IRS loss (transferring to a new owner)

[ILLMAS]

What possibilities are there for a business that has thousands in accumulated losses  to pass it on to a new buyer?  Let’s say the potential buyer wants to merge it with an existing business that is profitable, can the loss be applied towards the profits?  

[grandmabee]

what type of business  C corp. or S- corp. ?  schedule C.

schedule C cannot.  Corporation possible if they sell and buy stock.

[Lee B]

As far as I know, the only way it works is if you have C Corporation with a large NOL, the NOL continues to be useable if the new owner buys the stock from the old owner.

Then the C Corporation can buy the assets of the profitable business and use the NOL to offset the profits.

[ILLMAS]

C corp 

[Abby Normal]

Isn't there something about an ownership change of 50% or more, freezing the NOL?

[jklcpa]

In general, if the sale of the C corp stock is a taxable transaction then the buyer retains the tax attributes of NOLs and tax credits, BUT iirc, there are some limitations like the acquired business can't be discontinued within a certain time period, and the NOL can only be applied to the future profits made within the acquired company and can't be used to offset profits of other activities of the purchasing company. Please do some additional research to check this if this is something you would consider suggesting to your client.

1 hour ago, Abby Normal said:

Isn't there something about an ownership change of 50% or more, freezing the NOL?

Abby, are you thinking of the percentage the IRS wants to see for continuity in a merger set up as a tax-free reorganization? 

[DANRVAN]

The tax attributes stay 100%  with the C-corp unless you are dealing with a section 382 or 383 transaction.

[Abby Normal]

23 hours ago, jklcpa said:

Abby, are you thinking of the percentage the IRS wants to see for continuity in a merger set up as a tax-free reorganization? 

No, it's a rusty brain cell. I may be thinking of something to do with partnerships.

[DANRVAN]

On 9/30/2020 at 3:09 PM, Abby Normal said:

I may be thinking of something to do with partnerships

Actually you were leading this discussion down the path to a 382 limitation.   Hence my abrupt heading out the door to go build fence reply.

 

On 9/29/2020 at 1:33 PM, Abby Normal said:

Isn't there something about an ownership change of 50% or more,

A 50% change in ownership of a loss C-corp will kick in a section 382 limitation.  The 50% change can come from 1 or more shareholders who ends up owning 5% or more.

For example in the post by ILLMAS, if a single buyer purchases 50% or more of the stock section 382 kicks in. 

Also if 10 buyers purchase 5% each, then 382 kicks in since 50% changed in the hands of a group that ended up owning 5% of more. 

But if 25 buyers each purchase 4%, then 382 does not apply since the 100% change was made by a group of stockholders owning less than 5%.