The Internal Revenue Service issued Notice 2009-38 (.pdf) to provide guidance when instruments are acquired by the Treasury Department under the Capital Purchase Program of the Emergency Economic Stabilization Act (“EESA”) and the Troubled Asset Relief Program (“TARP”). The issue arose because of the massive amount of securities being acquired by the Treasury. If those acquisitions are be deemed an ownership change that could limit the ability to deduct net operating loss carryovers and recognized built-in losses
In general, Section 382 of the Tax Code limits deductions for net operating loss carryovers and recognized built-in losses subsequent to an ownership change. An ownership change, as defined in Section 382(g) of the Tax Code, is generally a change of 50% or more of the ownership of a corporation within a three-year period. Prior to this Notice and similar earlier guidance, the Treasury Department’s acquisition of certain stock of a corporation could have resulted in an ownership change, thereby limiting the corporation’s ability to utilize prior losses to reduce its taxable income.