This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

What About GM's Tax Losses?

Updated from 9:45 a.m. EDT

CHARLOTTE, N.C. -- The Obama administration appears ready to disregard years of precedent in bankruptcy and taxation law as it remakes the U.S. auto industry.

The latest example is the General Motors (GMGMQ) bankruptcy, where the intent is to have a newly created GM assume the benefit of tax losses at the old GM.

The problem, says Jeffrey Coyne, senior lecturing fellow at the Duke University School of Law and a management consultant who specializes in reorganizing troubled companies, is that tax losses can be passed on only to companies whose owners controlled at least 50% of the predecessor company. Since the start of 2005, General Motors has reported losses of about $87 billion.

"You can't form new GM, which has never transacted business before, and sell the assets (of existing GM) and then sell the net tax benefit to the new company," Coyne says. "And as far as I can tell, the NOL is not a saleable asset." An NOL, or net operating loss, can be used as a tax loss carry forward, an accounting technique that allows it to be applied to future profits to reduce tax liability.

The administration does not share Coyne's view. On a briefing with reporters on May 31, the night before GM filed for bankruptcy protection, a senior administration official declared: "The NOL would be transferred to the new company."

The administration's position is laid out in a paragraph buried in the bankruptcy filing. "The outstanding balance of deferred tax assets and NOL carry forwards at NewCo reflect the effects of restructuring and subsequent 363 Sale, including the expected cancellation of debt income," the filing says, adding "This analysis assumes that utilization of NewCo's non-U.S. tax attributes will not be limited in any way by the Company's reorganization or other restructuring events."
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
F $15.01 -0.07%
AAPL $125.36 0.67%
FB $85.81 0.01%
GOOG $520.60 -0.18%
TSLA $268.36 2.40%

Markets

DOW 17,619.51 +23.16 0.13%
S&P 500 2,063.12 +5.48 0.27%
NASDAQ 4,986.8670 +28.3990 0.57%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs