Limitations on Corporate Tax Attributes: An Analysis of Section 382 And Related Provisions
Linked to this site is the 2025 edition of Lee G. Zimet’s paper entitled “Limitations on Corporate Tax Attributes: An Analysis of Section 382 And Related Provisions.” The paper contains a comprehensive discussion of corporate tax attributes and the various limitation rules.
As a result of the recent upheaval in the markets (e.g., on-again, off-again tariffs), many corporations find themselves with unprecedented losses from investments, operations and debt financing. Many economically profitable businesses also find themselves with tax losses due to the ability to deduct the majority of the costs of equipment under the bonus depreciation rules. The One Big Beautiful Bill (OBBB) may further increase the ability of corporations to deduct expenditures that would otherwise be capitalized.
These losses can result in the creation of tax attributes for the corporation that can be used as deductions against past or future profits. Corporations with such attributes need to understand the complicated rules that apply to these attributes and limit their use.
This paper discusses the rules on the limitation and use of tax attributes (carryforwards and built-in items) by corporations. The bulk of the paper discusses the limitation rules of Section 382 of the Internal Revenue Code of 1986, as amended (the Code), which limit the use of tax attributes after an ownership change. The paper also discusses the other rules that can apply to limit a corporation’s use of its tax attributes (or their usefulness).
Sections 382 and 383 together limit the use of net operating losses (NOLs), and certain other tax attributes, by corporations. These provisions apply after a corporation undergoes an ownership change (i.e., a greater than 50 percent increase in stock ownership over, generally, a three-year period). The limitation is generally based upon the value of the stock of the corporation before the ownership change multiplied by the long-term tax-exempt rate, a rate published monthly by the Internal Revenue Service.
Section 384, a provision that shares many concepts with Sections 382 and 383, limits the use of NOLs (and certain other tax attributes) by corporations. This provision applies where a corporation acquires the stock or assets of another corporation.
The separate return limitation year (SRLY) limitation rules limit the use of NOLs (and certain other tax attributes) by a consolidated group. The SRLY rules also share concepts with Sections 382 and 383. These provisions apply if a new member joins (or an existing member departs) a consolidated group.
Highlights of the 2025 edition include:
- Book Income AMT – A new corporate alternative minimum tax (CAMT) based on book income was enacted as part of the Inflation Reduction Act of 2022 (IRA). Comprehensive proposed regulations were issued in September 2024. The paper describes how corporate tax attributes (book losses (including book losses of controlled foreign corporations), foreign tax credits, and general business tax credits) can be applied against the CAMT and the potential limitation on their use. The CAMT rules are described on pages 32–72.
- Pillar Two – Starting in 2024, certain large multinational enterprises can be subject to foreign taxes if they are not subject to a minimum tax of at least 15 percent in the United States (taking into account both federal, state and local income taxes) on their U.S. profits. This tax regime is referred to by many as Pillar Two. The paper describes how foreign taxes could be applied to tax undertaxed U.S. profits. Such a tax would limit the efficacy of certain U.S. tax attributes. The Pillar Two rules are described on pages 72–93.
- Transferable Tax Credits – The IRA provided for various energy-related tax credits that can be transferred to an unrelated third party. Final regulations were issued in April 2024. A thriving market exists for these credits. It should be noted that the OBBB has proposed repealing the transferability of these credits. The transferability of credit rules is discussed on pages 114–17.
- Valuation Issues – Issues can arise in trying to determine the fair market value of corporate tax attributes. The paper focuses on the economic effect on structuring transactions and the effect under U.S. federal income tax rules (as well as contractual provisions that parties may enter into to deal with the economic and tax effects). Valuation issues are discussed on pages 137–46.
- Section 174 Capitalization Rules – Starting in 2022, research and experimental expenditures and software development costs are no longer currently deductible. Instead, these costs are amortized over five years (15 years, in the case of foreign research). The paper describes the potential issues relating to the treatment of Section 174 capitalized costs under the Section 382 built-in gain or loss rules. It should be noted that the OBBB has proposed reinstating a current deduction for domestic research, but not for foreign research. These issues are discussed on pages 255–56, 270–73 and 279–80.
