Net operating loss (NOL) carryforwards are a valuable asset because they can lower a company’s taxable income. Under IRS Section 382, the amount of taxable income, which a corporation may offset with NOLs arising before the ownership change, may be subject to a limitation. A limitation is determined, in part, by the value of the stock prior to the change in ownership. Certain ownership or equity changes limit NOL carryforwards.
Often, an independent valuation is required to determine the fair market value of a company prior to ownership or equity changes and the fair market value of assets for unrealized built-in capital gains purposes, both of which affect NOL limitations.