Limitations on NOL carryforwards.The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has issued proposed regulations under Sec. 382 providing rules on indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. that qualifies for favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. treatment under Sec. 382(1)(5)(E); stock transferred to a creditor An individual to whom an obligation is owed because he or she has given something of value in exchange. One who may legally demand and receive money, either through the fulfillment of a contract or due to injury sustained as a result of another's Negligence in satisfaction of the indebtedness may be taken into account in determining whether the benefits of Sec. 382(1)(5) are available to a loss corporation that has an ownership change in a title 11 or similar case. Sec. 382(1)(5) provides that the Sec. 382(a) loss limitation does not apply after a loss corporation's ownership change if (1) the corporation is under court jurisdiction in a title 11 or similar case immediately before the change and (2) the corporation's pre-change shareholders and qualified creditors own at least 50% of the value and voting power of the loss corporation's stock immediately after the ownership change and as a result of being prechange shareholders or qualified creditors immediately before the ownership change (the 50% test). The proposed regulations contain rules for determining whether stock of a loss corporation that has an ownership change in a title 11 or similar case is owned as a result of being a qualified creditor. A qualified creditor is the beneficial owner Beneficial Owner A person who enjoys the benefits of ownership even though title is in another name. Notes: For example, when shares of a mutual fund are held by a custodian bank or when securities are held by a broker in street name, the true owner is the beneficial , immediately before the change, of qualified indebtedness of the loss corporation. Beneficial ownership is determined without applying the Sec. 382 attribution rules Attribution Rules A set of rules created by Canada Customs and Revenue Agency (CCRA) that prevents investors from transferring assets between family members with the intention of avoiding taxes. . Indebtedness is qualified if it (1) has been owned by the same beneficial owner since the day that is 18 months before the date of the filing of the petition in the title 11 or similar case or (2) arose in the ordinary course of the loss corporation's trade or business and has been owned at all times by the same beneficial owner. Under the proposed regulations, a loss corporation may treat a portion of each class of its "widely held indebtedness" owned on the change date by "less-than-5% beneficial owners" as always having been owned by the same beneficial owners, regardless of how long those beneficial owners have actually owned the indebtedness. The amount of the class that may be so treated is the least of (1) the amount owned on the "plan date" by less-than-5% beneficial owners, (2) the amount owned on the change date by less-than-5% beneficial owners (reduced by the amount, if any, of the class so owned that is exchanged for stock owned by a 5% shareholder immediately after the change), or (3) the least amount that the loss corporation actually knows was owned by less-than-5% beneficial owners on any other day during the period beginning on the day 18 months before the filing of the title 11 or similar case (or the day the indebtedness was incurred, if later) and ending with the change date (the "continuity period"). "Widely held indebtedness" is any indebtedness in registered form, if indebtedness of the same class is owned by more than 50 beneficial owners on any day. A "less-than-5% beneficial owner" on any particular day is beneficial owner of indebtedness who owns less than 5% of the class on that day. The "plan date" is the earliest of (1) the filing day with the court of the first plan of reorganization that is endorsed by a creditor's committee Creditor's committee A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty. , (2) the filing day with the court of the first plan of reorganization for which a disclosure statement is approved by the court or (3) the first day on which the loss corporation has sufficient acceptances to a reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions. to assure acceptance of the plan under bankruptcy rules. The loss corporation has an affirmative AFFIRMATIVE. Averring a fact to be true; that which is opposed to negative. (q.v.) 2. It is a general rule of evidence that the affirmative of the issue must be proved. Bull. N. P. 298 ; Peake, Ev. 2. 3. duty to determine the amount of a class owned by less-than-5% beneficial owners for the plan date and the change date. The proposed regulations set out optional procedures on which the loss corporation may rely for making this determination, except to the extent it has actual knowledge to the contrary. Although changes in the ownership of a creditor are generally disregarded dis·re·gard tr.v. dis·re·gard·ed, dis·re·gard·ing, dis·re·gards 1. To pay no attention or heed to; ignore. 2. To treat without proper respect or attentiveness. n. , qualified indebtedness does not include indebtedness owned by a beneficial owner that has a Sec. 382 ownership change during the continuity period, if the indebtedness represents more than 25% of the beneficial owner's gross assets on that owner's change date (excluding cash and cash equivalents). This special rule generally does not apply if, immediately before the loss corporation's ownership change, the beneficial owner owns less than $100,000 of the loss corporation's indebtedness or, in the case of widely held indebtedness, the beneficial owner owns less than 5% of the class. Except to the extent it has actual knowledge to the contrary, a loss corporation may rely on a statement signed, under penalties of perjury perjury (pûr`jərē), in criminal law, the act of willfully and knowingly stating a falsehood under oath or under affirmation in judicial or administrative proceedings. , by the beneficial owner of the indebtedness on the change date certifying that the special rule is inapplicable in·ap·pli·ca·ble adj. Not applicable: rules inapplicable to day students. in·ap . |
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