Bankruptcy emergence qualifies for section 382 relief

Plain-English summary

A new parent requested rulings about the treatment of an ownership change that occurred when an old parent emerged from a title 11 case. The IRS ruled that the consolidated group would be treated as a single entity for purposes of the bankruptcy exception in IRC Section 382(l)(5). It also ruled that certain debt proceeds contributed to a subsidiary arose in the ordinary course of the old parent's business and that the old parent's continuing operation of a business was more than an insignificant active trade or business. These rulings were based on the taxpayer's representations about the bankruptcy plan, ownership change, debt, and business operations.

Ruling snapshot

• Question: How do the bankruptcy emergence transaction and related debt affect the group's section 382(l)(5) treatment?
• Outcome: Approved
• Key authorities: IRC §§ 269, 368, 382, 6110; Treas. Reg. §§ 1.269-3(d), 1.1502-28, 1.1502-91(c)(1), 1.1502-92(b), 1.382-2(a)(1)(i), 1.382-9(d)(2)(iv)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202633005 Third Party Communication: None
Release Date: 8/14/2026 Date of Communication: Not Applicable
Index Number: 382.00-00, 382.12-08,
269.00-00 Person To Contact:
-------------------------, ID No. -----------------
--------------------------- Telephone Number:
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-------------------------------- Refer Reply To:
------------------------------------------ CC:CORP:B02
PLR-119317-25
Date:
May 20, 2026

                                                Legend

New Parent = ---------------------------

Old Parent = ----------------------------

Subsidiary = --------------------------
-----------------------

State X = -------------

State Y = -------------

State Y Department = ------------------------------------------------------------

Agency = ----------------------------------------------------

Business A = ------------------------

LLC = ------------------------------
-----------------------

Date 1 = ---------------------

Date 2 = ---------------------

Date 3 = -------------------------
PLR-119317-25 2

Date 4 = -------------------------

Date 5 = --------------------------

Date 6 = -----------------

$B = -------------------------------------------------------------------
-------------------------------------------------------------

$C = ------------------------------------

$D = ------------------------------------

$E = ----------------------------------

$F = ------------------------------------

G% = ------------------------------

H = -----------------------

I% = ------

Year J = -------

Year K = -------

$L = ------------------------------------

Purpose M = -------------------------------------------------------------------
------------------------------------------------

N = ---------------------

O% = ----

Dear --------------------:

This letter responds to your authorized representatives’ letter dated September 29,
2025, as supplemented by subsequent letters and documentation, requesting rulings
under section 382(l)(5) of the Internal Revenue Code (the “Code”) and Treas. Reg.
§ 1.269-3(d). The material information submitted in that request and subsequent
correspondence is summarized below.
PLR-119317-25 3

This letter is issued pursuant to Rev. Proc. 2026-1, 2026-1 I.R.B. 1, regarding issues
under section 382 of the Code and Treas. Reg § 1.269-3(d). This office expresses no
opinion as to any issue not specifically addressed by the rulings below.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party. This office has not verified any of the material
submitted in support of the request for rulings. Verification of the information,
representations, and other data may be required as part of the audit process.

                              Summary of Facts

Old Parent, a publicly traded State X corporation, was a holding company and the
common parent of an affiliated group of corporations that filed a consolidated U.S.
federal income tax return (the “Old Parent Consolidated Group”). Old Parent had
common stock and several classes of preferred stock outstanding. Subsidiary was a
State Y corporation, all the stock of which was owned by Old Parent. Subsidiary
operated in a regulated industry and was regulated by State Y.

On Date 1, State Y Department placed Subsidiary in receivership, appointing Agency as
receiver. On Date 2, Old Parent commenced a voluntary case (the “Filing”) under
chapter 11 of title 11 of the United States Code in the United States bankruptcy court
(the “Bankruptcy Court”).

Old Parent had outstanding unsecured senior notes, a portion of which had been issued
during the period which began 18 months prior to Date 2 (collectively, the “Less Than
18 Months Indebtedness”). Taxpayer has currently been able to establish that $L (the
“Traced Portion”) of the proceeds from the Less Than 18 Months Indebtedness can be
traced to contributions from Old Parent to Subsidiary for Purpose M.

                         The Emergence Transaction

Prior to Date 3, pursuant to the plan of reorganization previously confirmed by the
Bankruptcy Court (the “Plan”), Old Parent abandoned the stock of Subsidiary and
claimed a corresponding worthless stock deduction on its U.S. federal income tax return
as part of the New Parent Consolidated Group (defined below). On Date 3 (the
“Emergence Date”), pursuant to the Plan, Old Parent emerged from chapter 11
bankruptcy (the “Emergence Transaction”). Pursuant to the Plan, holders of unsecured
senior notes received in exchange for their claims (a) units of a liquidating trust
established for the benefit of Old Parent’s creditors and other claimants, (b) cash, and
(c) for any qualified holder (as defined in the Plan), shares of newly issued common
stock of Old Parent or, if not a qualified holder, additional cash equal in amount to the
value of the common stock. Other creditors received a mixture of cash, newly issued
common stock of Old Parent and units in the liquidating trust. Each holder of Old Parent
preferred stock received units of the liquidating trust. All the Old Parent common stock
PLR-119317-25 4

outstanding immediately prior to the Emergence Date was canceled for no
consideration. As a result of the Plan, at emergence, a large and diversified group of
Old Parent’s creditors received 100% of the outstanding reorganized Old Parent’s stock.
No single creditor of Old Parent received more than I% of the stock of reorganized
Old Parent in the Emergence Transaction.

On Date 4, New Parent acquired 100% of the stock of Old Parent in a pro rata
exchange for all the stock of New Parent in a transaction characterized as a reverse
acquisition under Treas. Reg. § 1.1502-75(d)(3) (the “Reverse Acquisition”), with New
Parent becoming the new common parent of the continuing Old Parent Consolidated
Group (prospectively, the “New Parent Consolidated Group”).

In connection with the Emergence Transaction, New Parent implemented stock trading
restrictions to prevent a further ownership change for Old Parent within the meaning of
section 382(g)(1) and under the parent change method of Treas. Reg. § 1.1502-92(b)
(an “Ownership Change”).

                                  Business A

N years prior to the Emergence Transaction, in a period of growth for the Old Parent
Consolidated Group, Old Parent acquired Business A for amount $B. During the
bankruptcy case and after the Emergence Transaction, Old Parent continued its
operations of Business A (through LLC, an entity disregarded as separate from Old
Parent for U.S. federal income tax purposes). On Business A’s Date 5 pro-forma trial
balance, it had $F of assets (excluding cash). As of Date 6, Business A had H
employees. For Year J, Business A reported $C of revenue and payroll costs of $D. In
Year K, Business A is projecting $E of revenue (all attributable to Business A’s third-
party clients) and payroll costs of G% of revenue.

                               Representations

New Parent makes the following representations with respect to the rulings requested:

1) New Parent is the common parent of an affiliated group of corporations, which
includes Old Parent, that files a consolidated U.S. federal income tax return, and
this affiliated group is a “loss group” within the meaning of Treas. Reg. § 1.1502-
91(c)(1).

2) Prior to and at the time of the Emergence Transaction, Old Parent was a loss
corporation within the meaning of section 382(k)(1) and Treas. Reg. § 1.382-
2(a)(1)(i) and the Old Parent Consolidated Group was a loss group within the
meaning of Treas. Reg. § 1.1502-91(c)(1).

3) On the Emergence Date, Old Parent underwent an Ownership Change (the “Old
Parent Ownership Change”).
PLR-119317-25 5

4) The Reverse Acquisition did not trigger a second Ownership Change with respect
to Old Parent.

5) The Old Parent common stock issued as part of the Emergence Transaction was
issued by order of the Bankruptcy Court or pursuant to the Plan which was
approved by the Bankruptcy Court.

6) The Plan was confirmed by the Bankruptcy Court.

7) Immediately before the Old Parent Ownership Change, Old Parent was “under the
jurisdiction of the court in a title 11 or similar case,” as defined for purposes of
section 382(l)(5) and section 368(a)(3)(A).

8) New Parent did not make an election under section 382(l)(5)(G) with respect to
the Old Parent Ownership Change.

9) The issuance of the Less Than 18 Months Indebtedness was not effected for a
principal purpose of being exchanged for Old Parent stock.

10) Old Parent does not have a plan or intention to dispose of Business A.

11) The Traced Portion of the proceeds from the Less Than 18 Months Indebtedness
were contributed by Old Parent to Subsidiary for Purpose M, which was in
accordance with normal, usual, and customary industry practices. The Traced
Portion of the proceeds from the Less Than 18 Months Indebtedness was an
amount consistent with Old Parent’s and Subsidiary’s business practice for
achieving Purpose M.

12) Based on the actual knowledge of the management of Old Parent and New Parent
in place on the date of this ruling and publicly available information (as provided in
Treas. Reg. § 1.382-2T(k)(1)), the Traced Portion of the Less Than 18 Months
Indebtedness was not incurred by Old Parent and contributed to Subsidiary in
order to enable Subsidiary to acquire, for U.S. federal income tax purposes, either:
(i) a O% or greater equity interest in another entity, or (ii) assets constituting a
trade or business of another entity.

13) The New Parent Consolidated Group will reduce the New Parent Consolidated
Group’s pre-change losses and excess credits pursuant to section 382(l)(5)(B) and
Treas. Reg. § 1.1502-28.

14) Within 120 days of the date on this private letter ruling, New Parent will file an
amended return for the New Parent Consolidated Group for the taxable year in
which the Old Parent Ownership Change occurred consistent with this letter ruling.
PLR-119317-25 6

                                       Rulings

Based solely on the information submitted and the representations set forth above, we
rule as follows regarding the Emergence Transaction:

1. In determining whether section 382(l)(5) applies to Old Parent’s Ownership
   Change, the Old Parent Consolidated Group is treated on a consolidated basis
   as though the Old Parent Consolidated Group were a single entity under the
   jurisdiction of the court in a title 11 or similar case.

2. The Traced Portion of the Less Than 18 Months Indebtedness, the proceeds of
   which were contributed by Old Parent to Subsidiary for Purpose M, is treated as
   arising in the ordinary course of the trade or business of Old Parent (within the
   meaning of section 382(l)(5)(E)(ii) and Treas. Reg. § 1.382-9(d)(2)(iv)).

3. Old Parent’s operation of Business A constitutes more than an insignificant active
   trade or business of Old Parent and the Old Parent Consolidated Group (and, as
   applicable, the New Parent Consolidated Group) during and subsequent to the
   title 11 or similar case (in accordance with section 382(l)(5)(F)) for purposes of
   Treas. Reg. § 1.269-3(d).
   Caveats

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Emergence Transaction under any provision of the Code and
regulations or the tax treatment of any condition existing at the time of, or effects
resulting from, the Emergence Transaction that is not specifically covered by the above
rulings. Additionally, no opinion is expressed or implied as to whether portions of the
Less Than 18 Months Indebtedness, other than the Traced Portion, arose in the
ordinary course of the trade or business of Old Parent under section 382(l)(5)(E)(ii) and
Treas. Reg. § 1.382-9(d)(2)(iv).

                              Procedural Statements

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

Consistent with its representations, New Parent must attach a copy of this letter ruling to
any U.S. federal income tax return (including amended returns) to which this letter ruling
is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.

Pursuant to the power of attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.
PLR-119317-25 7

                                        Sincerely,



                                        Jonathan M. Kushner
                                        Senior Technician Reviewer, Branch 5
                                        Office of Associate Chief Counsel (Corporate)

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