IRS and Treasury Take Some of the Bite Out of Section 382


With the economic crisis now in full swing, the government is doing everything it can to save our banks. This includes limiting the application of Section 382 with respect to banks, in the hopes that stronger competitors will come to the rescue and acquire them. Section 382 provides that the taxable income of a loss corporation for a year following an ownership change that may be offset by prechange losses (including net unrealized built-in loss) cannot exceed the Section 382 limitation for such year. For this section to apply, there need to be certain ownership changes (which relate to 5 percent owners) or equity structure shifts. The government has just released Notices 2008-83 and 2008-100, which change the impact of Section 382 with respect to certain banks.

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