Preservation of start-up net operating losses and tax credits after ownership change

(a) Application to net operating losses Section 382(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (4) Exception for start-up losses (A) In general In the case of any net operating loss carryforward described in paragraph (1)(A) which arose in a start-up period taxable year, the amount of such net operating loss carryforward otherwise taken into account under such paragraph shall be reduced by the net start-up loss determined with respect to the trade or business referred to in subparagraph (B)(i) for such start-up period taxable year. (B) Start-up period taxable year The term start-up period taxable year means any taxable year of the old loss corporation which— (i) begins before the close of the 3-year period beginning on the date on which any trade or business of such corporation begins as an active trade or business (as determined under section 195(d)(2) without regard to subparagraph (B) thereof), and (ii) ends after January 31, 2026. (C) Net start-up loss (i) In general The term net start-up loss means, with respect to any trade or business referred to in subparagraph (B)(i) for any start-up period taxable year, the amount which bears the same ratio (but not greater than 1) to the net operating loss carryforward which arose in such start-up period taxable year as— (I) the net operating loss (if any) which would have been determined for such start-up period taxable year if only items of income, gain, deduction, and loss properly allocable to such trade or business were taken into account, bears to (II) the amount of the net operating loss determined for such start-up period taxable year. (ii) Special rule for last taxable year in start-up period In the case of any start-up period taxable year which ends after the close of the 3-year period described in subparagraph (B)(i) with respect to any trade or business, the net start-up loss with respect to such trade or business for such start-up period taxable year shall be the same proportion of such loss (determined without regard to this clause) as the proportion of such start-up period taxable year which is on or before the last day of such period. (D) Application to net operating loss arising in year of ownership change Subparagraph (A) shall apply to any net operating loss described in paragraph (1)(B) in the same manner as such subparagraph applies to net operating loss carryforwards described in paragraph (1)(A), but by only taking into account the amount of such net operating loss (and the amount of the net start-up loss) which is allocable under paragraph (1)(B) to the period described in such paragraph. Proper adjustment in the allocation of the net start-up loss under the preceding sentence shall be made in the case of a taxable year to which subparagraph (C)(ii) applies. (E) Application to taxable years which are start-up period taxable years with respect to more than 1 trade or business In the case of any net operating loss carryforward which arose in a taxable year which is a start-up period taxable year with respect to more than 1 trade or business— (i) this paragraph shall be applied separately with respect to each such trade or business, and (ii) the aggregate reductions under subparagraph (A) shall not exceed such net operating loss carryforward. (F) Continuity of business requirement If the new loss corporation does not continue the trade or business referred to in subparagraph (B)(i) at all times during the 2-year period beginning on the change date, this paragraph shall not apply with respect to such trade or business. (G) Certain title 11 or similar cases (i) Multiple ownership changes In the case of a 2nd ownership change to which subsection (l)(5)(D) applies, this paragraph shall not apply for purposes of determining the pre-change loss with respect to such 2nd ownership change. (ii) Certain insolvency transactions If subsection (l)(6) applies for purposes of determining the value of the old loss corporation under subsection (e), this paragraph shall not apply. (H) Not applicable to disallowed interest This paragraph shall not apply for purposes of applying the rules of paragraph (1) to the carryover of disallowed interest under paragraph (3). (I) Transition rule This paragraph shall not apply with respect to any trade or business if the date on which such trade or business begins as an active trade or business (as determined under section 195(d)(2) without regard to subparagraph (B) thereof) is on or before January 31, 2026.. (b) Application To excess credits Section 383 of such Code is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: (e) Exception for start-Up excess credits (1) In general In the case of any unused general business credit of the corporation under section 39 which arose in a start-up period taxable year, the amount of such unused general business credit otherwise taken into account under subsection (a)(2)(A) shall be reduced by the start-up excess credit determined with respect to any trade or business referred to in section 382(d)(4)(B)(i) for such start-up period taxable year. (2) Start-up period taxable year For purposes of this subsection, the term start-up period taxable year has the meaning given such term in section 382(d)(4)(B). (3) Start-up excess credit For purposes of this subsection, the term start-up excess credit means, with respect to any trade or business referred to in section 382(d)(4)(B)(i) for any start-up period taxable year, the amount which bears the same ratio to the unused general business credit which arose in such start-up period taxable year as— (A) the amount of the general business credit which would have been determined for such start-up period taxable year if only credits properly allocable to such trade or business were taken into account, bears to (B) the amount of the general business credit determined for such start-up period taxable year. (4) Application of certain rules Rules similar to the rules of subparagraphs (C)(ii), (D), (E), and (F) of section 382(d)(4) shall apply for purposes of this subsection. (5) Transition rule This subsection shall not apply with respect to any trade or business if the date on which such trade or business begins as an active trade or business (as determined under section 195(d)(2) without regard to subparagraph (B) thereof) is on or before January 31, 2026.. (c) Effective date The amendments made by this section shall apply to taxable years ending after January 31, 2025.