Managing NOLs in Federal and State Tax Compliance and State Tax - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute teleconference with interactive Q&A Managing NOLs in Federal and State Tax Compliance and State Tax Compliance Navigating Federal Restrictions and State NOL Matches by a Multi ‐ State Company THURSDAY, JUNE 7, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Douglas Bekker, Partner, National Tax Services, BDO USA , Grand Rapids, Mich. g , , , , p , Caleb Gauen, Director, PricewaterhouseCoopers , New York Lance S. Jacobs, Of Counsel, Pepper Hamilton , Washington, D.C. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .

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M Managing NOLs in Federal and State i NOL i F d l d St t Tax Compliance Seminar June 7, 2012 Douglas Bekker, BDO USA Caleb Gauen, PricewaterhouseCoopers dbekker@ bdo.com caleb.gauen@ us.pwc.com Lance S. Jacobs, Pepper Hamilton jacobsls@ pepperlaw.com

Today’s Program Federal NOL Treatment Slide 7 – Slide 24 [Douglas Bekker] State NOL Treatment Slide 25 – Slide 41 [Caleb Gauen] Special Situations At The State Level Involving NOLs Slide 42 – Slide 51 [Lance S [Lance S . Jacobs] . Jacobs]

Douglas Bekker, BDO USA FEDERAL NOL TREATMENT FEDERAL NOL TREATMENT

Corporate/M&A Tax Training Series Agenda For This Section Agenda For This Section Computation of federal net operating loss Computation of federal net operating loss • • Limitations on carryforwards and carrybacks • Sect. 382 • Latest developments • 2012 Federal Net Operating Loss Update Page 8

Corporate/M&A Tax Training Series Federal Net Operating Loss (NOL) Federal Net Operating Loss (NOL) Corporate taxpayers – negative taxable income • ­ Sect. 199 deduction cannot create or enlarge a NOL. ­ Charitable contributions cannot create an NOL. Generally calculated on a consolidated basis, for consolidated • return filers Separate computation must be done, for AMT purposes. • Flow-through entities: Loss passes through to the individual. l h h h h h d d l • Individual NOL computation is more complex. 2012 Federal Net Operating Loss Update Page 9

Corporate/M&A Tax Training Series Federal NOL Carrybacks And Carryforwards NO’s must first be carried back 2 years. • ­ Irrevocable election to forgo carryback period Remaining NOL carried forward 20 years Remaining NOL carried forward 20 years • Consolidated groups: Watch the SRLY rules • ­ Separate return limitation year Separate return limitation year ­ Can apply to limit ability to use loss carryforwards or carrybacks for entities joining or leaving the consolidated group 2012 Federal Net Operating Loss Update Page 10

Corporate/M&A Tax Training Series Federal NOL Carrybacks And Carryforwards (Cont.) AMT NOL follows the same carryback and carryforward rules. • Only 90% of current year AMTI can be offset by AMT NOL • carryforward or carryback Special exception for any AMT NOL generated in Sect. 172(h) • election year election year 2012 Federal Net Operating Loss Update Page 11

Corporate/M&A Tax Training Series General Operation Of Sect 382 General Operation Of Sect. 382 Limitations apply following an “ownership change ” Limitations apply following an ownership change. • • Use of “pre-change” losses to offset “post-change” income subject to • annual Sect. 382 limitation l S t 382 li it ti Limitations may also apply to recognized built-in losses. • 2012 Federal Net Operating Loss Update Page 12

Corporate/M&A Tax Training Series General Policies Of Sect General Policies Of Sect. 382 382 Anti trafficking rules Anti-trafficking rules • • Neutrality principle regarding use of capital • Purpose of acquisition is irrelevant. • 2012 Federal Net Operating Loss Update Page 13

Corporate/M&A Tax Training Series Ownership Change Defined Ownership Change Defined An “ownership change” occurs on a testing date when the stock of the An ownership change occurs on a testing date when the stock of the • • loss corporation owned by one or more 5% shareholders increases by more than 50 percentage points during a testing period, when compared with the lowest ownership by each shareholder during that period. 2012 Federal Net Operating Loss Update Page 14

Corporate/M&A Tax Training Series 5% 5% Shareholders Shareholders An actual direct owner of at least 5% of loss corporation’s stock An actual direct owner of at least 5% of loss corporation s stock • • An indirect owner of at least 5% through higher-tier entities • Public group shareholders • ­ Segregation rules can be complex. g g p ­ Cash issuance and small issuance exceptions 2012 Federal Net Operating Loss Update Page 15

Corporate/M&A Tax Training Series Testing Period Testing Period Generally consists of the three year period ending on a testing date Generally consists of the three-year period ending on a testing date • • Testing period does not begin before: • — Day after prior ownership change — First day of taxable year from which the corporation is carrying forward a net operating loss, net capital loss or other attribute 2012 Federal Net Operating Loss Update Page 16

Corporate/M&A Tax Training Series Testing Dates Testing Dates Acquisition or disposition of stock by a direct 5% owner Acquisition or disposition of stock by a direct 5% owner • • Acquisition or disposition of interests by an owner of higher-tier entity • Issuance of stock by a corporation • Redemption of stock • Recapitalization • 2012 Federal Net Operating Loss Update Page 17

Corporate/M&A Tax Training Series Pre-Change Losses Pre-Change Losses Any net operating loss carried from a taxable year that ends before the Any net operating loss carried from a taxable year that ends before the • • ownership change Any portion of the net operating loss for the taxable year that includes A ti f th t ti l f th t bl th t i l d • the change date, to the extent attributable to the period preceding the change 2012 Federal Net Operating Loss Update Page 18

Corporate/M&A Tax Training Series Sect 382 Limitation Sect. 382 Limitation Value of the loss corporation’s stock immediately before the Value of the loss corporation s stock, immediately before the • • ownership change, multiplied by the long-term tax-exempt rate Long-term tax-exempt rate for June 2012 ownership changes is 3.26%. L t t t t f J 2012 hi h i 3 26% • 2012 Federal Net Operating Loss Update Page 19

Corporate/M&A Tax Training Series Value Of Loss Corporation Value Of Loss Corporation Fair market value of all stock outstanding immediately before Fair market value of all stock outstanding immediately before • • ownership change Includes option value I l d ti l • May apply control premium to market capitalization • Capital contributions prior to change • Corporate contractions • 2012 Federal Net Operating Loss Update Page 20