2008-10-01
Does the Treasury Department have the authority to create law with no statutory basis? I am no expert at the tax rules regarding limitations on losses after ownership changes under Code § 382. However, it would appear to me that this is exactly what the Treasury Department may be doing with the issuance of Notice 2008-83.
Notice 2008-83 is very short (and sweet if you are an acquiring bank). It provides in part:
The Internal Revenue Service and Treasury Department are studying the proper treatment under section 382(h) . . . of certain items of deduction or loss allowed after an ownership change to a corporation that is a bank . . . .
For purposes of section 382(h), any deduction properly allowed after an ownership change . . . to a bank with respect to losses on loans or bad debts . . . shall not be treated as a built-in loss or a deduction that is attributable to periods before the change date.
[Banks] may rely on the treatment set forth in this notice . . . .
I am looking forward to reading the Treasury Department’s statutory analysis to support the issuance of Notice 2008-83. It would seem that the determination of whether a loan had a built-in loss on the date of the ownership change would be a factual matter to be determined in court.
This notice is very likely worth billions of dollars in tax savings to banks that are taken over. The benefits, of course, will accrue to the acquiring bank because it will be able to shelter its future income with the losses of the taken over bank. Ordinarily, the acquiring company would be severely limited in its usage of a target company’s losses after an ownership change.
Is this another example of the executive branch of the federal government by-passing the legislative and judicial branches of government?