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July 15, 2012 The Tax Lawyer

The Economics and Politics of Tax Loss Carryforwards in the Great Recession: Why GM Gets a $16 Billion Subsidy

Vol. 65, No. 2 - Winter 2012

Matthew Cline


    As the economic crisis of 2008 unfolded and Congress scrambled to stimulate the economy and bail out struggling financial institutions, Treasury was busy tinkering with the Code to achieve the same ends. The result was a series of notices excluding TARP recipients and bank mergers from the loss limitation rules of section 382.

    Congress took issue with Notice 2008-83 in particular, which exempted financial institutions from the limitations of section 382, thereby allowing banks to carry forward losses that would not otherwise have survived a merger. Congress repealed the Notice, yet simultaneously added to section 382 a provision that exempted General Motors from loss limitations—a nearly $16 billion tax savings to the company.

    This Comment highlights the contradictions inherent in Congress’s policy choices. Furthermore, it exposes evidence that Congress may have supported the notice it repealed, and suggests that Congress’s politically driven behavior may have broader than intended tax consequences. Part II provides a background of the applicable Code provisions, the authority of Treasury, their interaction in the context of the financial crisis, and Treasury’s issuance of the controversial Notice 2008-83. Part III analyzes the tension between Treasury’s notice and Congress’s Code provision, suggests an explanation for the peculiarities of Notice 2008-83’s repeal, and describes why Congress settled on a tax subsidy for General Motors (GM). Part IV concludes with the speculation that Congress’s actions may have unforeseen tax results in the near and distant future.

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