Carryforward in the United States

Operating Loss and Tax Credit Carryforwards

Some companies have federal and state net operating loss carryforwards due to prior period losses.

Federal tax credit carryforwards, which if not utilized, will begin to expire in fifteen years. Some tate tax credit carryforwards do not expire. In some cases, these net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect the profitability of companies.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), the companies ability to utilize net operating loss carryforwards or other tax attributes, such as tax credits, in any taxable year may be limited if they experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of their stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. As a result of prior equity issuances and other transactions in their stock, it is quite common than large companies and stock companies have previously experienced “ownership changes” under Section 382 of the Code and comparable state tax laws.