Copy and paste from a previous post
New NOL Company scenario. NOLs going forward can be carried over indefinitely.
This is from the motor liquidation company 8k ala old GM.
This can apply to the LBHI NOLs?
Ordinarily, when one company buys another's assets, it does not acquire its tax losses
too. But the sale from Old GM to New GM qualified as a tax-free "reorganization" under
Sec. 368 of the tax code: neither Old GM nor New GM incurred a tax liability, New GM
entered Old GM's assets on its books with Old GM's "adjusted basis," and New GM
acquired Old GM's NOL’s.
The problem involved Treasury's plans to sell the shares it took in New GM. If the
combined equity stake of any group of shareholders in a "loss corporation" like New GM
climbs by more than 50 percentage points, Sec. 382 of the tax code limits the firm's ability to
use those accumulated NOL’s. Given Treasury's large stake in New GM, if it sold its entire
stake to the public, those new owners would raise their combined interest by 50 points.
New GM would then lose its ability to avoid taxes on future income.
To solve this "problem," the Treasury issued a series of "Notices." The Sec. 382 rules,
it declared, would not apply to itself. When it sold its shares in New GM, the new owners
might increase their ownership stake by 50 percentage points, but they would not trigger the
Sec. 382 limits. The tax code offered no exception for government-owned shares, and the
Treasury did not purport to find one. Instead, it just declared that the law did not apply.5
The Notices also apply to two other companies, AIG and Citigroup. Both of these
companies had ownership changes over 50% as a result of TARP and would ordinarily, as in
bankruptcy, lose their NOL’s. If they retain them, that reduces the apparent (but not real)
cost of the bailout because the government can resell its shares at a higher price.
