IRS Notice 2009-14 expands, clarifies, and supersedes previously issued Notice 2008-100, 2008-44 I.R.B. 1081. It will provide guidance relating to new programs established under the Emergency Economic Stabilization Act of 2008, P.L. 110-343, after Notice 2008-100 was published. Notice 2009-14 will be in IRB 2009-7, dated February 17, 2009.
I. Purpose.
The Internal Revenue Service (Service) and Treasury Department (Treasury)
intend to issue regulations implementing certain of the rules as described below.
Pending the issuance of further guidance, taxpayers may rely on the rules set forth in
this notice to the extent provided herein.
Section 101(a)(1) of EESA authorizes the Secretary to establish the Troubled
Asset Relief Program (TARP). This notice provides guidance to corporate issuers with
respect to five programs established under EESA: (i) the Capital Purchase Program for
publicly-traded issuers (Public CPP); (ii) the Capital Purchase Program for private
issuers (Private CPP); (iii) the Capital Purchase Program for S corporations (S Corp
CPP); (iv) the Targeted Investment Program (TARP TIP); and (v) the Automotive
Industry Financing Program (TARP Auto). Unless otherwise specified below, a
reference to "the Programs" shall include any of the various EESA programs described
in the preceding sentence.
II. Background.
Section 382(a) of the Internal Revenue Code (Code) provides that the taxable
income of a loss corporation for a year following an ownership change that may be
offset by pre-change losses cannot exceed the section 382 limitation for such year. An
ownership change occurs with respect to a corporation if it is a loss corporation on a
testing date and, immediately after the close of the testing date, the percentage of stock
of the corporation owned by one or more 5-percent shareholders has increased by more
than 50 percentage points over the lowest percentage of stock of such corporation
owned by such shareholders at any time during the testing period. See §1.382-2T(a)(1)
of the Income Tax Regulations. Section 382(m) of the Code provides that the Secretary
shall prescribe such regulations as may be necessary or appropriate to carry out the
purposes of sections 382 and 383.
Section 101(c)(5) of EESA provides that the Secretary is authorized to issue
such regulations and other guidance as may be necessary or appropriate to carry out
the purposes of EESA.
Except as otherwise provided, any definitions and terms used herein have the
same meaning as they do in section 382 of the Code and the regulations thereunder or
in EESA. Unless otherwise specified, a reference herein to "section" is to the particular
section of the Code or regulations thereunder.
III. Guidance Regarding Corporations Whose Instruments are Acquired by the Treasury
Pursuant to EESA
Taxpayers may rely on the rules described in this Section III to the extent
provided below.
RULES:
A. Treatment of indebtedness and preferred stock acquired by Treasury. For all
Federal income tax purposes, any instrument issued to Treasury pursuant to the
Programs, whether owned by Treasury or subsequent holders, shall be treated as an
instrument of indebtedness if denominated as such, and as stock described in section
1504(a)(4) if denominated as preferred stock. Any amount received by an issuer under
the Programs shall be treated as received, in its entirety, as consideration in exchange
for the instruments issued. No such instrument shall be treated as stock for purposes of
section 382 while held by Treasury or by other holders, except that preferred stock will
be treated as stock for purposes of section 382(e)(1).
B. Treatment of warrants acquired by Treasury. For all Federal income tax
purposes, any warrant to purchase stock acquired by Treasury pursuant to the Public
CPP, TARP TIP, and TARP Auto, whether owned by Treasury or subsequent holders,
shall be treated as an option (and not as stock). While held by Treasury, such warrant
will not be deemed exercised under §1.382-4(d)(2). For all Federal income tax
purposes, any warrant to purchase stock acquired by Treasury pursuant to the Private
CPP shall be treated as an ownership interest in the underlying stock, which shall be
treated as preferred stock described in section 1504(a)(4). For all Federal income tax
purposes, any warrant acquired by Treasury pursuant to the S Corp CPP shall be
treated as an ownership interest in the underlying indebtedness.
C. Section 382 treatment of stock acquired by Treasury. For purposes of
section 382, with respect to any stock (other than preferred stock) acquired by Treasury
pursuant to the Programs (either directly or upon the exercise of a warrant), the
ownership represented by such stock on any date on which it is held by Treasury shall
not be considered to have caused Treasury's ownership in the issuing corporation to
have increased over its lowest percentage owned on any earlier date. Except as
described below, such stock is considered outstanding for purposes of determining the
percentage of stock owned by other 5-percent shareholders on a testing date.
D. Section 382 treatment of redemptions of stock from Treasury. For purposes
of measuring shifts in ownership by any 5-percent shareholder on any testing date
occurring on or after the date on which the issuing corporation redeems stock held by
Treasury that was acquired pursuant to the Programs (either directly or upon the
exercise of a warrant), the stock so redeemed shall be treated as if it had never been
outstanding.
E. Section 382(l)(1) not applicable with respect to capital contributions made by
Treasury pursuant to the Programs. For purposes of section 382(l)(1), any capital
contribution made by Treasury pursuant to the Programs shall not be considered to
have been made as part of a plan a principal purpose of which was to avoid or increase
any section 382 limitation.
IV. Reliance on Notice.
Taxpayers may rely on the rules described in Section III. These rules will
continue to apply unless and until there is additional guidance. Any future contrary
guidance will not apply to instruments (i) held by Treasury that were acquired pursuant
to the Programs prior to the publication of that guidance, or (ii) issued to Treasury
pursuant to the Programs under binding contracts entered into prior to the publication of
that guidance. In exercising its authority under EESA in this notice, the Treasury and
the Service do not intend to suggest that similar Federal income tax results would obtain
with respect to instruments similar to those described herein that are not issued under
the Programs. Accordingly, the Federal income tax consequences of instruments not
issued under the Programs should continue to be determined based upon specific facts
and circumstances.
Gary L. Britt, CPA, J.D.
1200 Abernathy Road, Suite 1700
Atlanta, Georgia 30328
404-567-6445
“Lawyer's That Mean Business”
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