An IRC § 382 study involves a detailed review of legal documents like a company's stock ledger, SEC filings, financial statements, and transaction documents to determine if an ownership change has occurred under IRC § 382. An ownership change can limit a company's ability to use tax losses and credits from prior years. The study identifies 5% shareholders and their stock ownership over time to find ownership change dates. If an ownership change occurs, it may impose an annual limitation on tax attributes based on the company's value and tax rates.

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GENERAL OVERVIEW OF THE IRC § 382 STUDY
Under IRC § 382 of the Internal Revenue Code of 1986, as amended, a company's ability
to use certain tax attributes, including Net Operating Loss carry forwards (tax losses)
from prior years to offset current income may be limited if the company had a 50%
change in ownership as defined by law. The IRC § 382 limitation generally applies to
public and private corporations that have tax attribute carryovers about to be utilized or
are releasing the valuation allowance against deferred tax assets under FAS 109. IRC §
382 imposes parallel restrictions on the carryover of capital losses and certain credits.
A 382 Study involves a detailed review of numerous legal documents including:
1. Stock Ledger. Information about your company’s stock transactions should be in this
ledger.
2. Schedules 13D and 13G. These documents are filed with the SEC by persons who report
beneficial ownership of more than five percent of a class of stock of a public company.
Schedules 13D and 13G disclose the name of the shareholder and the class and number
of shares owned, and many other details that are relevant for purposes of determining
whether the filer is a 5-percent shareholder.
3. Proxy Statements. Proxy statements should be read in conjunction with Schedules 13D
and 13G. In addition to disclosing the identity of your company’s 5-percent
shareholders immediately before a significant event or transaction that required
shareholder approval, they typically refer back to the relevant Schedules 13D and 13G
for ownership information.
4. Forms 3, 4, and 5. These documents are filed with the SEC by the management of a
public company and contain information about management’s acquisitions and
dispositions of your company’s stock, including option exercises.
5. Financial Statements. Your company’s financial statements contain an abundance of
relevant information. For example, the balance sheet will indicate both the class and
number of shares of outstanding stock on a quarterly and yearend basis. In addition, the
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In accordance with Treasury Regulations which became applicable to all tax practitioners as of June 20, 2005, please note that
the advice given herein (including any attachments) is not intended or written to be used, and cannot be used by any taxpayer,
for the purpose of either avoiding tax penalties, or promoting, marketing, or recommending to another party any transaction or
matter addressed herein.

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notes to the financial statements will describe your company’s equity transactions in
detail. All of this information will help you identify your company’s testing dates.
6. Prior Section 382 Documents. Your company’s prior Section 382 studies, including
documentation regarding any prior ownership changes, if any, should be reviewed.
7. Transaction Documents. Not surprisingly, you will also need to review stock
purchase agreements, term sheets, and the like for all current and pending equity
transactions. For example, if your company had a public offering during the last
quarter, you’ll need to review the offering documents and any other relevant
information to determine the number of shares issued, the offering price, and most
importantly, the 5-percent shareholders who received shares of stock.
The purpose of an IRC § 382 study is to determine whether an ownership change
described, as that term is described by IRC § 382, has occurred. Following an
ownership change of a loss corporation, the net operating loss carryovers and net
unrealized built‐in losses of the corporation may become subject to an annual limitation
imposed by IRC § 382. This limitation is generally computed by multiplying the value
of the loss corporation immediately before the ownership change by the applicable
Federal long‐term tax‐exempt rate in effect during the month of the ownership change.
When a loss corporation has successive ownership changes, it is necessary to calculate
two (or more) IRC § 382 Limitations. In general, the lesser limitation will apply.
IRC § 382 requires that a loss corporation file an Information Statement with its federal
income tax return in the year when the ownership change occurred. The Information
Statement must identify the date on which the ownership change occurred. IRC § 382
also requires a loss corporation in which an owner shift or equity structure shift occurs
to file an Information Statement even if it does not have an ownership change resulting
in the imposition of a limitation described by IRC § 382. The Information Statement
must also indicate that an ownership change did not occur and disclose any testing
dates that occurred during the taxable year. A loss corporation is required to maintain
records that are necessary to determine the following items: (1) the identity of its
5‐percent shareholders, (2) the percentage of stock owned by each 5‐percent
shareholder, and (3) whether the Section 382 limitation is applicable.
A complex set of statutes, regulations and cases surround the application of IRC § 382 to
each specific taxpayer. Further analysis and additional information is required in order
to determine the IRC § 382 limitation on specific tax attributes for each taxpayer. Please
contact Spizzirri Law Offices if you would like to discuss the application of IRC § 382 to
your Company.
__________________________________________________________________________________________
SPIZZIRRILAW.COM
In accordance with Treasury Regulations which became applicable to all tax practitioners as of June 20, 2005, please note that
the advice given herein (including any attachments) is not intended or written to be used, and cannot be used by any taxpayer,
for the purpose of either avoiding tax penalties, or promoting, marketing, or recommending to another party any transaction or
matter addressed herein.