Tax
§382 NOL Limitation
Quick definition
IRS rule that limits NOL usage after a >50% ownership change.
Section 382 limits the use of pre-change NOLs when there's an 'ownership change', defined as cumulative 5%+ shareholders increasing combined ownership by more than 50 percentage points over a 3-year window. Limitation = FMV of company at change × IRS long-term tax-exempt rate (~4-5%). A startup with $20M NOLs and $50M FMV can use only ~$2M/year of pre-change NOLs going forward. Effectively destroys 70-90% of NOL value vs unlimited use. Critical in M&A diligence; it affects buyer's willingness to pay + deal structure.
Frequently asked questions
- What is §382 NOL Limitation?
- Section 382 limits the use of pre-change NOLs when there's an 'ownership change', defined as cumulative 5%+ shareholders increasing combined ownership by more than 50 percentage points over a 3-year window. Limitation = FMV of company at change × IRS long-term tax-exempt rate (~4-5%). A startup with $20M NOLs and $50M FMV can use only ~$2M/year of pre-change NOLs going forward. Effectively destroys 70-90% of NOL value vs unlimited use. Critical in M&A diligence; it affects buyer's willingness to pay + deal structure.
- Why is §382 NOL Limitation important for startups?
- §382 NOL Limitation is a tax concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does §382 NOL Limitation belong to?
- §382 NOL Limitation is a Tax term in the StartupCFO finance glossary, alongside other tax concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about §382 NOL Limitation?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put §382 NOL Limitation in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
Got a finance question that needs more than a definition?
Talk to a real CFO. 30 minutes, no contract, free.
