Can the Treasury exempt its own companies from tax?
Subtitle: the $45 billion GM NOL carryforward
By: J. Mark Ramseyer and Eric B. Rasmusen
Contributors: Rasmusen, Eric; John M. Olin Center for Law, Economics, and Business
Series: Discussion paper -- no. 690; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 690.
Publisher: Harvard Law School
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Subjects: Income tax deductions for losses; Finance; General Motors Corporation; Corporate reorganizations; Troubled Asset Relief Program (U.S.); Automobile industry and trade
Description: "Abstract: To discourage firms from trying to buy and sell tax deductions, Sec.  382 of the tax code limits the ability of a firm that acquires another company to use the target's "net operating losses" (NOLs).  Under the Troubled Asset Relief Program (TARP), the Treasury lent a large amount of money to GM.  In bankruptcy, it then agreed to trade that debt for stock.  GM did not make many cars anyone wanted to buy, but it did have $45 billion in NOLs.  Unfortunately for the firm, if the Treasury now sold the stock it acquired in bankruptcy it would trigger those Sec.  382 NOL limitations.  Suppose the newly reorganized GM did start making cars that consumers wanted.  It would be able to use only a modest portion of its old NOL's -- if any.  Treasury "solved" this problem by issuing a series of "Notices" in which it announced that the law did not apply.  On its terms, Sec.  382 states that the NOL limits apply whenever a firm's ownership changes.  That rule, the Treasury declared, did not apply to itself.  Notwithstanding the straightforward and all-inclusive statutory language, GM would be able to continue to use its NOLs in full after the Treasury sold its stock.The Treasury had no legal or economic justification for these Notices, which applied to Citigroup and AIG as well as to GM.  Nonetheless, the Notices largely escaped public attention -- even though they potentially transferred substantial wealth to the most loyal of the administration's supporters (the UAW).  That it could do so illustrates the risk involved in this kind of manipulation.  We suggest that Congress give its members standing to challenge such manipulation in court"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 5/19/2011.

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