Stimulus Bill Rescinds IRS Notice 2008-83

The American Recovery and Reinvestment Act will soon be reported out of conference and become law. As of this writing, both House and Senate versions of the bill rescind IRS Notice 2008-83.

The Act prospectively repeals IRS Notice 2008-83 that interprets Section 382 of the Internal Revenue Code to allow banks and other financial institutions pursuing acquisitions to write-off acquired losses stemming from takeovers of other banks to offset future income. Notice 2008-83 came under intense criticism by many in Congress.

Section 382 was enacted by Congress to prevent tax-motivated acquisitions of loss corporations. On September 30, 2008, Notice 2008-83 effectively removed the limit on how much taxable income a purchasing bank, thrift, industrial loan company, and trust company could deduct post-acquisition. The Notice was designed to help the struggling banking sector recover by allowing acquiring banks the ability to deduct the built-in tax losses of any banks they acquire that possesses a portfolio of loans that have deteriorated in value.

The Act states that Congress finds that the delegation of authority to the Treasury under section 382(m) does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers. Also, the statute says that IRS Notice 2008-83 is inconsistent with the congressional intent in enacting such 382(m); and that the legal authority to prescribe 2008-83 is doubtful.

With two exceptions, the provision states that Notice 2008-83 will not have any effect for any ownership changes after January 16, 2009. One exception is for ownership changes pursuant to a binding contract entered in to on or before such date, The second exception is for changes pursuant to an agreement entered into on or before such date and such agreement was described in a public announcement or in a filing with the SEC.