LakeShore Global

Strategic Tax Specialists

Net Operating Loss Planning

Preservation of Net Operating Loss Carryforward
as a source of capital for restructuring

Environmental and Technical

Quite often we see companies go into bankruptcy and eventually file for Chapter 7.  This is typical for cases where all other remedies and alternative options for a restructuring have been carefully considered by the estate.  One source of potential capital that is often overlooked by the estate is the net operating loss.  This asset is very often overlooked because of a predisposed believe that it cannot be used ourside of a restructuring and as a result any benefit derivable from the asset is completely lost upon liquidation.  Because of this lack of understanding regarding it's permissable use, the asset is rarely analyzed and given adequate consideration.  Quite often the balance is significant as it is a reflection of the severity of the losses of the corporation.  Because of the tax free future earnings potential of the owner, the net operating loss can be a major contributing factor in the decision to restructure or liquidate.  Many companies do not evaluate the Net Operating Loss and as a result, decisions are made to negate any potential benefit that may be derived.
LakeShore recommends that every company involved in a bankruptcy have the Net Operating Loss evaluated to determine not only it's value, but it's usefulness in any potential restructuring, merger or acquisition.  Many factors must be taken into consideration to determine how a net operating loss may be utilized. Most professionals (including tax and bankruptcy professionals) do not fully understand the mechanics involved and how this asset can often be the largest asset of a company in severe financial difficulty.  Misunderstandings regarding it permissable use most often results in a liquidation and all loss of value.
Valuing the asset is simple enough.  A cash flow model discounting the future expected tax benefit to the present will provide a close estimate.  But don't assume you know whether a net operating loss is worthless or of limited use without first speaking to someone who knows and understands the rules surrounding net operating losses and has excercised these in practice.
Consult with your tax attorney, or call LakeShore Global to discuss.  There is no charge for a phone call.  We have evaluated Net Operating Losses involving multiple entities and fully understand the legal  and accounting procedures required to protect this asset and determine it's usefulness and potential uses.
We look forward to hearing from you.

Financial Management

Restructuring Advisory

LakeShore Global
Austin, Texas
The Verification Experts
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