Sears Holdings Corp. (fka SHLDQ)

[Large Green]

The Following FACTS ALMOST GUARANTEES INTACT Share Structure to Ensure Tax Attributes Can Be MAXiMIZED

Lampert’s Sears Bid Targets Tax Offsets Possibly Worth Billions
Posted Dec. 7, 2018, 4:45 AM
Exceptions Available

While Sears has been able to burn through some of those lost assets by offsetting gains from sales of assets like the Craftsman brand, they’re otherwise generally useless to a company with little profit. They can, however, sweeten a deal if a more profitable company swoops in and buys the loss company.

Section 382 of the tax code sets an annual limit on the net operating loss tax assets the combined company can use. It is based on the market value of the target company right before the change in ownership, multiplied by a long-term, tax-exempt rate set by the Internal Revenue Service.

Consequently, if the target company is practically worthless, that annual cap can be minuscule.

For companies that have filed Chapter 11 bankruptcy, however, there are two exceptions to that restriction.

Under one, the cap on net operating loss use is calculated after the deal, when the market value would likely be higher.

The other option allows the combined company unlimited access to those tax assets. But for the combined company to qualify, half of its stock must have been held by creditors and shareholders who held the target company’s debt for at least 18 months prior to the Chapter 11 filing or whose debt “arose in the ordinary course” of the target company’s “trade or business.”

The bid is intended to fit within the guardrails of the latter exception, the person familiar with ESL’s plans said.

“ESL, we know, is a ‘qualified creditor’ of Sears,” so any stock it receives as part of the deal “would count positively towards satisfaction of the bankruptcy exception,” New York-based tax consultant Robert Willens told Bloomberg Tax in an email.

The proposal not only ensures that ESL will have access to Sears’ NOLs, but that the combined company won’t be “burdened” by the limitation under Section 382, he said.
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***Thanks goes to IHUB Poster, ShyGuy for sharing the following EXTREMELY VITAL Info***

The best part is in the last paragraph. Where even with IRS rejection court will follow through (which is why I think they file BK where they file).

Tax loophole

*the tax laws generally*39 do not allow a corporation taxed under Subchapter C40 to transfer its tax attributes to another person, whether in bankruptcy or otherwiseThus, in order to retain the future ability to use its valuable tax attributes, a debtor company must emerge from bankruptcy intact. Of course, (Sears) would not have been able to exit bankruptcy if it had been liquidated under Chapter 7.

Congress specifically prohibits the continued existence of business entities following bankruptcy liquidation in an effort to prevent “trafficking in corporate shells.” For the same reasons, (Sears) stakeholders would not have retained the company’s tax attributes if they pursued a pure plan of liquidation in Chapter 11.*43 in that both cases, any excess tax benefits would have expired with the then defunct parent and subsidiary entities.

Predictably, the evidence presented by the (Sears) Plan’s opponents strongly suggests that the company’s path through Chapter 11 was tax driven.

The (Sears) Plan was designed to take advantage of an ambiguity in the law that allows a company to liquidate its business under Chapter 11 and preserve valuable tax attributes for future use by reorganizing only the corporate parent.

Solyndra has not been the only company to employ this strategy in recent years. Among others, Washington Mutual followed a similar path through Chapter 11, liquidating its business assets and reorganizing the parent to preserve nearly $18 billion in valuable tax attributes. (NOTICE-SHLDQ is using same law firm of Weil, Gotshal & Manges as WaMu)

In approving the (Sears) Plan, the court reasoned that the parent’s business purpose was merely to serve as a holding company and that the valuable tax attributes would motivate the parent to continue its historical line of business of investing in companies.

Credits

46. Section 1141(d)(3) expressly proscribes the granting of a discharge if “(A) the plan provides for the liquidation of all or substantially all of the property of the estate; (B) the debtor does not engage in business after consummation of the plan; and (C) the debtor would be denied a discharge . . . if the case were a case under chapter 7.” See 11 U.S.C. § 1141(d)(3); Borsdorf v. Fairchild Aircraft Corp. (In re Fairchild Aircraft Corp.), 128 B.R. 976, 982 (Bankr. W.D. Tex. 1991) (describing the purpose of this provision).

What is more, a Chapter 11 plan may not be confirmed unless it complies with the provisions of 11 U.S.C. § 1129(a). A plan must be feasible, demonstrating that the debtor will generate profits from future business operations. See Fin. Sec. Assurance v. T-H New Orleans Ltd. P’Ship (In re T-H New Orleans Ltd. P’ship), 116 F.3d 790, 801–02 (5th Cir. 1997). The proponent of a Chapter 11 plan bears the burden of proof with respect to each element of 11 U.S.C. § 1129(a). See In re Genesis Health Ventures, Inc., 266 B.R. 591, 610 (Bankr. D. Del. 2001).
47. See sources cited infra notes 51–52.
48. See Order Confirming First Amended Plan of Reorganization, In re PMI Grp., Inc., No. 11-13730 (Bankr. D. Del. July 25, 2013), ECF No. 1015 (confirming a Chapter 11 plan pursuant to which a corporate parent reorganized to preserve valuable tax attributes).

49. Peg Brickley & Mike Spector, WaMu Gets Closer to Bankruptcy Exit, WALL ST. J. (May 25, 2011, 12:01 AM), http://online.wsj.com/news/articles/SB10001424052702303654 804576343803438618670.

The tax attributes are discussed in greater detail in In re Wash. Mut., Inc., 461 B.R. 200, 225–26 (Bankr. D. Del. 2011), vacated in part, No. 08-12229 (MFW), 2012 WL 1563880 (Bankr. D. Del. Feb. 24, 2012).
50. Order Confirming Debtors’ Amended Joint Chapter 11 Plan, In re Solyndra LLC, No. 11-12799 (Bankr. D. Del. Oct. 22, 2012).

51. Objection of the United States of America, on Behalf of the IRS, to Confirmation of Debtors’ Amended Joint Chapter 11 Plan, In re Solyndra, No. 11-12799 (Oct. 10, 2012).
F No. 1015.

54. See supra note 50 and accompanying text. A similar decision was more recently rendered in the PMI Group, Inc.’s Chapter 11 case. See Order Confirming First Amended Plan of Reorganization at 10, In re PMI Grp., Inc., No. 11-13730 (Bankr. D. Del. Jul. 25, 2013), ECF No. 1015.
55. See infra Part III.C.

***Here, directly from SHLDQ FILINGS on page 17***

https://www.otcmarkets.com/filing/conv_pdf?id=13107984&guid=QEytUW3a1BygDyh

Filed 12/13/18 for the Period Ending 11/03/18

NOTE 2—BANKRUPTCY FILING
Chapter 11 Proceedings

On the Petition Date, the Debtors filed voluntary petitions in the Bankruptcy Court seeking relief under the Bankruptcy Code. The Chapter 11 Cases are being jointly administered under the caption "In re Sears Holdings Corporation, et al., Case No. 18-23538." Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at

https://restructuring.primeclerk.com/sears

Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document. The Debtors are authorized to continue to operate their
businesses and manage their properties as "debtors in possession" under the jurisdiction of the Bankruptcy Code and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Certain subsidiaries of Holdings (collectively, the "Non-Filing Entities") were not part of the Chapter 11 Cases. The Non-Filing Entities include, among others, SRC O.P. LLC, SRC Facilities LLC, SRC Real Estate (TX), LLC, KCD IP, LLC and Sears Reinsurance Company Ltd. The Non-Filing Entities will continue to operate their businesses in the normal course and their results are included in our interim Unaudited
Condensed Consolidated Financial Statements.