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An equity structure shift may also occur when a transaction does not qualify for tax-free status. An owner shift involving a 5% shareholder is any change in the respective ownership of stock of the loss corporation.

The amount of the increase is limited to the lesser of a) built-in gains recognized through a Sec.338 election, or b) the net unrealized built-in gains, discussed previously. 382 Limitation has been determined, it must be applied to the year of change.Passage of TRA 86 served to make these benefits of corporate tax attributes following various corporate transactions difficult to realize.Limitations have been placed on corporate ownership changes greatly reducing or even eliminating the tax benefits associated with this type of transaction.382 Limitation." This limitation is calculated by multiplying the value of the old loss corporation by the long-term tax-exempt rate.

Value of the Old Loss Corporation The value of the old loss corporation is the fair market value of all its stock immediately before ownership change, including preferred stock. In determining the stock value, certain capital contributions may be disqualified through the "anti-stuffing" rule.351, redemptions and other stock decreases, debt conversions, and stock issuances. 382, all less- than-5% shareholders' ownerships are aggregated and considered one 5% shareholder.In general, the day-to-day trading of stock in a publicly held corporation should not be affected by Sec. However, a public offering, even a small one if added to other stock transfers, may trigger an ownership change. An option transaction may result in an ownership change if the option would cause a 50-percentage point increase in the ownership of a 5% or more shareholder if exercised on the testing date.Tax benefits available after corporate ownership changes have been significantly reduced, and even eliminated in some cases, under Internal Revenue Code Sec 382 as modified by the Tax Reform Act of 1986 (TRA 86).Benefits limited by TRA 86 include net operating carryforward and 'net unrealized built-in losses.' Accountants need to understand the modified Sec 382, as well as its relationship to Sec 269 which addresses tax avoidance, for better tax planning for loss corporations considering ownership changes or bankruptcy proceedings.The discussion in this article focuses mostly on net operating losses, and does not discuss attributes limited by IRC Sec. As well, this article does not discuss the consolidated return limitations or attributes. 382 limits the amount of income that may be offset by net operating loss (NOL) carryovers and other tax attributes after an ownership change. 382 Limitation." These attributes may be reduced further or possibly even eliminated if certain requirements are not met. 382 A change in corporate ownership occurs when a substantial (5% or more) stockholder of a loss corporation has increased their ownership by more than 50 percentage points as of a testing date.