[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1374-5]

[Page 771]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1374-5  Loss carryforwards.

    (a) In general. The loss carryforwards allowed as deductions against 
net recognized built-in gain under section 1374(b)(2) are allowed only 
to the extent their use is allowed under the rules applying to C 
corporations. Any other loss carryforwards, such as charitable 
contribution carryforwards under section 170(d)(2), are not allowed as 
deductions against net recognized built-in gain.
    (b) Example. The rules of this section are illustrated by the 
following example.

    Example: Section 382 limitation. X is a C corporation that has an 
ownership change under section 382(g)(1) on January 1, 1994. On that 
date, X has a fair market value of $500,000, NOL carryforwards of 
$400,000, and a net unrealized built-in gain under section 382(h)(3)(A) 
of $0. Assume X's section 382 limitation under section 382(b)(1) is 
$40,000. X elects to become an S corporation on January 1, 1998. On that 
date, X has NOL carryforwards of $240,000 (having used $160,000 of its 
pre-change net operating losses in its 4 preceding taxable years) and a 
section 1374 net unrealized built-in gain of $250,000. In 1998, X has 
net recognized built-in gain of $100,000. X may use $40,000 of its NOL 
carryforwards as a deduction against its $100,000 net recognized built-
in gain, because X's section 382 limitation is $40,000.

[T.D. 8579, 59 FR 66469, Dec. 27, 1994]