[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.269-6]

[Page 593]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.269-6  Relationship of section 269 to section 382 before the 
Tax Reform Act of 1986.

    Section 269 and Sec. Sec. 1.269-1 through 1.269-5 may be applied to 
disallow a net operating loss carryover even though such carryover is 
not disallowed (in whole or in part) under section 382 and the 
regulations thereunder. This section may be illustrated by the following 
examples:

    Example 1. L Corporation has computed its taxable income on a 
calendar year basis and has sustained heavy net operating losses for a 
number of years. Assume that A purchases all of the stock of L 
Corporation on December 31, 1955, for the principal purpose of utilizing 
its net operating loss carryovers by changing its business to a 
profitable new business. Assume further that A makes no attempt to 
revitalize the business of L Corporation during the calendar year 1956 
and that during January 1957 the business is changed to an entirely new 
and profitable business. The carryovers will be disallowed under the 
provisions of section 269(a) without regard to the application of 
section 382.
    Example 2. L Corporation has sustained heavy net operating losses 
for a number of years. In a merger under State law, P Corporation 
acquires all of the assets of L Corporation for the principal purpose of 
utilizing the net operating loss carryovers of L Corporation against the 
profits of P Corporation's business. As a result of the merger, the 
former stockholders of L Corporation own, immediately after the merger, 
12 percent of the fair market value of the outstanding stock of P 
Corporation. If the merger qualifies as a reorganization to which 
section 381(a) applies, the entire net operating loss carryovers will be 
disallowed under the provisions of section 269(a) without regard to the 
application of section 382.
    Example 3. L Corporation has been sustaining net operating losses 
for a number of years. P Corporation, a profitable corporation, on 
December 31, 1955, acquires all the stock of L Corporation for the 
purpose of continuing and improving the operation of L Corporation's 
business. Under the provisions of sections 334(b)(2) and 381(a)(1), P 
Corporation would not succeed to L Corporation's net operating loss 
carryovers if L Corporation were liquidated pursuant to a plan of 
liquidation adopted within two years after the date of the acquisition. 
During 1956, P Corporation transfers a profitable business to L 
Corporation for the principal purpose of using the profits of such 
business to absorb the net operating loss carryovers of L Corporation. 
The transfer is such as to cause the basis of the transferred assets in 
the hands of L Corporation to be determined by reference to their basis 
in the hands of P Corporation. L Corporation's net operating loss 
carryovers will be disallowed under the provisions of section 269(a) 
without regard to the application of section 382.

[T.D. 6595, 27 FR 3597, Apr. 14, 1962, as amended by T.D. 8388, 57 FR 
346, Jan. 6, 1992]