1. Attribution Rules. (§ 382(l)(3) and Reg. § 1.382-2T(b))
    1. Attribution From Entities. (Reg. § 1.382-2T(h)(12))
      1. In determining whether an ownership change has occurred, the constructive ownership rules of § 318, with several modifications, are applied (§ 382(l)(3)).
        1. The rules for attributing ownership of stock (within the meaning of § 382(k)(6)) from corporations to their shareholders are applied without regard to the extent of the shareholders' ownership in the corporation.
        1. Any stock owned by a corporation is treated as being owned proportionately by its shareholders.
        1. Any stock attributed to a corporation's shareholders is not treated as being held by such corporation.
        1. Stock attributed from a partnership, estate or trust similarly shall not be treated as being held by such entity.
      1. The effect of the entity attribution rules is to prevent application of the special limitation after an acquisition that does not result in a more than 50% change in the ultimate beneficial ownership of a loss corporation.
        1. Conversely, the entity attribution rules will result in an ownership change where more than 50% of a loss corporation's stock is acquired indirectly through an acquisition of stock in the corporation's parent corporation.
        1. Example 17: L corporation is publicly traded; no shareholder owns as much as 5%. P corporation is publicly traded; no shareholder owns as much as 5%. On January 1, 1998, P corporation purchases 100% of L corporation stock on the open market. The L stock owned by P is attributed to the shareholders of P, all of whom are less than 5% shareholders who are treated as a single, separate 5% shareholder under § 382(g)(4)(C). Accordingly, there has been an ownership change of L, because the percentage of stock owned by the P shareholders after the purchase (100%) has increased by more than 50 percentage points over the lowest percentage of L stock owned by that group at any time during the testing period (0% prior to January 1, 1998).
    1. Family Attribution Rules. (Reg. § 1.382-2T(h)(16))
      1. The family attribution rules of § 318(a)(1) and § 318(a)(5) do not apply, but an individual, his spouse, his parents, children, and his grandparents are treated as a single shareholder.
      1. If an individual may be treated as a member of more than one family and each family that is treated as one individual is a 5% shareholder, then the individual is treated as a member of the family that results in the lowest increase in ownership among 5% shareholders.
    1. Option Attribution. (Reg. § 1.382-2T(h)(4))
      1. General Rules.
        1. Solely for the purpose of determining whether there is an ownership change on any testing date,
          1. Stock of the loss corporation that is subject to an option
          1. Shall be treated as acquired on any such date, pursuant to an exercise of the option by its owner on that date,
          1. If such deemed exercise would result in an ownership change.
        1. The preceding sentence shall be applied separately with respect to
          1. Each class of options (i.e., options with terms that are identical, issued by the same issuer, and issued on the same date) owned by each 5% shareholder (or person who would be a 5% shareholder if the option were treated as exercised), and
          1. Each 5% shareholder, each owner of an option who would be a 5% shareholder if the option were treated as exercised, and each combination of such persons.
      1. Contingencies - Generally the extent to which an option is contingent or otherwise not currently exercisable shall be disregarded for purposes of this section.
      1. Series of Options - For purposes of this section, an option to acquire an option with respect to the stock of the loss corporation, and each one of a series of such options, shall be considered as an option to acquire such stock.
      1. Interests that Are Similar to Options - For purposes of this sections,
        1. Any interest which is similar to an option including, but not limited to, a convertible debt instrument, an instrument other than debt that is convertible into stock, a put, a stock interest subject to risk of forfeiture, and a contract to acquire or sell stock,
        1. Shall be treated as an option.
      1. Actual Exercise of Options.
        1. In General - The actual exercise of any option in existence immediately before and after an ownership change,
          1. Whether or not the option was treated as exercised in connection with the ownership change
          1. Shall be disregarded for purposes of this section,
          1. But only if the option is exercised by the 5% shareholder (or person who would have been a 5% shareholder if the options owned by such person had been exercised immediately before the ownership change) who owned the option immediately before and after such ownership change.
      1. Actual Exercise Within 120 Days of Deemed Exercise.
        1. If the actual exercise of an option occurs on or before the end of the period which is 120 days after the date on which the option is treated as exercised, the loss corporation may elect to treat this section as not applying to such option and take into account only the acquisition of loss corporation stock resulting from the actual exercise of the option.
        1. Such election shall have no effect on the determination of whether an ownership change occurs, but shall apply only for the purpose of determining the date on which the change date occurs.
      1. Effect of Deemed Exercise of Options on the Outstanding Stock of the Loss Corporation.
        1. Right of Obligation to Issue Stock - Solely for purposes of determining whether an ownership change has occurred, the deemed exercise of an option with respect to unissued stock (or treasury stock) of a corporation shall result in a corresponding increase in the amount of its total outstanding stock.
        1. Right or Obligation to Acquire Outstanding Stock by the Loss Corporation - Solely for purposes of determining whether an ownership change has occurred, the deemed exercise of a right to transfer outstanding stock to the issuing corporation (or a right of the issuing corporation to acquire its stock) shall result in a corresponding decrease in the amount of its total outstanding stock.
        1. Effect on Value of Old Loss Corporation - The deemed exercise of an option with respect to unissued stock (or treasury stock) shall have no effect on the determination of the value of the old loss corporation and the computation of the § 382 limitation. See § 382 (l)(1)(B) disregarding capital contributions made during the two-year period preceding the change date for purposes of computing the § 382 limitation.
      1. Options That Lapse Or Are Forfeited - If an option that is treated as exercised lapses unexercised or the owner of such option irrevocably forfeits his right to acquire stock pursuant to the option, the option shall be treated for purposes of this section as if it never had been issued.
        1. In that case, the loss corporation may file an amended return for prior years (subject to any applicable statute of limitations) if the § 382 limitation was thus inapplicable.
        1. If an income tax return has not been filed by the date that the option (or options) lapses or is irrevocably forfeited, the loss corporation may ignore such option (or options) in determining whether an ownership change has occurred.
      1. Options Not Subject to Attribution - Option attribution does not apply to:
        1. Long-Held Options With Respect to Actively Traded Stock - Any option with respect to stock of the loss corporation which stock is actively traded on an established securities market (within the meaning of § 1273(b)) for which market quotations are readily available, if such option has been continuously owned by the same 5% shareholder (or a person who would be a 5% shareholder if such option were exercised) for at least three years, but only until the earlier of such time as
          1. The option is transferred by or to a 5% shareholder (or a person who would be a 5% shareholder if such option were exercised), or
          1. The fair market value of the stock that is subject to the option exceeds the exercise price for such stock on the testing date.
          1. Options with respect to the stock of a loss corporation that are assumed (or substituted) in a reorganization and converted into options with respect to the stock of another party to the reorganization shall not be treated as transferred, provided that there are no changes in the terms of the options, other than the stock that may be acquired pursuant to the option is that of another party of the reorganization and the amount of stock subject to the option is adjusted only to reflect the exchange ratio for the exchange of stock of the loss corporation in the reorganization.
        1. Right to Receive or Obligation to Issue a Fixed Dollar Amount of Value of Stock Upon Maturity of Certain Debt.
          1. Any right to receive or obligation to issue stock pursuant to the terms of a debt instrument that, in economic terms, is equivalent to nonconvertible debt because the right to receive stock of the issuer of a fixed dollar amount is based upon the fair market value for such stock determined at or about the date the stock is transferred pursuant to such right or obligation (i.e., the amount of the stock transferred pursuant to the option is equal to a fixed dollar amount, divided by the value of each share of such stock at or about the date of the stock transfer).
          1. This paragraph shall not apply if the method for determining the fair market value of the stock of the issuer is intended to or, in fact, provides the owner of the debt instrument with a participation in any appreciation of any stock of the issuer.
        1. Right or Obligation to Redeem Stock of the Loss Corporation - Any right or obligation of the loss corporation to redeem any of its stock at the time such stock is issued, but only to the extent such stock is issued to persons who are not 5% shareholders immediately before the issuance.
        1. Options Exercisable Only Upon Death, Disability or Mental Incompetency - Any option entered into between owners of the same entity (or an owner and the entity in which the owner has a direct ownership interest) with respect to such owner's ownership interest in the entity that is exercisable only upon the death, complete disability or mental incompetency of such owner.
        1. Right to Receive or Obligation to Issue Stock as Interest or Dividends. Any right to receive or obligation to issue stock of a corporation in payment of interest or dividends by the issuing corporation.
        1. Options Outstanding Following an Ownership Change.
          1. In General - Any option in existence immediately before or after an ownership change, whether or not the option was treated as exercised in connection with the ownership change, but only so long as the option continues to be owned by the 5% shareholder (or person who was treated as a 5% shareholder) who owned the option immediately before and after such ownership change.
        1. Agreement to Acquire or Sell Stock by Certain Shareholders - Any option between noncorporate owners who actively participate in management, the option is issued when the corporation is not a loss corporation and is exercisable solely upon retirement of such owner.
      1. Options Issued or Transferred Before January 1, 1987.
        1. Options Issued Before May 6, 1986 - An option issued before May 6, 1986, is subject to the rules of this section only if it is transferred by (or to) a 5% shareholder (or a person who would be a 5% shareholder if the option were treated as exercised) on or after such date.
          1. In all other cases, such an option shall not be subject to this section, but will be subject to this section upon exercise.
          1. Thus, for example, a warrant to acquire stock of the loss corporation issued before May 6, 1986 shall not be subject to this section unless the warrant is transferred by (or to) a 5% shareholder.
          1. The exercise of such a warrant, however, would be taken into account under this section.
        1. May 6, 1986 - September 18, 1986 - An option issued or transferred on or after May 6, 1986, and before September 18, 1986, is subject to the rules of this section.
        1. September 18, 1986 - December 31, 1986 - An option issued or transferred on or after September 18, 1986, and before January 1, 1987, is subject to the rules of this section, except that the option shall be treated for purposes of this section as if it never had been issued in the event that either:
          1. The option lapses unexercised or is irrevocably forfeited by the holder thereof, or
          1. On the date the option was issued, there was no significant likelihood that such option would be exercised within the five-year period from the date of such issuance and a purpose for the issuance of the option was to cause an ownership change prior to January 1, 1987.