Fonon Corp. (fka FNON)

[pitboss22]

The IRC § 382 Limitation

Section 382 applies when a change in ownership of more than 5% occurs.

Continuity of Business Enterprise

A lack of continuity of business enterprise triggers a further limitation that must be considered when section 382 applies. If a loss corporation does not meet a continuity of business enterprise test at all times in the two-year period following the ownership change, the 382 limitation for any post-change year is zero. For example, if Vulture Corporation purchased Loss Corporation and then discontinued Loss Corporation’s business and disposed of all of its assets, the 382 limit would be to zero, meaning no NOL would be allowed for use in the future.

Meeting the continuity of business enterprise test is based on all of the facts and circumstances. The rules are included in the tax regulations and generally state that the acquiring corporation must continue the loss corporation’s historic business (“business continuity”) or use a significant portion of the loss corporation’s historic business assets (“asset continuity”) in a business.