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Raising Equity Capital: Beware the Tax Consequences
Corporations planning to raise equity capital face exposure to Internal Revenue Code Section 382, “Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change,” which has the potential to substantially limit a company’s ability to deduct losses or use tax loss and credit carryforwards. Depressed stock and asset values have increased the likelihood that an issuance of equity capital could trigger the application of Section 382.