Daily Tax Update - December 15, 2009

IRS ISSUES ADDITIONAL SECTION 382 GUIDANCE FOR CORPORATIONS UNDER EMERGENCY ECONOMIC STABILIZATION ACT PROGRAMS: The IRS has issued Notice 2010-2, which provides updated guidance on the application of section 382 to corporations whose instruments are acquired and disposed of by Treasury pursuant to the Emergency Economic Stabilization Act of 2008, P.L. 110-343 (“ESSA”). The Notice amplifies and supersedes Notice 2009-38.

  • The Notice adds guidance on the section 382 treatment of stock sold by Treasury to public shareholders. The Notice provides that, if Treasury sells stock that was issued to it under any of the ESSA programs (either directly or upon the exercise of a warrant), and the sale creates a public group, the new public group’s ownership in the issuing corporation will not be considered to have increased solely as a result of the sale.
  • However, the new public group’s ownership can be increased by reason of any transaction other than a sale of stock by Treasury. Further, the stock sold by Treasury is considered outstanding for purposes of determining the percentage of stock owned by other 5-percent shareholders on any testing date, and section 382 and the regulations thereunder otherwise apply to the new public group in the same manner as with respect to other public groups.
  • The Notice reiterates the earlier guidance in Notice 2009-38 that (1) instruments other than warrants issued to Treasury are characterized as debt if denominated as such and as section 1504(a)(4) stock if denominated as preferred stock; (2) warrants issued to Treasury are treated as options and will not be deemed exercised under Reg. § 1.382-4(d)(2); (3) stock other than preferred stock will not cause an increase in Treasury’s ownership; (4) stock redeemed from Treasury is treated as if it had never been outstanding; and (5) any capital contribution made by Treasury is not considered to be part of a plan a principal purpose of which was to avoid or increase any section 382 limitation under section 382(l)(1).
  • Treasury and the IRS intend to issue regulations implementing the rules described in the Notice.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com.
  • The notice can be accessed via: http://www.irs.gov/pub/irs-drop/n-10-02.pdf

NO AGREEMENT YET ON ESTATE TAX EXENSION: Yesterday, Senate Finance Committee Chairman Max Baucus said that it is likely the Senate will act on a one or two-year extension of the estate tax despite his preference that it be permanent. When Baucus was asked if the estate tax measure would be attached to the defense appropriations bill, he said “it looks like it, or maybe somewhere else.”

  • However, the sponsor of the House legislation, Rep. Earl Pomeroy, said today that there is a “substantial prospect” that the tax will lapse. Although the House has passed a bill, the Senate has not acted.
  • Today, Ways and Means Committee Chairman Charles Rangel commented on the possibility of a short-term extension of a few months. Rangel said, “Anything to make certain it doesn’t expire.”
  • Meanwhile, the House may adjourn as early as tomorrow night. House Majority Leader Steny Hoyer said that there are four bills the House must complete before leaving: (1) the defense appropriations bill, (2) a short-term continuing resolution that expires on December 23 or 24, (3) a two-month debt extension totaling about $200 billion, and (4) an approximately $75 billion jobs bill containing provisions on infrastructure and public sector employment.

Notice 2009-95 delays the effective date for compliance with Revenue Ruling 2006-57, 2006-2 C.B. 911, which provides guidance on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes under Internal Revenue Code Section 132(f), until January 1, 2011.

Notice 2009-95 will be in IRB 2009-52, dated December 28, 2009.

H.R.4305: To amend the Internal Revenue Code of 1986 to provide the energy tax credit for transformers designed to use soybean-based electrical transformer fluid.
Sponsor: Rep Meek, Kendrick B. [FL-17] (introduced 12/14/2009)      Cosponsors (None)

H.R.4306: To amend the Internal Revenue Code of 1986 to permanently extend the 15-year recovery period for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
Sponsor: Rep Meek, Kendrick B. [FL-17] (introduced 12/14/2009)      Cosponsors (5)

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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