It looks like Congress is about to squelch Treasury Notice 2008-83 but will provide a gift to banks that already relied on it. I think of it as much a parting gift to outgoing Treasury Secretary Paulson.
The draft economic recovery/stimulus package that is starting to wind its way through Congress essentially says that the Treasury Department went beyond its powers by issuing Notice 2008-83 but that banks that already relied on the tax guidance provided by the notice may still take advantage of the huge tax breaks it provides them.
Relevant text from the bill:
PART 4 â?? CLARIFICATION OF REGULATIONS RE-LATED TO LIMITATIONS ON CERTAIN BUILT-IN LOSSES FOLLOWING AN OWNERSHIP CHANGE
SEC. 1431. CLARIFICATION OF REGULATIONS RELATED TO LIMITATIONS ON CERTAIN BUILT-IN LOSSES FOLLOWING AN OWNERSHIP CHANGE.
(a) FINDINGS.â??Congress finds as follows:
(1) The delegation of authority to the Secretary of the Treasury under section 382(m) of the Internal Revenue Code of 1986 does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers.
(2) Internal Revenue Service Notice 2008â??83 is inconsistent with the congressional intent in enacting such section 382(m).
(3) The legal authority to prescribe Internal Revenue Service Notice 2008â??83 is doubtful.
(4) However, as taxpayers should generally be able to rely on guidance issued by the Secretary of the Treasury legislation is necessary to clarify the force and effect of Internal Revenue Service Notice 2008â??83 and restore the proper application under the Internal Revenue Code of 1986 of the limitation on built-in losses following an ownership change of a bank.
(b) DETERMINATION FORCE EFFECT OF INTERNAL REVENUE SERVICE NOTICE 2008â??83 EXEMPTING BANKS FROM LIMITATION CERTAIN BUILTâ??IN
LOSSES FOLLOWING OWNERSHIP CHANGE.â??
(1) IN GENERAL.â??Internal Revenue Service Notice 2008â??83â??
(A) shall be deemed to have the force and effect of law with respect to any ownership change (as defined in section 382(g) of the Internal Revenue Code of 1986) occurring on or before January 16, 2009, and
(B) shall have no force or effect with respect to any ownership change after such date.
(2) BINDING CONTRACTS.â??Notwithstanding paragraph (1), Internal Revenue Service Notice 2008â??83 shall have the force and effect of law with respect to any ownership change (as so defined) which occurs after January 16, 2009 if such changeâ??
(A) is pursuant to a written binding contract entered into on or before such date, or
(B) was described on or before such date in a public announcement or in a filing with the Securities and Exchange Commision required by reason of such ownership change.
The bill was posted today and will be officially introduced by Rep. Rangel to the House Ways and Means Committee over the coming days. Apparently, this is hot off the presses. A Committee press release about the bill is dated Saturday, Jan. 17, 2009 although it does mention the bill blocking Notice 2008-83.
The AP provides more commentary on the stimulus package and the repeal of Notice 2008-83.
House leaders moved this week to repeal the tax break for banks even as the Senate voted to help many of those same institutions by releasing the second $350 billion of the widely unpopular Wall Street bailout. Many lawmakers are unhappy with the results after the Bush administration spent the first $350 billion, making them wary of helping banks in the stimulus package.
Repealing the tax break would negate those savings in future bank mergers. It would not, however, affect mergers already under way, according to a summary of the stimulus package released by the tax-writing House Ways and Means Committee.
I personally think Congress should prevent any party from taking advantage of the guidance from Notice 2008-83. The banks that did knew or should have known that it was likely not legal, outside the powers of the Treasury Department, and would be slapped down by Congress. I wrote more about that in my last post about Notice 2008-83.
Revenue Code Section 382: in the face of a financial crisis (presentation/outline of the tax policy issues)