Tag: TARP

IRS Notice 2009-38 on Section 382 For Acquisition of Instruments Issued by Recipients of TARP Funds

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The Internal Revenue Service issued Notice 2009-38 (.pdf) to provide guidance when instruments are acquired by the Treasury Department under the Capital Purchase Program of the Emergency Economic Stabilization Act (“EESA”) and the Troubled Asset Relief Program (“TARP”). The issue arose because of the massive amount of securities being acquired by the Treasury. If those acquisitions are be deemed an ownership change that could limit the ability to deduct net operating loss carryovers and recognized built-in losses

In general, Section 382 of the Tax Code limits deductions for net operating loss carryovers and recognized built-in losses subsequent to an ownership change. An ownership change, as defined in Section 382(g) of the Tax Code, is generally a change of 50% or more of the ownership of a corporation within a three-year period. Prior to this Notice and similar earlier guidance, the Treasury Department’s acquisition of certain stock of a corporation could have resulted in an ownership change, thereby limiting the corporation’s ability to utilize prior losses to reduce its taxable income.

SIGTARP Quarterly Report

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Congress was smart enough to not let loose the billions of TARP funds without some oversight. The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) was established by Section 121 of the Emergency Economic Stabilization Act as amended by the Special Inspector General for the Troubled Asset Relief Program Act of 2009. Neil Barofsky, the Special Inspector General for SIGTARP sees serious dangers in the operation of the US Treasury’s umbrella bailout plan according to his Quarterly Report to Congress.

SIGTARP set up a SIGTARP Hotline for reporting of concerns, allegations, information, and evidence of violations of criminal and civil laws in connection with TARP. SIGTARP has already received almost 200 tips. Both from the hotline and from other sources, SIGTARP has initiated nearly 20 preliminary and full criminal investigations to date.

Since SIGTARP’s Initial Report in February, SIGTARP’s Audit Division launched a survey of 364 TARP recipients to obtain answers to recurring questions regarding use of TARP funding and actions taken to comply with executive compensation requirements associated with the funding. They had a 100% response rate.

For those of you wondering where all the money has gone and what they are doing with it, this is a great report to browse through.

See:

Report of Congressional Oversight Panel on Regulatory Reform

Modernizing the American Financial Regulatory System: Recommendations for Improving Oversight, Protecting Consumers and Ensuring Stability (.pdf)

In response to the escalating crisis, on October 3, 2008, Congress provided the U.S. Department of the Treasury with the authority to spend $700 billion to stabilize the U.S. economy, preserve home ownership, and promote economic growth. Congress created the Office of Financial Stabilization (OFS) within Treasury to implement a Troubled Asset Relief Program (TARP). At the same time, Congress created the Congressional Oversight Panel to “review the current state of financial markets and the regulatory system.” The Panel is empowered to hold hearings, review official data, and write reports on actions taken by Treasury and financial institutions and their effect on the economy. Through regular reports, the Panel must oversee Treasury’s actions, assess the impact of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure mitigation efforts, and guarantee that Treasury’s actions are in the best interests of the American people. In addition, Congress has instructed the Panel to produce a special report on regulatory reform that will analyze “the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.”

This report is short on particulars, but does give me a sense that private investment funds are likely to be subject to more regulatory oversight in the near future.

Number three on the list of critical problems and recommendations for improvement is to modernize the supervision of the “shadow” financial system. The report lumps private equity funds in the same basket with OTC derivatives, off-balance sheet SIVs and hedge funds.