NY Times: Treasury Bent NOL Rules to Provide $26 Billion to AIG #p2 #tcot

from  http://taxprof.typepad.com/taxprof_blog/2012/02/ny-times--1.html

"Here's the back story: AIG's tax benefit comes in large part from its immense "net operating losses" during its depths of despair in 2008 before its rescue. The government had to dump $182 billion into the company after it was crippled by bad bets it had made insuring mortgage-backed securities.

The tax benefit comes in the form of something called net operating losses — NOLs in Wall Street parlance — that could be worth more than $25 billion, possibly more. Those losses can be very valuable, in part because companies can spread them over many years to lower or wipe out their income tax bills.

However, according to longstanding tax laws, if a company files for bankruptcy or is taken over, it loses the ability to use its net operating losses. AIG would fit that profile perfectly: on the verge of bankruptcy, the federal government took control of AIG, exchanging its bailout billions for shares in the company. The government — taxpayers — still own 77% of the company, down from 92% three years ago.

Still, the Treasury issued "Notices" exempting AIG from losing its right to make use of its NOLs. In total, the insurer estimated those losses were worth $26.2 billion as of 2009, and it claimed almost $9 billion in other "unrealized loss on investments." ...

All of this brings us to the inevitable questions: How did this happen? Why would Treasury exempt AIG from the law?    [S]enior Treasury officials said privately that they had exempted AIG because they did not consider the rescue to be a traditional takeover. The original law preventing companies from using the losses after a takeover were intended to prevent corporations from buying failing companies with lots of losses simply for the tax benefits. ..."