately after the close of that date, the percentage of stock owned by one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage such shareholders owned at any time during the testing period. Section 382(i)(1) sets that period at three years ending on the day of the relevant shift, subject to shorter periods. Where a change has occurred, section 382(b)(1) fixes the annual limitation as the value of the old loss corporation multiplied by the long-term tax-exempt rate, and section 382(c)(1) reduces that limitation to zero for any post-change year if the new loss corporation fails to continue the old corporation's business enterprise at all times during the two-year period beginning on the change date. Built-in gains and losses adjust the result under section 382(h). Statutory text read as in effect September 14, 2026; regulations from the edition revised as of April 1, 2025.

Ask Taxterity about your own tax issue

Scope

Jurisdiction: United States — federal

Tax periods: Not period-specific; checked 2026-09-15, Code as in effect 2026-09-14

Assumptions

Exclusions

1. Confirm a loss corporation and pin the testing date

Section 382(k)(1) defines a loss corporation as a corporation entitled to use a net operating loss carryover or having a net operating loss for the taxable year in which the ownership change occurs. It also includes a corporation entitled to use a carryforward of disallowed interest described in section 381(c)(20) and, except to the extent regulations provide otherwise, any corporation with a net unrealized built-in loss. The regulation reaches wider still: Regulations section 1.382-2(a)(1)(i) treats as a loss corporation one entitled to use a capital loss carryover, a carryover of excess foreign taxes under section 904(c), a general business credit carryforward under section 39, a minimum tax credit carryover under section 53, or a section 382 disallowed business interest carryforward. Those limbs catch corporations that do not think of themselves as loss companies at all.

Regulations section 1.382-2(a)(4)(i) supplies the timing frame the whole regime runs on. Each date on which a loss corporation is required to determine whether an ownership change has occurred is a testing date; all computations of increases in percentage ownership are made as of the close of the testing date; and transactions described in that paragraph occurring on that date are treated as occurring simultaneously at its close. Paragraph (a)(4)(ii) excepts a transfer in the circumstances described in section 382(l)(3)(B), such as death, gift or divorce, and certain option transfers. Identical wording appears in Regulations section 1.382-2T(a)(2)(i), but that paragraph is headed for testing dates prior to November 5, 1992, and the paragraph that would carry it forward is reserved, so the operative citation for a current testing date is the first one. A section 382 workpaper is organized by testing date, not by transaction.

Section 382(j) identifies the change date as the date on which the last component of an ownership change occurs, which is the date the limitation computation later keys to. Getting the testing dates and the change date onto a timeline before any percentage is calculated saves recomputing the whole table when one more issuance surfaces.

2. Run the ownership change test on its own terms

Section 382(g)(1) provides that there is an ownership change if, immediately after any owner shift involving a 5-percent shareholder or any equity structure shift, the percentage of stock of the loss corporation owned by one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the testing period. Section 382(g)(2) defines an owner shift as any change in the respective ownership of stock that affects the percentage owned by a person who is a 5-percent shareholder before or after the change.

Section 382(g)(3)(A) defines an equity structure shift as any reorganization within the meaning of section 368, but excludes a reorganization described in subparagraph (D) or (G) of section 368(a)(1) unless the requirements of section 354(b)(1) are met, and excludes a reorganization described in subparagraph (F). Section 382(g)(3)(B) permits regulations to extend the term to taxable reorganization-type transactions, public offerings, and similar transactions.

Two definitional rules do most of the work. Section 382(k)(7) defines a 5-percent shareholder as any person holding five percent or more of the stock of the corporation at any time during the testing period, and section 382(g)(4)(A) generally treats shareholders below that threshold as aggregated rather than counted individually. Regulations section 1.382-2T(g)(1) extends the term to individuals with a direct or indirect interest of five percent or more through a first tier or higher tier entity and to identified public groups. Section 382(k)(6)(C) directs that percentage determinations be made on the basis of value, and section 382(k)(6)(A) generally excludes stock described in section 1504(a)(4) from the meaning of stock.

Aggregation cuts both ways. Regulations section 1.382-3(a)(1)(i) provides that an entity includes a group of persons who have a formal or informal understanding among themselves to make a coordinated acquisition of stock, and states that a principal element in deciding whether such an understanding exists is whether each member's investment decision is based on the decision of one or more other members. That can turn a set of individually small purchases into a single 5-percent shareholder. In the other direction, Regulations section 1.382-3(j)(2) provides a small issuance exception to the segregation rules, defining a small issuance in paragraph (j)(2)(ii) as an issuance of an amount of stock not exceeding the small issuance limitation, and providing that the exception does not apply to an issuance that by itself exceeds that limitation. Paragraph (j)(2)(iii)(A) lets the loss corporation elect each year between a corporation-wide limitation of 10 percent of the total value of its outstanding stock at the beginning of the year, excluding stock described in section 1504(a)(4), and a class-by-class limitation of 10 percent of the number of shares of the class outstanding at the beginning of the year.

Section 382(i) then bounds the lookback. Paragraph (i)(1) sets the testing period as the three-year period ending on the day of the relevant shift; paragraph (i)(2) prevents it from beginning before the day after a previous change date; and paragraph (i)(3) can shorten it where all losses arise after the three-year period begins.

3. Compute the limitation, then check what inflates or deflates it

Section 382(b)(1) sets the section 382 limitation for any post-change year as the value of the old loss corporation multiplied by the long-term tax-exempt rate. Section 382(e)(1) defines that value as the value of the stock of the corporation, including any stock described in section 1504(a)(4), immediately before the ownership change, and section 382(k)(5) states that value means fair market value. Section 382(e)(2) requires a redemption or other corporate contraction occurring in connection with the change to be taken into account in that determination.

Section 382(f)(1) defines the long-term tax-exempt rate as the highest of the adjusted federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs, and section 382(f)(2) derives the adjusted rate from the federal long-term rate under section 1274(d) with the adjustments the paragraph specifies. The Internal Revenue Service publishes prescribed rates each month as revenue rulings, which is where the monthly figures are located.

Section 382(b)(2) carries forward an unused limitation: where the limitation for a post-change year exceeds the taxable income offset by pre-change losses, the next year's limitation is increased by the excess. Section 382(b)(3) prorates the limitation for a post-change year that includes the change date and disapplies the limitation to the portion of that year's taxable income allocable to the period on or before the change date.

Section 382(l)(1)(A) removes from the computation any capital contribution received by the old loss corporation as part of a plan a principal purpose of which is to avoid or increase any limitation under the section, and section 382(l)(1)(B) provides that, except as regulations provide, any capital contribution made during the two-year period ending on the change date is treated as part of such a plan. Pre-closing equity injections therefore need to be documented for purpose, not merely recorded.

4. The two-year business continuity gate is not optional

Section 382(c)(1) provides that if the new loss corporation does not continue the business enterprise of the old loss corporation at all times during the two-year period beginning on the change date, the section 382 limitation for any post-change year is zero. This is a cliff rather than a reduction, and it operates after the limitation has been computed.

Section 382(c)(2) preserves a floor. The limitation is not less than the sum of any increase under section 382(h)(1)(A) for recognized built-in gains for the year, any increase under section 382(h)(1)(C) for gain recognized by reason of an election under section 338, and any amounts of that kind carried forward under section 382(b)(2).

For a buyer planning to wind down part of an acquired business, this gate belongs in the diligence memo rather than in the post-closing tax return file, because the facts that determine it occur in the two years after closing.

5. Built-in gains and losses at checklist level

Section 382(h)(3)(A)(i) defines net unrealized built-in gain or loss as the amount by which the fair market value of the corporation's assets immediately before an ownership change is more or less than the aggregate adjusted basis of those assets. Section 382(h)(3)(B)(i) then zeroes the figure where it is not greater than the lesser of 15 percent of that fair market value amount or $10,000,000, and section 382(h)(3)(B)(ii) excludes from the computation, except as regulations provide, cash or cash items and marketable securities whose value does not substantially differ from adjusted basis.

Where the threshold is cleared, section 382(h)(1)(A)(i) increases the limitation for a recognition period taxable year by the recognized built-in gains for that year, capped by clause (ii) at the net unrealized built-in gain reduced by prior recognized built-in gains. Section 382(h)(1)(B)(i) works the other way, subjecting a recognized built-in loss to limitation as if it were a pre-change loss, with a parallel cap in clause (ii). Section 382(h)(7)(A) fixes the recognition period as the five-year period beginning on the change date.

Section 382(h)(1)(C) adds a coordination rule for a section 338 election made in connection with an ownership change where the net unrealized built-in gain is zero by reason of the threshold: the limitation for the year the election gain is recognized is increased by the lesser of that gain or the net unrealized built-in gain determined without the threshold. Identifying which items are recognized built-in gains or losses is a substantial exercise governed by separate guidance and is deliberately out of scope here.

6. Credits, capital losses, and where this checklist ends

Losses are not the only attribute affected. Section 383(a) limits the use of excess credits after an ownership change by reference to the section 382 limitation for the post-change year, section 383(b) applies limitation rules to pre-change capital loss carryovers and provides that capital losses used in a post-change year reduce the limitation available for pre-change losses, and section 383(c) addresses excess foreign taxes under section 904(c). A memo that limits only the net operating loss is incomplete.

This page assumes attributes survived the transaction and asks what limits them. The sibling page titled Asset purchase or stock purchase: where the federal tax consequences actually diverge asks the prior question of whether attributes move with the deal at all under section 381, and the sibling titled Section 338(g) or 338(h)(10): an election issue map for a qualified stock purchase covers the election that can change the answer.

A sensible next step is to put the share register movements and testing dates into a research question and ask Taxterity for the authorities governing each gate, or have it draft a Federal Tax Memo on the testing-date analysis, then verify every provision cited against the current Code and regulations before relying on a limitation figure.

Related research

Official sources

  1. 26 U.S.C. 382 — Limitation on net operating loss carryforwards and certain built-in losses following ownership change — § 382(b)(1) to (b)(3); (c)(1) and (c)(2); (e)(1) and (e)(2); (f)(1) and (f)(2); (g)(1) to (g)(4)(A); (h)(1), (h)(3) and (h)(7)(A); (i); (j); (k)(1), (k)(5), (k)(6) and (k)(7); (l)(1)
  2. 26 U.S.C. 383 — Special limitations on certain excess credits, etc. — § 383(a) excess credits; § 383(b) net capital loss carryovers; § 383(c) excess foreign taxes
  3. 26 CFR 1.382-2 — General rules for ownership change — § 1.382-2(a)(1)(i) definition of loss corporation; § 1.382-2(a)(4)(i) testing date and close-of-day computation; § 1.382-2(a)(4)(ii) exceptions; 26 CFR ch. I, 4-1-25 edition
  4. 26 CFR 1.382-2T — Definition of ownership change under section 382, as amended by the Tax Reform Act of 1986 (temporary) — § 1.382-2T(a)(1) new loss corporation and ownership change; (a)(2)(i), whose heading limits it to testing dates prior to November 5, 1992, with (a)(2)(ii) reserved; (g)(1) 5-percent shareholder; 26 CFR ch. I, 4-1-25 edition
  5. 26 CFR 1.382-3 — Definitions and rules relating to a 5-percent shareholder — § 1.382-3(a)(1)(i) entity and coordinated acquisition; § 1.382-3(j)(2), (j)(2)(ii) small issuance, and (j)(2)(iii)(A)(1) and (2) small issuance limitation; 4-1-25 edition
  6. Applicable federal rates (AFRs) — Index page: prescribed rates are provided each month and published as revenue rulings, the source of the adjusted federal long-term rate used by section 382(f)

Limitations