Replies to post #2437 on Syncora Holdings Ltd (fka SYCRF)

[betahighlander]

This might help- short story is the NOL gets limited-there are various strategies on the link the maximize the NOL. or reduce the amount of the limitation.

Section 382 and M&A Considerations
http://www.macabacus.com/taxes/net-operating-loss
The treatment of a target's tax attributes (e.g. NOL) in an acquisition depends on the tax structure of the deal. Indeed, the target's tax attributes may dictate the structure of a transaction. In taxable acquisitions in which the acquired net assets are stepped-up for tax purposes, the target's NOL may generally be used immediately by the acquirer to offset the gain on the actual or deemed asset sale. Any remaining NOL of the target do not survive the transaction and are lost. Therefore, when the target has substantial NOL, the deal is often structured to achieve a step-up in the acquired net assets. For deals in which there is not a step-up for tax purposes, such as a stock acquisition without a Section 338 election, the target's NOL may be used by the acquirer in future years subject to limitation under Internal Revenue Code (IRC) Section 382.

The IRS created Section 382 to deter acquisitions of companies with substantial NOL solely motivated by tax avoidance objectives, without any valid business purpose. To accomplish this, Section 382 severely restricts the buyer's use of acquired NOL following a change in ownership, limiting annual use of such NOL to:

Purchase price of target's stock × IRS long-term tax-exempt rate

The Section 382 limitation may be circumvented if the target and buyer collaborate to sell unwanted target assets with unrealized built-in gains before the acquisition occurs. The target may then use its NOL to offset the gain on the sale without limitation. If the unwanted asset disposal occurred after the transaction, on the other hand, the NOL would be subject to limitation under Section 382 would not go as far in shielding the gain.

To find the current long-term tax-exempt rate used to compute the annual limit on NOL utilization under Section 382, visit the IRS' web site and search for "Applicable Federal Rate." Download the IRS' most recent revenue ruling on Applicable Federal Rates to find the long-term tax-exempt rate (see image below). The long-term tax-exempt rate for ownership changes in any given month is the highest of the adjusted federal long-term rates for that month and the prior two months.