In two related stories to yesterday’s post on deferred tax assets, a Wall Street Journal article and a New York Times article this week discuss a huge tax benefit the Treasury Department gave to GM and AIG as part of their bailouts. Both GM and AIG had accumulated large NOLs before their bailouts, but a section of the Internal Revenue Code should have limited them from using those NOLs. Section 382 states that a limitation applies to the use of NOLs when a company’s ownership changes by a specified amount. In both circumstances ownership changed enough to trigger this rule when the government bailed out each company, and thus GM and AIG should have been subject to the NOL limitation in Section 382. To avoid this situation Treasury issued a series of Notices in which it stated that the law did not apply. The result of this exception to the rule for GM and AIG was that they had the full access to the use of their NOLs, and could create a deferred tax asset for the future benefit of the NOLs. The articles stated that Senior Treasury officials said they did not believe the bailouts were traditional takeovers, and the justification for the limitation in Section 382 was not present in these non-traditional takeovers. Nonetheless, GM and AIG would not have received this benefit without the help of Treasury in creating an exception to the rules in Section 382 through its series of Notices.
