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Congress: with loss carryforwards, two wrongs make a right

December 11, 2008

The auto industry subsidy bill passed by the house yesterday would exempt beneficiaries from the operating loss limits of the tax law. Section 382 applies to limit the use of loss carryforwards when corporate ownership changes hands outside of bankruptcy.

The Treasury has come under Congressional fire for it's generous reading of the Section 382 rules, to the extent of ignoring them, in the financial industry bailout; Congress apparently has concluded that two wrongs make a right.

In many cases, the 382 limits don't apply following bankruptcy restructuring. Congress seems to want to give the industry some of the benefits of bankruptcy without imposing the hard choices that a bankruptcy proceeding requires.

Via the TaxProf.

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