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IRS.gov Website
Publication 542
taxmap/pubs/p542-007.htm#en_us_publink1000257813

Income, Deductions, and Special Provisions(p9)

rule
Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. However, the following special provisions apply only to corporations.
taxmap/pubs/p542-007.htm#en_us_publink1000257814

Costs of Going Into Business(p9)

rule
When you go into business, treat all eligible costs you incur to get your business started as capital expenses. However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Any costs not deducted can be amortized.
Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs are the direct costs of creating the corporation.
For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Also see Pub. 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization.
taxmap/pubs/p542-007.htm#en_us_publink1000257815

Related Persons(p9)

rule
A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. These rules also deny the deduction of losses on the sale or exchange of property between related persons.
taxmap/pubs/p542-007.htm#en_us_publink1000257816

Related persons.(p9)

rule
For purposes of this rule, the following persons are related to a corporation.
  1. Another corporation that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code).
  2. An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation.
  3. A trust fiduciary, if the trust or the grantor of the trust owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation.
  4. An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation.
  5. A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership.
  6. Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner.
taxmap/pubs/p542-007.htm#en_us_publink1000257817
Ownership of stock.(p10)
To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply.
  1. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries.
  2. An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants.
  3. Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner.
  4. To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock.
taxmap/pubs/p542-007.htm#en_us_publink1000257818

Reallocation of income and deductions.(p10)

rule
Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests.
taxmap/pubs/p542-007.htm#en_us_publink1000257819

Complete liquidations.(p10)

rule
The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions.
taxmap/pubs/p542-007.htm#en_us_publink1000257820

More information.(p10)

rule
For more information about the related person rules, see Pub. 544.
taxmap/pubs/p542-007.htm#en_us_publink1000257825

Corporate Preference Items(p10)

rule
A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. These items are known as corporate preference items and they include the following. For more information on corporate preference items, see section 291 of the Internal Revenue Code.
taxmap/pubs/p542-007.htm#en_us_publink1000257826

Dividends-Received Deduction(p10)

rule
A corporation can deduct a percentage of certain dividends received during its tax year. This section discusses the general rules that apply. The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return.
taxmap/pubs/p542-007.htm#en_us_publink1000257827

Dividends from domestic corporations.(p10)

rule
A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received.
taxmap/pubs/p542-007.htm#en_us_publink1000257828
Ownership.(p10)
For these rules, ownership is based on the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) that the receiving corporation owns.
taxmap/pubs/p542-007.htm#en_us_publink1000257829

Small business investment companies.(p10)

rule
Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations.
taxmap/pubs/p542-007.htm#en_us_publink1000257830

Dividends from regulated investment companies.(p10)

rule
Regulated investment company dividends received are subject to certain limits. Capital gain dividends received from a regulated investment company do not qualify for the deduction. For more information, see section 854 of the Internal Revenue Code.
taxmap/pubs/p542-007.htm#en_us_publink1000257832

No deduction allowed for certain dividends.(p10)

rule
Corporations cannot take a deduction for dividends received from the following entities.
  1. A real estate investment trust (REIT).
  2. A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year.
  3. A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Ex-dividend means the holder has no rights to the dividend.
  4. A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days.
  5. Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
taxmap/pubs/p542-007.htm#en_us_publink1000257833

Dividends on deposits.(p11)

rule
Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. They do not qualify for this deduction.
taxmap/pubs/p542-007.htm#en_us_publink1000257834

Limit on deduction for dividends.(p11)

rule
The total deduction for dividends received or accrued is generally limited (in the following order) to:
  1. 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then
  2. 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations).
taxmap/pubs/p542-007.htm#en_us_publink1000257835
Figuring the limit.(p11)
In figuring the limit, determine taxable income without the following items.
  1. The net operating loss deduction.
  2. The domestic production activities deduction.
  3. The deduction for dividends received.
  4. Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends below).
  5. Any capital loss carryback to the tax year.
taxmap/pubs/p542-007.htm#en_us_publink1000257836
Effect of net operating loss.(p11)
If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit.
taxmap/pubs/p542-007.htm#en_us_publink1000257837

Example 1.(p11)

A corporation loses $25,000 from operations. It receives $100,000 in dividends from a 20%-owned corporation. Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Therefore, the 80% of taxable income limit does not apply. The corporation can deduct the full $80,000.
taxmap/pubs/p542-007.htm#en_us_publink1000257838

Example 2.(p11)

Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Its taxable income is $85,000 before the deduction for dividends received. After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%).
taxmap/pubs/p542-007.htm#en_us_publink1000257839

Extraordinary Dividends(p11)

rule
If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. The nontaxed part is any dividends-received deduction allowable for the dividends.
taxmap/pubs/p542-007.htm#en_us_publink1000257840

Extraordinary dividend.(p11)

rule
An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. The percentages are:
  1. 5% for stock preferred as to dividends, or
  2. 10% for other stock.
Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock.
taxmap/pubs/p542-007.htm#en_us_publink1000257841

Disqualified preferred stock.(p11)

rule
Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock.
Disqualified preferred stock is any stock preferred as to dividends if any of the following apply.
  1. The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future.
  2. The issue price of the stock exceeds its liquidation rights or stated redemption price.
  3. The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock.
taxmap/pubs/p542-007.htm#en_us_publink1000257842

More information.(p11)

rule
For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code.
taxmap/pubs/p542-007.htm#en_us_publink1000257844

Below-Market Loans(p12)

rule
If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest.
A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following:Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction.
taxmap/pubs/p542-007.htm#en_us_publink1000257845

Foregone interest.(p12)

rule
For any period, forgone interest is equal to:
  1. The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus
  2. Any interest actually payable on the loan for the period.
See Below-market loans in chapter 4 of Pub. 535 for more information.
taxmap/pubs/p542-007.htm#en_us_publink1000257846

Charitable Contributions(p12)

rule
A corporation can claim a limited deduction for charitable contributions made in cash or other property. The contribution is deductible if made to, or for the use of, a qualified organization. For more information on qualified organizations, see Pub. 526, Charitable Contributions. Also see Exempt Organizations Select Check (EO Select Check) at www.irs.gov/charities, the online search tool for finding information on organizations eligible to receive tax-deductible contributions.
Note.You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual.
taxmap/pubs/p542-007.htm#en_us_publink1000257848

Cash method corporation.(p12)

rule
A corporation using the cash method of accounting deducts contributions in the tax year paid.
taxmap/pubs/p542-007.htm#en_us_publink1000257849

Accrual method corporation.(p12)

rule
A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the due date for filing the corporation’s tax return (not including extensions). Make the choice by reporting the contribution on the corporation's return for the tax year. Attach a declaration stating that the board of directors adopted the resolution during the tax year. The declaration must include the date the resolution was adopted.
taxmap/pubs/p542-007.htm#en_us_publink1000257850

Limitations on deduction.(p12)

rule
A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Figure taxable income for this purpose without the following.
  1. The deduction for charitable contributions.
  2. The dividends-received deduction.
  3. The deduction allowed under section 249 of the Internal Revenue Code for bond premium.
  4. The domestic production activities deduction.
  5. Any net operating loss carryback to the tax year.
  6. Any capital loss carryback to the tax year.
taxmap/pubs/p542-007.htm#en_us_publink1000270057
Farmers, ranchers, or Native Corporations.(p12)
Corporations that are farmers, ranchers, or Native Corporations should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit.
taxmap/pubs/p542-007.htm#en_us_publink1000257851
Carryover of excess contributions.(p12)
You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. You lose any excess not used within that period. For example, if a corporation has a carryover of excess contributions paid in 2016 and it does not use all the excess on its return for 2017, it can carry any excess over to 2018, 2019, 2020, and 2021, if applicable. Any excess not used in 2021 is lost. Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover.
taxmap/pubs/p542-007.htm#en_us_publink1000270058

Cash contributions.(p12)

rule
A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Keep the record of the contribution with the other corporate records. Do not attach the records to the corporation's return. For more information on cash contributions, see Pub. 526.
taxmap/pubs/p542-007.htm#en_us_publink1000257852
Gifts of $250 or more.(p12)
Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. The acknowledgement should show the amount of cash contributed, a description of the property contributed (but not its value), and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgement must be obtained by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Keep the acknowledgement with other corporate records. Do not attach the acknowledgement to the return.
taxmap/pubs/p542-007.htm#en_us_publink1000257853

Contributions of property other than cash.(p12)

rule
If a corporation (other than a closely held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. In addition, the corporation should keep a record of:
Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return.
A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000 ($20,000 for donated art work).
See Form 8283 for more information.
taxmap/pubs/p542-007.htm#en_us_publink1000257854
Qualified conservation contributions. (p13)
If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. For more information, see section 170(h) of the Internal Revenue Code.
taxmap/pubs/p542-007.htm#en_us_publink1000257855
Contributions of used vehicles. (p13)
A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. The deduction is limited, and other special rules apply. For more information, see Pub. 526.
taxmap/pubs/p542-007.htm#en_us_publink1000257856
Reduction for contributions of certain property.(p13)
For a charitable contribution of property, the corporation must reduce the contribution by the sum of:
The reduction for the long-term capital gain applies to:
taxmap/pubs/p542-007.htm#en_us_publink1000257857
Larger deduction.(p13)
A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. This deduction may be allowed for certain contributions of:
taxmap/pubs/p542-007.htm#en_us_publink1000257859

Contributions to organizations conducting lobbying activities.(p13)

rule
Contributions made to an organization that conducts lobbying activities are not deductible if:
taxmap/pubs/p542-007.htm#en_us_publink1000257860

More information.(p13)

rule
For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Pub. 526.
taxmap/pubs/p542-007.htm#en_us_publink1000257861

Capital Losses(p13)

rule
A corporation can deduct capital losses only up to the amount of its capital gains. In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years.
A capital loss is carried to other years in the following order.
  1. 3 years prior to the loss year.
  2. 2 years prior to the loss year.
  3. 1 year prior to the loss year.
  4. Any loss remaining is carried forward for 5 years.
When you carry a net capital loss to another tax year, treat it as a short-term loss. It does not retain its original identity as long term or short term.
taxmap/pubs/p542-007.htm#en_us_publink1000257862

Example.(p14)

A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. The corporation treats this $6,000 as a short-term loss when carried back or forward.
The corporation carries the $6,000 short-term loss back 3 years. In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. It subtracts the $6,000 short-term loss first from the net short-term gain. This results in a net capital gain for year 1 of $7,000. This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000.
taxmap/pubs/p542-007.htm#en_us_publink1000257863
S corporation status.(p14)
A corporation may not carry a capital loss from, or to, a year for which it is an S corporation.
taxmap/pubs/p542-007.htm#en_us_publink1000257864

Rules for carryover and carryback.(p14)

rule
When carrying a capital loss from one year to another, the following rules apply.
taxmap/pubs/p542-007.htm#en_us_publink1000257865

Refunds.(p14)

rule
When you carry back a capital loss to an earlier tax year, refigure your tax for that year. If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U.S. Corporation Income Tax Return, to apply for a refund.
taxmap/pubs/p542-007.htm#en_us_publink1000257866
Form 1139.(p14)
A corporation can get a refund faster by using Form 1139. It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss.
taxmap/pubs/p542-007.htm#en_us_publink1000257867
Form 1120X.(p14)
If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. The corporation must file the Form 1120X within 3 years of the due date, including extensions, for filing the return for the year in which it sustains the capital loss.
taxmap/pubs/p542-007.htm#en_us_publink1000257868

Net Operating Losses(p14)

rule
A corporation generally figures and deducts a net operating loss (NOL) the same way an individual, estate, or trust does. The same 2-year carryback and up to 20-year carryforward periods apply, and the same sequence applies when the corporation carries two or more NOLs to the same year. For more information on these general rules, see Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.
A corporation's NOL generally differs from individual, estate, and trust NOLs in the following ways.
  1. A corporation can take different deductions when figuring an NOL.
  2. A corporation must make different modifications to its taxable income in the carryback or carryforward year when figuring how much of the NOL is used and how much is carried over to the next year.
  3. A corporation uses different forms when claiming an NOL deduction.
For more information, see the Instructions for Form 1139, and the instructions for the corporation's tax return.
taxmap/pubs/p542-007.htm#en_us_publink1000257871

Claiming the NOL Deduction(p14)

rule
Generally, a corporation must carry an NOL back 2 years prior to the year the NOL is generated. If the NOL is not used in the prior years, the remaining NOL can be carried forward for up to 20 years after the tax year in which the NOL was generated. Special rules apply to certain losses including a specified liability loss, a farming loss, certain disaster losses, an eligible loss, or an excess interest loss. See the Instructions for Form 1139.
A corporation generally can elect to waive the entire carryback period for the NOL and instead carry the NOL forward to future tax years. Certain corporations can make the election for the loss year by checking the box on Form 1120, Schedule K, line 11, or the comparable line of the corporation's income tax return. Consolidated tax return filers must also attach a statement or the election will be invalid. Once made, the election is irrevocable. See the instructions for the corporation's income tax return.
taxmap/pubs/p542-007.htm#en_us_publink1000257872

NOL carryback.(p14)

rule
The following rules apply.
taxmap/pubs/p542-007.htm#en_us_publink1000257873

NOL carryforward.(p15)

rule
If a corporation carries forward its NOL, it enters the carryover on Schedule K, Form 1120, line 12. It also enters the deduction for the carryover (but not more than the corporation's taxable income after special deductions) on Form 1120, line 29a, or the applicable line of the corporation's income tax return.
taxmap/pubs/p542-007.htm#en_us_publink1000257874

Carryback expected.(p15)

rule
If a corporation expects to have an NOL in its current year, it can automatically extend the time for paying all or part of its income tax for the immediately preceding year. It does this by filing Form 1138, Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback. It must explain on the form why it expects the loss.
The payment of tax that may be postponed cannot exceed the expected overpayment from the carryback of the NOL.
taxmap/pubs/p542-007.htm#en_us_publink1000257875
Period of extension.(p15)
The extension is in effect until the end of the month in which the return for the NOL year is due (including extensions).
If the corporation files Form 1139 before this date, the extension will continue until the date the IRS notifies the corporation that its Form 1139 is allowed or disallowed in whole or in part.
taxmap/pubs/p542-007.htm#en_us_publink1000257876

Figuring the NOL Carryover(p15)

rule
If the NOL available for a carryback or carryforward year is greater than the taxable income for that year, the corporation must modify its taxable income to figure how much of the NOL it will use up in that year and how much it can carry over to the next tax year.
Its carryover is the excess of the available NOL over its modified taxable income for the carryback or carryforward year.
taxmap/pubs/p542-007.htm#en_us_publink1000257877

Modified taxable income.(p15)

rule
A corporation figures its modified taxable income the same way it figures its taxable income, with the following exceptions.
The modified taxable income for any year cannot be less than zero.
Modified taxable income is used only to figure how much of an NOL the corporation uses up in the carryback or carryforward year and how much it carries to the next year. It is not used to fill out the corporation's tax return or figure its tax.
taxmap/pubs/p542-007.htm#en_us_publink1000257878

Ownership change.(p15)

rule
A loss corporation (one with cumulative losses) that has an ownership change is limited on the taxable income it can offset by NOL carryforwards arising before the date of the ownership change. This limit applies to any year ending after the change of ownership.
See sections 381 through 384 and 269 of the Internal Revenue Code and the related regulations for more information about the limits on corporate NOL carryovers and corporate ownership changes.
taxmap/pubs/p542-007.htm#en_us_publink1000257879

At-Risk Limits(p15)

rule
The at-risk rules limit your losses from most activities to your amount at risk in the activity. The at-risk limits apply to certain closely held corporations (other than S corporations).
The amount at risk generally equals:
taxmap/pubs/p542-007.htm#en_us_publink1000257880

Closely held corporation.(p15)

rule
For the at-risk rules, a corporation is a closely held corporation if, at any time during the last half of the tax year, more than 50% in value of its outstanding stock is owned directly or indirectly by, or for, five or fewer individuals.
To figure if more than 50% in value of the stock is owned by five or fewer individuals, apply the following rules.
  1. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust is considered owned proportionately by its shareholders, partners, or beneficiaries.
  2. An individual is considered to own the stock owned, directly or indirectly, by or for his or her family. Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants.
  3. If a person holds an option to buy stock, he or she is considered to be the owner of that stock.
  4. When applying (1) or (2) above, stock considered owned by a person under (1) or (3) above is treated as actually owned by that person. Stock considered owned by an individual under (2) is not treated as owned by the individual for again applying (2) to consider another the owner of that stock.
  5. Stock that may be considered owned by an individual under either (2) or (3) above is considered owned by the individual under (3).
taxmap/pubs/p542-007.htm#en_us_publink1000257881

More information.(p15)

rule
For more information on the at-risk limits, see Pub. 925, Passive Activity and At-Risk Rules.
taxmap/pubs/p542-007.htm#en_us_publink1000257882

Passive Activity Limits(p15)

rule
The passive activity rules generally limit your losses from passive activities to your passive activity income. Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate during the tax year, or you have a rental activity.
The passive activity rules apply to personal service corporations and closely held corporations other than S corporations.
Corporations subject to the passive activity limitations must complete Form 8810, Corporate Passive Activity Loss and Credit Limitations. For more information on the passive activity limits, see the Instructions for Form 8810 and Pub. 925.