Rev. Rul. 67-186

Advice has been requested whether a corporation under the circumstances described below may avail itself of net operating loss carryovers under section 382 of the Internal Revenue Code of 1954.

A corporation conducted a lumber business until the sale of its operating assets during its taxable year ended July 31, 1959. The corporation incurred a net operating loss from the lumber business in the year of the sale of its assets. Since the sale of its operating assets, the corporation's sole source of income has been from investments in stocks and securities purchased after the sale of its operating assets. At the close of the taxable year ended July 31, 1962, shareholders of the corporation owned a percentage of the total fair market value of the corporation which was at least 50 percentage points more than such persons owned at either the beginning of such taxable year or the prior taxable year within the meaning of section 382(a) of the Code.

Section 1.382(a)-1(h)(4) of the Income Tax Regulations states that for purposes of section 382(a) of the Code the holding, purchase, or sale for investment purposes of stock, securities or similar property shall not be considered a trade or business unless such activities historically have been the primary activities of the corporation.

Section 1.382(a)-1(h)(6) of the regulations states that a corporation has not continued to carry on a trade or business substantially the same as that conducted before any increase in the ownership of its stock if the corporation is not carrying on an active trade or business at the time of such increase in ownership.

Since the investment activities were not historically the primary activities of this corporation prior to the change in ownership, such activity is not considered for purposes of section 382 of the Code to constitute carrying on a trade or business.

Therefore, when this corporation ceased its lumber business and engaged in investment activity, for purposes of section 382(a) of the Code the corporation is not regarded as having continued to carry on a trade or business substantially the same as that conducted by it before the change of ownership.

Accordingly, in the instant case the corporation is not entitled to avail itself of net operating loss carryovers from taxable years prior to such change in ownership.