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Net Operating Losses

Rick Bigelow's Profile

My company is about to close a deal that has the possibility of including Net Operating Losses.  I had experience with them over a decade ago, but know that things have changed regarding the allowed uses of NOL's.

Can anyone provide a summary explanation of how the NOL's can be used in a 100% asset purchase vs. a 100% stock purchase.

I plan on utilizing a tax attorney before moving to the final stages of the deal, but would like a foundation of how the NOL's might impact the overall valuation.

Thank you in advance.

 

Rick

 

Answers

Dale Bolen
Title: VP Accounting
Company: C.R. Laurence Co.
(VP Accounting, C.R. Laurence Co.) |

You definitely will want to get professional advice on this. At a high level, the NOL's belong to the legal entity (your target). So, in an asset purchase, the acquireror can't obtain obtain the NOL's. In the stock purchase, a change in control (as defined by the IRS) limits the target's ability to continue utilizing the NOL's (at something like the long term debt rate times enterprise value). A tax advisor with M&A expertise can help you navigate this. Good luck with your acquisition.

Gwen Griffith
Title: Partner
Company: Tonkon Torp
(Partner, Tonkon Torp) |

Agree with comment 1. If the transaction is an asset sale the losses will be used by the Target to offset the income if any from the sale. In a stock sale, if there is an ownership change the Usefulness of the NOLs is severely restricted. Losses can be used by the acquiring corp, but are limited each year to the value of the Target multiplied by the long term tax exempt rate (published by IRS monthly -very low indeed right now). This allows you to PV them In many cases the period for carryforward of the NOLs expires before use and they are lost. An ownership change occurs in general if there is a 50% change in ownership which would certainly
occur in the situation of a 100% acquisition. Good luck with the transaction.

Robert Nale
Title: Tax Director
Company: in-between
(Tax Director, in-between) |

I agree with comments 1 and 2 and would only add that you should track state as well as federal (and international) NOLs. Limitations apply and will affect your future use if you pursue a stock transaction.

Byron Rambo
Title: pres
Company: rsb partners, inc.
(pres, rsb partners, inc.) |

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