What Internal Revenue Code section is Burger BossCo subject to in connection with the Out-of-Court Restructuring for Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
| For the Periods Ended | |||||
|---|---|---|---|---|---|
| nuary 1, 2024 (ccessor) | January 2, 2023 (Predecessor | ||||
| Deferred tax assets: | |||||
| Net operating loss carryforwards | $ | ~ | $ | 13,890 | |
| Business interest limitation carryforward | 21,518 | 15,579 | |||
| Accruals | 2,211 | 1,757 | |||
| Operating right-of-use assets | 39,355 | 53,837 | |||
| Difference between book and tax basis of property and equipment | 9,423 | 34 | |||
| Allowance for credit losses | 69 | 94 | |||
| Stock-based compensation | 32 | 967 | |||
| Alternative minimum tax and tax credit carry forwards | 121 | 3,943 | |||
| Deferred revenue and other | 2,507 | 4,479 | |||
| Deferred tax assets | 75,115 | 94,546 | |||
| Less valuation allowance | (38,288) | - | (42,399) | ||
| Net deferred tax assets | 36,827 | - | 52,147 | ||
| Deferred tax liabilities: | |||||
| Difference between book and tax basis of brands intangible assets | (48,300) | (55,294) | |||
| Difference between book and tax basis of other intangible assets | (1,365) | (6,512) | |||
| Difference between book and tax basis of property and equipment | :*) | (256) | |||
| Operating lease liabilities | (35,246) | (45,346) | |||
| Other | (246) | (33) | |||
| Deferred tax liabilities | (85,157) | (107,441) | |||
| Deferred income tax liabilities, net | $ |
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, Burger BossCo is subject to Internal Revenue Code Section 382 due to a change in ownership resulting from the Out-of-Court Restructuring. This restructuring involved significant changes to the company's capital structure and ownership.
IRC Section 382 places limitations on a company's ability to use net operating losses (NOLs) after an ownership change. The FDD indicates that Checkersrallys believes this annual limitation will restrict the utilization of the company's IRC 163j interest expense attribute. This means that Burger BossCo may face restrictions on deducting interest expenses, potentially increasing their tax liability.
For a prospective Checkersrallys franchisee, this information highlights the complex financial restructuring that Checkersrallys underwent. While the franchisee may not directly deal with these tax implications, it's important to understand the financial health and tax strategies of the parent company, as these can indirectly affect the franchise system's stability and future decisions. Franchisees may want to seek clarification from Checkersrallys regarding how these tax limitations could impact the overall financial strategy and support for franchisees.