What Is the Long-Term Tax-Exempt Rate Under Section 382?

The long-term tax-exempt rate under Section 382 is the monthly figure the IRS publishes to cap how much of a loss corporation’s pre-change net operating losses can be deducted each year after an ownership change. Multiply the fair market value of the loss company’s stock immediately before the change by this rate, and the product is the annual dollar limit. Under Rev. Rul. 2026-9, the rate is 3.65%.¹

What the Rate Represents

Section 382 exists to stop a profitable company from buying a money-losing one primarily to absorb its tax losses. Left unchecked, an acquirer could wipe out its own tax bill using losses it had nothing to do with generating. The long-term tax-exempt rate is the key variable in the formula that prevents that.

The rate begins with the federal long-term rate, which reflects average market yields on outstanding U.S. Treasury obligations with remaining maturities over nine years, measured during a sampling period selected by the Treasury.² That base rate is then adjusted downward for the spread between taxable and tax-exempt bond yields, because the deductions being limited are themselves a tax-free benefit to the acquiring company.³ The idea is that the annual deduction from acquired losses should roughly equal what a conservative tax-exempt investment of the same value would yield. If the losses are worth less than a bond portfolio would earn on the purchase price, the tax incentive to buy the company for its losses disappears.

Which Month’s Rate Applies to a Deal

The IRS publishes a new long-term tax-exempt rate every month, but the rate that governs a specific ownership change is not simply the rate for the closing month. It is the highest of the adjusted federal long-term rates in effect during a three-month window: the month of the change and the two months before it.⁴

The lookback does two things. It stops corporations from rushing to close in a low-rate month to shrink the cap on someone else’s acquired losses, and it protects deals that slip past a temporary rate dip in the closing month. Because the highest rate in the window is selected, the loss corporation gets the largest possible annual limitation.

Rate movements between rulings can matter. Rev. Rul. 2026-9 set the rate at 3.65%.¹ Shortly earlier, Rev. Rul. 2026-7 had it at 3.58%.⁵ For any change date whose three-month window includes both, the 3.65% figure governs.

How the Annual Limitation Is Calculated

The formula has two inputs. Take the fair market value of the loss corporation’s stock immediately before the ownership change, and multiply it by the applicable long-term tax-exempt rate. The result is the maximum amount of pre-change losses the corporation can deduct against income in any single post-change year.³

A company valued at $10 million that undergoes an ownership change at a rate of 3.65% has an annual cap of $365,000. If it holds $2 million of pre-change net operating losses, those losses take roughly five and a half years to fully absorb rather than offsetting income immediately.

Unused limitation carries forward. If the corporation only had $200,000 of taxable income in year one, the remaining $165,000 of that year’s cap rolls into year two, producing a $530,000 ceiling.⁶ The cap applies until the pre-change losses are exhausted or expire under the standard 20-year carryforward period.

Determining the Corporation’s Value

The “value of the old loss corporation” is the fair market value of all its stock, including certain preferred stock, measured immediately before the ownership change.³ Redemptions or other corporate contractions tied to the ownership change reduce the value used. For foreign corporations, only assets connected to a U.S. trade or business count.

Two anti-stuffing rules police the value figure. Any capital contribution made during the two years before the change date is presumed to be part of a plan to inflate the limitation and is excluded from value, though the presumption can be rebutted and IRS guidance provides safe harbors.³⁷ And if at least a third of the corporation’s asset value consists of assets held for investment rather than active business use, the corporation’s value is reduced by the net value of those investment assets. Regulated investment companies and REITs are exempt from the nonbusiness-assets rule.

Built-In Gains and Losses

During the five-year recognition period that starts on the change date, unrealized gains and losses that existed inside the corporation’s assets at the time of the change get special handling. Recognized built-in gains increase the annual cap for the year they are realized, since the appreciation was already baked in before the change. Recognized built-in losses are treated as pre-change losses and swept back under the cap, preventing an acquirer from selling underwater assets after closing to sidestep the limitation.³

Neither adjustment applies unless the net unrealized amount exceeds a threshold: the lesser of 15% of the fair market value of the corporation’s assets or $10 million. Below that floor, the built-in gain or loss is treated as zero.

When the Rate Actually Matters

The rate only comes into play if an ownership change has occurred. That happens when one or more 5-percent shareholders increase their collective ownership by more than 50 percentage points over a testing period, measured against the lowest ownership percentage those shareholders held at any point during the period.³ The testing period is generally three years, but a prior ownership change resets it, and it cannot reach back before the first loss year.

A “5-percent shareholder” is anyone owning 5% or more at any time during the testing period. Smaller holders are aggregated and treated as a single hypothetical 5-percent shareholder. Because of that aggregation, even a widely held public company can trigger a change through the cumulative buying of institutional investors, not just a single acquisition.

One more limit worth flagging: if the new ownership does not continue the business enterprise of the loss corporation for at least two years after the change date, the annual limitation drops to zero for the pre-change losses, with a narrow carve-out for recognized built-in gains and Section 338 gain items.³ The rate is irrelevant in that scenario because there is nothing to multiply.

Where to Find the Current Rate

The IRS publishes the long-term tax-exempt rate in a Revenue Ruling each month, released through the Internal Revenue Bulletin.⁸ Look for Table 3 within the ruling, titled “Rates Under Section 382.” Table 2 in the same ruling contains adjusted applicable federal rates used elsewhere in the Code, so confirm you are reading the right table. The ruling for the following month’s rates typically appears around the middle of the current month.

For a deal closing in March 2026, you need the rates from January, February, and March, and you apply the highest of the three. Because the lookback can straddle different Revenue Rulings, tracking the rate as each ruling is published is more reliable than pulling it only at closing.

1
Internal Revenue Service. Rev. Rul. 2026-9
2
Office of the Law Revision Counsel. 26 USC 1274 – Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property
3
Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change
4
eCFR. 26 CFR 1.382-12 – Determination of Adjusted Federal Long-Term Rate
5
Internal Revenue Service. Rev. Rul. 2026-7
6
eCFR. 26 CFR 1.382-5 – Section 382 Limitation
7
Internal Revenue Service. Notice 2008-78 – Capital Contributions Under Section 382(l)(1)
8
Internal Revenue Service. Internal Revenue Bulletin 2026-03