This Article will first outline the history of judicial and statutory limitations on the free transferability of net operating losses, highlighting congressional attempts to afford more favorable treatment to troubled corporations reorganizing in Title 11 proceedings. It will then examine the operation of section 382 of the 1986 Code, again focusing on those provisions designed to assist in the successful reorganization of these corporations, and will demonstrate the wholesale inability of these provisions to preserve the net operating losses of troubled corporations. Finally, the Article will propose an amendment to section 382 that would increase the likelihood that corporations will be allowed to retain their net operating losses following bankruptcy. This amendment would improve the success rate of Chapter 11 bankruptcies, effectuate the legislative policies underlying section 382, and reduce the devastating economic impact of corporate liquidations.
Michelle M. Arnopol, Why Have Chapter 11 Bankruptcies Failed So Miserably? A Reappraisal of Congressional Attempts to Protect A Corporation's Net Operating Losses After Bankruptcy, 68 Notre Dame L. Rev. 133 (1992)