n-08-100.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Application of Section 382 To Loss Corporations Whose Instruments Are Acquired By
The Treasury Department Under The Capital Purchase Program Pursuant To The
Emergency Economic Stabilization Act Of 2008

Notice 2008-100
This notice provides guidance regarding the application of section 382 to loss
corporations whose instruments are acquired by the Treasury Department (Treasury)
under the Capital Purchase Program (CPP) pursuant to the Emergency Economic
Stabilization Act of 2008, P.L. 110-343 (the “Act”).
I. PURPOSE
The Internal Revenue Service (Service) and Treasury intend to issue regulations
regarding the application of section 382 with respect to the CPP pursuant to the Act.
Pending the issuance of further guidance, taxpayers may rely on the rules set forth in
this notice to the extent provided herein.
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 101(a)(1) of the Act authorizes the Secretary to establish the Troubled
Asset Relief Program. Under the CPP, Treasury will acquire preferred stock and
warrants from qualifying financial institutions.
Section 101(c)(5) of the Act 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 the Act. 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.
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 the CPP.
III. GUIDANCE REGARDING THE APPLICATION OF SECTION 382 TO LOSS
CORPORATIONS WHOSE INSTRUMENTS ARE ACQUIRED BY TREASURY
PURSUANT TO THE CPP
The Service and Treasury intend to issue regulations that set forth rules
described in this Section III. Taxpayers may rely on the rules described in this Section
III to the extent provided below.
RULES:
A. General rule
. With respect to any shares of stock of a loss corporation
acquired by Treasury pursuant to the CPP (either directly or upon the exercise of an
option), the ownership represented by such shares on any date on which they are held
by Treasury shall not be considered to have caused Treasury’s ownership in the loss

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corporation to have increased over its lowest percentage owned on any earlier date.
Except as provided in Sections III.B and III.C below, such shares are considered
outstanding for purposes of determining the percentage of loss corporation stock owned
by other 5-percent shareholders on a testing date.
B. Redemptions of stock owned by 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 loss corporation redeems shares of its stock held by Treasury that
were acquired pursuant to the CPP, the shares so redeemed shall be treated as if they
had never been outstanding.
C. Treatment of preferred stock acquired by Treasury pursuant to the CPP
. For
all Federal income tax purposes, any preferred stock of a loss corporation acquired by
Treasury pursuant to the CPP, whether owned by Treasury or another person, shall be
treated as stock described in section 1504(a)(4) of the Code.
D. Treatment of warrants acquired by Treasury pursuant to the CPP
. For all
Federal income tax purposes, any warrant to purchase stock of a loss corporation that
is acquired by Treasury pursuant to the CPP, whether held by Treasury or another
person, shall be treated as an option (and not as stock).
E. Options held by Treasury not deemed exercised
. For purposes of §1.382-
4(d), any option (within the meaning of §1.382-4(d)(9)) held by Treasury that is acquired
pursuant to the CPP will not be deemed exercised under §1.382-4(d)(2).
F. Section 382(l)(1) not applicable with respect to capital contributions made by
Treasury to a loss corporation pursuant to the CPP. For purposes of section 382(l)(1) of
the Code, any capital contribution made by Treasury to a loss corporation pursuant to

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the CPP 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
The Service and Treasury intend to issue regulations that set forth rules
described in Section III of this notice. Taxpayers may rely on the rules described in
Section III for purposes of applying section 382 with respect to loss corporations whose
instruments are acquired by Treasury pursuant to the CPP. 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 CPP
prior to the publication of that guidance, or (ii) issued to Treasury pursuant to the CPP
under written binding contracts entered into prior to the publication of that guidance.
DRAFTING INFORMATION

The principal author of this notice is Keith E. Stanley of the Office of Associate
Chief Counsel (Corporate). For further information regarding this notice contact Keith E.
Stanley on (202) 622-7700 (not a toll-free call).