Washington Tax Alert from Don Barnes, [email protected]
April 19, 2010

The IRS National Office recently issued a favorable private letter ruling ( see PLR 201015024) to a loss corporation that had experienced a greater than 50 percentage point change in ownership. The ruling considered the requirement in IRC § 382(c) that the corporation continue its historic business enterprise for two years after the ownership change.

During the two-year period after the ownership change, the corporation sold part of its assets which included the marketing of its only product. The corporation retained its research and development department, its patents and patent applications, and an antitrust and patent infringement lawsuit against a competitor. After the end of the two-year period, the corporation sold its research and development activities for contingent future payments. The corporation subsequently settled the antitrust litigation and licensed its patents for an amount that was greater than the amount it had received from the prior sale of assets.

The National Office held that the corporation’s research activities and continued antitrust litigation regarding its business and patents constituted the use of “historic business assets” by the taxpayer, and such assets constituted a significant portion of the corporation’s historic business assets. As a result, the limitation in IRC § 382(c) on pre-change carryforwards did not apply