§ 6.5 I.R.C. SECTION 383: CARRYOVERS OTHER THAN NET OPERATING LOSSES
(a) General Provisions
Paralleling the “section 382 limitation” on the use of NOL carryovers, I.R.C. section 383 limits the amount of pre-change credits (including unused I.R.C. section 39 general business credits and unused I.R.C. section 53 minimum tax credits), net capital loss carryovers, and foreign tax credits that can be used in any post–ownership-change year. Under regulations adopted on June 26, 1991,217 effective for ownership changes occurring after December 31, 1986, capital losses used to offset capital gains reduce the section 382 limitation amount.
In addition, a separate “section 383 limitation” (applicable to credit carryovers) is computed by determining the difference between the corporation’s income tax net of allowable NOL carryovers, and a hypothetical income tax that would be payable if the corporation were entitled to deduct the amount of any unused section 382 limitation.218 This difference is the maximum credit that can be used to offset tax in a given post–ownership-change year.
Finally, the section 383 regulations establish ordering rules for the use of losses and credits and a “section 383 credit reduction amount,” which reduces the unused section 382 limitation amount that can be carried over. Because the section 383 limitation limits credits against tax (as opposed to reductions in taxable income), the section 383 credit reduction amount must be computed by grossing up the tax amounts ...
