Video: What Are the Triggers on the IRS Section 382 for a Startup?
Section 382 is a part of the IRS code that was developed about 20 or 30 years ago to limit corporations’ use of their net operating losses to offset profits.
The punchline here is that you really do want to work either with Kruze Consulting or another startup CPA to calculate the Section 382 limitation.
It’s not an easy calculation. There’s a lot that goes into it. We’re going to have to analyze your cap table and a bunch of other things that have happened over the past couple of years because it’s a very important calculation.
So three things that you really want to keep in mind, or three events really, will really spur or trigger a call to either us or your startup CPA.
The first one is, of course, if you become profitable. So maybe you were running at a loss for the past five years or so. Now you’re getting to the point where you’re profitable and you’re going to start using those NOLs from previous years. You’re going to want to call us or your startup CPA.
The second situation that you should definitely consider is an M&A deal. Maybe an acquirer has come along. Maybe it’s a big corporation like Google or Apple or Facebook. They are going to want to use your NOLs to offset their profits. That is hugely valuable to them. So again, either call us or a startup CPA to help you calculate Section 382 limitation.
Last situation or event that you might want to call us for is a liquidation. So if you’re selling off some of your assets, part of those assets are of course your NOLs, so you want to go through a Section 382 study to figure out exactly how many of those NOLs the acquiring company could potentially utilize.