More Good News for Loss Corporation Subject to NOL Limitations

August 30, 2013

On April 5, 2013, the IRS National Office released Private Letter Ruling (PLR) number 201314035.  This PLR stated that certain capital contributions made within a 2-year period (via preferred equity participation by investors) that were used substantially to meet the operating expenses necessary to continue basic operations (including, but not limited to, employee salaries and benefits, rent, utilities and other professional fees) did not constitute a tainted capital contribution received by an old loss corporation (e.g., as part plan) for which the principal purposes was to increase any imitation under Sec 382(l)(1) limitation calculation (the “anti-stuffing” provision).

This ruling should not be of any surprise and should continue to reaffirm the IRS’ position, previously reiterated in Notice 2008-78 and past-issued PLRs, which maintains that capital contributions that can be traced to the funding of necessary working capital expenditures, including general operating expenses, research and development and interest, should not be accounted as part of the anti-stuffing abuse provisions under Sec 382(I)(1).

Sec 382(l)(1) is an anti-abuse tax provision enacted under Sec 382 general construct provisions that is intended to prevent a loss corporation from inflating its value for purposes of the annual Sec 382 limitation calculation with respect to any capital contributions previously received by the loss corporation within a 2-year window ending on the Sec 382 ownership measurement date.

For the record, the IRS private ruling is directed only to the taxpayer requesting it and may not be used or cited as precedent. However, it clearly reaffirms the internal opinion of the IRS National Office regarding this subject matter.

If you have any questions regarding this topic or would like more specific information, please contact your Aronson LLC tax advisor or Jorge L. Rodriguez, CPA, Tax Director at 301.222.8220.