How do you value tax loss ?

[Green King]

I am currently looking at a company that is going to discontinue its operations and give its assets back to shareholders. Other than the cash and inventory, i notice it also has around 18 million in tax loss carry forward that will expire from 5 to 20 years. I was wonder what will be worth and what happens to it in a situation where the company discontinuing its operation and repatriation of assets to shareholders ?

 

Thanks

 

GK

[Uccmal]

The tax losses have no value unless someone can buy the entity and make use of them somehow, or unless the company can shield some future taxes as the unwind.  This is the sort of thing that Berkadia does.  You really need a tx expert to assess any potential for you. 

[Green King]

The tax losses have no value unless someone can buy the entity and make use of them somehow, or unless the company can shield some future taxes as the unwind.  This is the sort of thing that Berkadia does.  You really need a tx expert to assess any potential for you.

 

Thank You

[seshnath]

I am currently looking at a company that is going to discontinue its operations and give its assets back to shareholders. Other than the cash and inventory, i notice it also has around 18 million in tax loss carry forward that will expire from 5 to 20 years. I was wonder what will be worth and what happens to it in a situation where the company discontinuing its operation and repatriation of assets to shareholders ?

 

Thanks

 

GK

GK - The last time we looked at it some 5 years ago for a US based C-corp, there were issues if the same business that generated the loss was not continued.  Like UCCMal said you really need a tax expert to evaluate this.

[netnet]

You do need an expert, but that won't stop me from jumping in  :-\

 

In the case as you describe it, the losses have no value.  The rules are complicated but basically to use the tax losses, there are change of control issues--discontinuing operations probable disqualifies right there.  And the companies have to be in the same sort of business. (at least those were the rules when we looked four years ago!)  This is for a standard US based C corp.

[Green King]

You do need an expert, but that won't stop me from jumping in  :-\

 

In the case as you describe it, the losses have no value.  The rules are complicated but basically to use the tax losses, there are change of control issues--discontinuing operations probable disqualifies right there.  And the companies have to be in the same sort of business. (at least those were the rules when we looked four years ago!)  This is for a standard US based C corp.

 

Thank you for your response

I was hoping that they are able to sell their tax loss somehow to another company or something.

The business has a far lager parent i hope their will use it for something in order to take advantage of the tax loss.

But zero is good there is still a lot of margin of safety in there.

[scorpioncapital]

Well, $18 million * 35% = $6.3 million tax savings. Let's say a 10-15% IRR, so $10 million capital will generate this amount in say 4-5 years, let's say 5. Interest rates likely to be 1-3% over this period so the value is pretty close to 5-6 million. Chop it in half if you're uncertain how or if it will be used and give it a value of say $2.5 million.

[seshnath]

You do need an expert, but that won't stop me from jumping in  :-\

 

In the case as you describe it, the losses have no value.  The rules are complicated but basically to use the tax losses, there are change of control issues--discontinuing operations probable disqualifies right there.  And the companies have to be in the same sort of business. (at least those were the rules when we looked four years ago!)  This is for a standard US based C corp.

 

I happen to come across my notes from those days - relevant section are 381-384.  382 specifically deals with the issue of change of control. 

Here is an article on the issue:-

http://www.gibbonslaw.com/news_publications/articles.php?action=display_publication&publication_id=2754

Hope it will be of help with your research

[mpauls]

Don't assume they are worth anything in your calculation of value.

[Green King]

thank you for the link  :D