Buying a zombie company for carried loss? – probably not a good idea

You may want to buy a zombie company which has been losing money for long time. It may not be a good idea…

 

As you may know, corporate tax loss can be carried for 9 years, as long as the company is blue in the tax status. But most of the cases, the carried loss in a zombie company you purchase from someone will not be allowed to be used. It seems there were markets to sell and buy such  dormant companies in the past with accumulated losses. It was regarded as a loop hole and the tax law was amended to prevent this.

 

I know a few clients who purchased zombie companies. Not only They can not use the loss that they expected to be able to use but also they sometime suffer from its past negligence in filing tax returns because they can not carry their own losses. Those companies were usually taken off the privilege of “blue” tax status and only “blue” company are allowed to carry its losses. “Blue” tax status is to be taken off if a company misses its deadline of tax filing two years in row.

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