AICPA Urges IRS to Retain Its Method of Determining the Long-Term Tax-Exempt Rate for Section 382 Purposes

August 15, 2013

The American Institute of CPAs (AICPA) urged the Internal Revenue Service (IRS) to retain its current method of determining the long-term tax-exempt rate for Internal Revenue Code section 382 purposes instead of modifying it as proposed by the IRS in Notice 2013-4. Section 382 places an annual limit (the section 382 limitation) on the amount of the corporation’s taxable income that can be offset by certain net operating loss carryforwards and other tax attributes.  The IRS notice would change the method used to determine the adjusted applicable Federal rates (adjusted AFRs), which are used for original issue discount and imputed interest rules and other purposes.

“The AICPA understands that while the adjusted AFRs have multiple uses, a principal use relates to the application of the section 382 limitation on the use of net operating losses (NOL) of corporations that have undergone an ownership change,” the Institute wrote in its Aug. 13, 2013 comment letter.  “Any change in methodology is likely to result in a lower limitation that, we believe, would be inconsistent with the purpose of section 382.” 

“The AICPA recommends that the Internal Revenue Service not change the current calculation methodology of the long-term tax-exempt rate for section 382 purposes,” the letter stated.

If the IRS proceeds with a uniform calculation for the section 382 long-term tax-exempt rate, the AICPA recommended that the IRS adopt the following revisions to its proposed changes to the method used to determine the adjusted AFRs:

  • Allow use of historic data to identify the lowest individual tax rate instead of the average percentage difference between the Federal long-term rates and the adjusted Federal long-term rates, and
  • Include a floor of 2.5 percent for section 382 purposes.

For more information, contact Shirley Twillman at or 202-434-9220.