With interest rates rising and economic outlook improving from the lows experienced during the COVID-19 pandemic, companies may be looking to bring on new investors through new rounds of capital raises.

If the company has historic net operating loss (NOL) (which has been the case for many companies during the past few years of economic volatility), new investments may lead to a “change of control” in the company, thereby limiting the ability to use these losses going forward — this is commonly referred to as a Section 382 limitation in common tax parlance. A company’s loss profile, capital needs and long-term goals can affect how they approach Section 382.


Section 382 imposes a limitation on a company to use its historical NOLs and certain other tax attributes in the event of an ownership change — defined as a 50-percent or greater change in ownership of five-percent shareholders over a rolling three-year period.

While this may appear to be a straightforward definition, there are significant nuances in the rules, such as:

  • How five-percent shareholders are determined
  • How shares are allocated between “public groups”
  • How “small issuance” and “small redemption” rules are applied

If a change of control takes place, there would be an annual limitation on the company’s ability to use NOLs. This limitation is generally computed as the equity value of the company multiplied by the relevant long-term tax-exempt rate, which is published by the IRS each month.

Additionally, if the company’s asset values are in excess of its adjusted tax basis (commonly referred to as a net unrealized built-in gain position), it may be able to increase its annual limitation by an additional amount over the five-year period following the ownership change. However, if the company is in a net unrealized built-in loss position at the time of the ownership change, the company’s Section 382 limitation will be lower thus resulting in slower utilization of the historic NOLs.


The degree to which Section 382 is implicated in capital raises depends on the existing shareholder profile and profile of new investors — i.e., how much new capital is being invested by existing five-percent shareholders vs. public groups and whether the segregation rules apply. A technical tax expert (such as GHJ’s Transaction Advisory Services Tax Practice) can assist in modeling out the company’s current owner shift and what it looks like in various investment scenarios.

Interest rates have significantly risen since the lows in 2020 — e.g., 0.89 percent in July 2020 compared to 3.34 percent in March 2024. A company that is close to an ownership change may consider triggering an ownership change if it is already close to the 50-percent threshold, especially if rates begin to drop again. The benefit here would be that any historical NOLs would be limited by the Section 382 limitation, but any NOLs generated after the ownership change would be able to be used without limitation under Section 382. GHJ’s experts work with a company’s financial forecasts and help model how to trigger an ownership change, what the limitation would look like and how losses would be able to be utilized in both an ownership change and non-ownership change scenario.

To learn more about navigating the highly technical rules of Section 382, regardless of the company’s stage in the corporate life cycle, please contact GHJ’s Transaction Advisory Services Tax Practice.

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Bryan King

Bryan King, LL.M., MBA, has eight years of public accounting experience providing a broad range of tax services to merger and acquisition clients. In this role, he advises clients across all industries. Prior to joining GHJ in 2021, Bryan was an M&A tax professional at a Big Four accounting…Learn More