Can the Treasury Exempt its Own Companies from Tax? The $45 Billion GM NOL Carryforward

Tue, 05 Jul 2011 14:15:23 +0000

Posted by Mark Ramseyer, Harvard Law School, on Tuesday, July 5, 2011

Editor's Note:

Mark Ramseyer is a Professor of Japanese Legal Studies at Harvard Law School.

Year after year, General Motors lost money – enormous sums of money. It designed cars. It built cars. But no one wanted to buy the cars it designed and built. Over time, it accumulated huge operating losses (“net operating losses,” or NOLs). The tax code let GM carry forward these NOLs into the future. It let the firm save them for that day in the future when it would once again sell cars that people wanted.

The day never came. Instead, in June 2009 GM (or “Old GM”) declared bankruptcy. It filed under Chapter 11 of the Bankruptcy Code and sold its assets to a new shell (New GM) in a transaction under Sec. 363 of the Code. Old GM’s shareholders were not part of New GM, and the firm’s creditors took stock: the US Treasury, the auto unions, and Canada swapped debt claims against Old GM for equity stakes in New GM. With 61 percent, the Treasury took the largest share among this group. Other Old GM creditors acquired a 10 percent stake in New GM as well. In the fall of 2010, Treasury re-sold a large amount of its New GM shares to the public, and cut its share to 26%.

(more…)

The Harvard Law School Forum on Corporate Governance

Can the Treasury Exempt its Own Companies from Tax? The $45 Billion GM NOL Carryforward