Continuity of Business Requirements for N.O.L.S. in Bankruptcy: The Economic Effects of 1.269-3(d)

This paper focuses on the use of carryforwards in a bankruptcy situation. In particular it examines the economic implications of Treasury Regulation § 1.269-3(d), which was finalized on January 6, 1992. This regulation creates a presumption that if the acquirer of a loss corporation does not continue the corporation's business, the transaction was consummated for tax avoidance purposes. Therefore under § 269, which limits use of NOLs after an acquisition, the loss corporation's NOLs cannot be used by the acquirer.

This presumption, however, can be overcome by strong evidence that other motives controlled the decision.