Can a C corp that buys a 30% interest in my S corp take advantage of
my tax loss carry forwards?

Hello and thank you for your question.

Financeguy-ga's comment is correct.  An S corp does not have tax loss
carryforwards, because its gains and losses are taxed in each year to
its shareholders, and also, adding a C corp as an S corp shareholder
will terminate the S election.

"A corporation may not carry a capital loss from or to a year in which
it operates as a Subchapter S Corporation."
IRS Frequently Asked Questions
http://www.irs.gov/faqs/page/0,,id%3D15793,00.html

"An S Corporation generally passes gains and losses through to the
shareholders based on their percentage of ownership (distributive
share). For more information on how to calculate and report these
losses, see Instructions for Form 1120S, Schedule K-1, Form 4797
(PDF), Sales of a Business, Form 1120S (PDF), U.S. Income Tax Return
for an S Corporation, Entities: Sole Proprietorship, Limited Liability
Company/Partnershp (LLC/LLP, Corporation, Subchapter S Corporation."
Id., citing
http://www.irs.gov/pub/irs-pdf/i1120ssk.pdf
http://www.irs.gov/pub/irs-pdf/f4797.pdf
http://www.irs.gov/pub/irs-pdf/f1120s.pdf

Selling an interest in your S corp. to a C corp. will trigger the
termination of your S election, because C corps do not qualify to own
stock in an S corp:
"A corporation may elect to be an S corporation only if it meets all
of the following tests:
....
Its only shareholders are individuals, estates, exempt organizations
described in section 401(a) or 501(c)(3), or certain trusts described
in section 1361(c)(2)(A)."
Election by a Small Business Corporation
http://www.irs.gov/formspubs/page/0,,id%3D10473,00.html

Financeguy-ga's second comment is interesting, but as he notes the
acquiring company still won't be able to take the losses.

Search terms used:
"subchapter s" site:irs.gov

Thank you for bringing us your question.  If you find any of my answer
unclear, please request clarification.  I would appreciate it if you
would hold off on rating my answer until I have a chance to reply.

Sincerely,
Google Answers Researcher
Richard-ga

It's been 6 years since I practiced as a tax consultant.  That being said:

No there is not tax loss carryforward in an S corp because the loss
flows through to the shareholders on an annual basis reducing their
taxable income / or creating a taxable loss to the extent of their
basis in their S corp share.  I seem to remember that any suspended
losses would be freed up at the shareholder level upon disposition of
the shares.

Since the loss has already been taken at the shareholder level, there
is no corporate level tax attribute to carryforward.

Also, take not that as soon as the C corp purchase the interest in the
S corp, the S corp is no more.  It becomes a C corp because a C corp
shareholder does not qualify as a "person" under IRC 1361(b)(1)(B).

Now that my juices started flowing again, you might want to ask your
personal tax advisor about the availability and effect of an
338(h)(10) election on the transaction.  While the acquiring co
(AcqCo) still won't be able to take the losses, it will give them
stepped up basis in the assets of the Target company (T).

The step up in asset basis will translate into higher annual
depreciation deductions that will reduce their taxable income in
future periods.  A 338(h)(10) election requires some analysis of the
assets that the company owns to determine how the asset basis will be
allocated and whether this allocation will be put into asset with
short depreciable lives.

In essence the "(h)(10)" treats a stock purchase as an asset sale by T
to itself at their fair market value.  Since T is an S corp, the gain
on the sale of these assets are included in the taxable income of the
S corp shareholders.  T then tax a FMV basis in the assets.  If the S
corp shareholders have tax losses that they can utilize, this is a
very attractive way of getting C corp acquires the benefits of an
asset purchase in a stock transaction.

This is definitely worth looking into if you've got some tax losses
that you can utilize, but it is a bit complicated.  Do yourself a
favor and spend a couple of hours with a CPA.

The references are all to the Internal Revenue Code of 1986 as amended.