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 — affects buyer's willingness to pay + deal structure.
Related tax terms
R&D Tax Credit
Federal credit for qualified research expenses, usable against payroll tax by startups.
Delaware Franchise Tax
Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.
Nexus (Sales Tax)
The connection with a state that triggers a tax-collection obligation.
QSBS (Qualified Small Business Stock)
Tax exemption for gains on qualifying startup stock held 5+ years.
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 — 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.
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