The IRS has ruled that a C Corporation may carry back a net operating loss (NOL) to offset portfolio income from a prior year when the corporation was a closely-held corporation. Under the Internal Revenue Code, a closely-held C corporation is one that at any time during the last half of the tax year, more than 50% in value of its stock is owned, directly or indirectly, by not more than five individuals. The corporation in the case was a closely-held corporation in years 2 and 3 of existence with earned portfolio income in each year. In year 4, a change of ownership caused the corporation to lose its closely-held status. However, this did not prevent the corporation from carrying back a NOL from year 4 to offset portfolio income earned in years 2 and 3. The IRS ruled that the passive activity loss rule of IRC Section 469 do not limit the offset.
Points of Interest
- The tax cuts established during the first few years of the Bush Administration will, or are at least slated to, automatically sunset as of January 1, 2011.
- The requirements for exchanging real property are not nearly as stringent as for non-real property.
- Because capital gains taxes will increase in the near future, efficient tax planning has become absolutely critical to retirement planning.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors