Rev. Rul. 58-9

Advice has been requested whether a corporation, which had been inactive but was reactivated in its original line of business during a taxable year in which the percentage ownership of its stock changed to the extent provided in section 382(a) of the Internal Revenue Code of 1954, may avail itself of net operating loss carryovers from taxable years prior to such change in percentage ownership.

The taxpayer corporation, had been engaged in carrying on a general insurance business, but in 1955 ceased to do business because of adverse business factors which resulted in operating losses and in a substantial deficit in its earned surplus account. In 1956, the stockholders of the corporation sold all of the stock in the corporation to an individual engaged in the same type of business. The individual continued to operate his own insurance business, together with the acquired business under the taxpayer's corporate charter.

Section 382(a) of the Code provides, in part, that if one or more of the ten largest unrelated stockholders in a corporation own, at the end of the corporation's taxable year, a percentage of the total fair market value of the outstanding stock as a result of purchase or redemption which is at least 50 percentage points more than such person or persons owned at either the beginning of such taxable year or the prior taxable year, and if the corporation has not continued to carry on a trade or business substantially the same as that conducted before the change in percentage ownership of the fair market value of such stock, the net operating loss carryovers of such corporation to such taxable year and subsequent taxable years shall not be included in the net operating loss deduction for such taxable years.

Since the corporation was not engaged in business but was inactive, the reactivation of the corporation after the change in the percentage ownership of the fair market value of its stock, whether or not in the same line of business as that originally conducted, did not put the corporation in a trade or business `substantially the same as that conducted before the change in percentage ownership of such stock,' as provided in section 382(a) of the Code.

Accordingly, it is held that a net operating loss carryover of an inactive corporation is not available as a net operating loss deduction for the taxable year in which the percentage ownership of its stock changed to the extent provided in section 382(a) of the Code, and for subsequent taxable years, even though the corporation is reactivated in the same line of business as that originally conducted.