Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued additional guidance on the application of Code Sec. 382 and other provisions of law to corporations whose instruments are acquired by the Treasury Department under the following programs established pursuant to the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) (the EESA programs):

  (1) the Capital Purchase Program for publicly-traded issuers (Public CPP);

  (2) the Capital Purchase Program for private issuers (Private CPP);

  (3) the Capital Purchase Program for S corporations (S Corp CPP);

  (4) the Targeted Investment Program (TARP TIP);

  (5) the Asset Guarantee Program;

  (6) the Systemically Significant Failing Institutions Program;

  (7) the Automotive Industry Financing Program; and

  (8) the Capital Assistance Program for publicly-traded issuers (TARP CAP).

  The guidance amplifies and supersedes Notice 2009-14, I.R.B. 2009-7, 516, to address subsequently developed EESA programs and to provide additional guidance, without otherwise changing the basic rules provided in Notice 2009-14.

  Generally, for all federal income tax purposes, any instrument issued to the Treasury under the EESA programs, other than TARP CAP, will be treated as an instrument of indebtedness if denominated as such, and as stock described in Code Sec. 1504(a)(4) if denominated as preferred stock. Such instruments will not be treated as stock for purposes of Code Sec. 382, except that
Code Sec. 1504(a)(4) preferred stock will be treated as stock for purposes of
Code Sec. 382(e)(1). The classification of any instrument issued to the Treasury pursuant to TARP CAP will be determined under general federal tax law principles.

  In addition, any warrant to purchase stock issued to the Treasury under any of the EESA programs, except Private CPP and S Corp CPP, will be treated as an option (and not as stock). While held by the Treasury, such a warrant will not be deemed exercised under Reg. §1.382-4(d)(2). Any warrant to purchase stock issued under the Private CPP will be treated as an ownership interest in the underlying stock, which will be treated as Code Sec. 1504(a)(4) preferred stock. Any warrant issued pursuant to the S Corp CPP will be treated as an ownership interest in the underlying indebtedness.

  For purposes of Code Sec. 382, the ownership represented by any stock (other than Code Sec. 1504(a)(4) preferred stock) issued to the Treasury under the EESA programs on any date on which it is held by the Treasury will not be considered to have caused the Treasury's ownership in the issuing corporation to have increased over its lowest percentage owned on any earlier date. Such stock will be generally considered outstanding for purposes of determining the percentage of stock owned by other five-percent shareholders on a testing date. However, any stock that was issued to the Treasury under the EESA programs and subsequently redeemed by the issuing corporation will be treated as if it had never been outstanding in measuring shifts in ownership by any five-percent shareholder on any testing date occurring on or after the redemption date.

  Any capital contribution made by the Treasury pursuant to the EESA programs will be exempt from the Code Sec. 382(l)(1) anti-stuffing rule and will not be considered to have been made as part of a plan a principal purpose of which was to avoid or increase any Code Sec. 382 limitation. Also, any amount received by a corporate issuer in exchange for instruments issued to the Treasury under the EESA programs will be treated as received, in its entirety, as consideration for such instruments.

  Finally, the above rules, except for the rules for the characterization of instruments and warrants for federal tax purposes, will also apply to "covered instruments" as though such instruments were acquired by the Treasury under the EESA programs. Covered instruments include any instruments acquired by the Treasury in exchange for instruments issued to the Treasury under the EESA programs. Any instruments acquired by the Treasury in exchange for covered instruments will also be treated as covered instruments.

  The IRS intends to issue regulations implementing certain of the rules described in the new guidance. Pending the issuance of further guidance, taxpayers may rely on the new rules. However, any future contrary guidance will not apply to any instrument that was issued to the Treasury under the EESA programs, or acquired by the Treasury in an exchange for such an interest as provided in this guidance, prior to the publication of the contrary guidance or under a binding contract entered into prior to the publication of that guidance.

Notice 2009-38, 2009FED ¶46,335

Other References:

 
Code Sec. 382

  CCH Reference - 2009FED ¶17,115.0225

  CCH Reference - 2009FED ¶17,115.026

  CCH Reference - 2009FED ¶17,115.40

  CCH Reference - 2009FED ¶17,115.45

  CCH Reference - 2009FED ¶17,115.73

  Tax Research Consultant

  CCH Reference - TRC NOL: 33,050
CCH Reference -
TRC NOL: 33,152
CCH Reference - TRC REORG: 33,202
CCH Reference - TRC REORG: 33,208