Section 382 

Section 382 is a provision of the U.S. Internal Revenue Code (IRC) designed to limit a company’s ability to use tax loss carryforwards after a significant change in ownership. Tax loss carryforwards allow businesses to offset future taxable income with past losses, reducing their tax liability. 

When more than 50% of a company’s ownership changes hands over a three-year period, Section 382 limits how much of those net operating losses (NOLs) can be used in subsequent years. The annual limit is based on the company’s value immediately before the ownership change, multiplied by the long-term tax-exempt rate published monthly by the IRS. 

This provision helps prevent profitable companies from acquiring loss-heavy businesses solely to reduce their taxable income.