Protecting the Unknown: The Impact of the Liberalization of NOL Carrybacks in Acquisitions

Daniel Tavakoli, Georgetown University Law Center

This paper was written under the supervision of Professor Kathryn Zeiler.


This paper explores the impact of section 382 of the Code and its limitations on Net Operating Losses (NOLs) and advocates for new method for valuing NOL limitations. Section 382 limits the corporation's future ability to use its NOLs if there is an ownership change or an equity structure shift. To corporations, NOLs are assets that provide value in tax-benefits; to potential acquirers, NOLs provide a valuable option for corporations to offset future income gains.

The author suggests that Congress should revise section 382 of the code to reflect the intent of the transaction. Abusive transactions should not be allowed to utilize any benefits from NOLs. Conversely, transactions meant to raise capital for a firm should not cause any NOL revaluation. And merger transactions should have a NOL limitation that is proportional to the value added to the firm in the acquisition.