Ramseyer & Rasmussen: The IRS Had No Authority to Waive NOL Rules for GM (and AIG, Citigroup)
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To discourage firms from buying and selling tax deductions, § 382
limits the ability of one firm to use the ‘‘net operating losses’’
(NOLs) of another firm that it acquires. Under the Troubled Asset Relief
Program, the U.S. Treasury lent a large amount of money to General
Motors. In bankruptcy, it then transformed the debt into stock. GM did
not make many cars anyone wanted to buy, but it did have $45 billion in
NOLs. Unfortunately for the Treasury, if it now sold the stock it
acquired in bankruptcy, it would trigger § 382. Foreseeing this, the
market would pay much less for its stock in GM. Treasury solved this
problem by issuing a series of notices in which it announced that the
law did not apply to itself. Section 382 says that the NOL limits apply
when a firm’s ownership changes. That rule would not apply to any firm
bought with TARP funds, declared Treasury.
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