If this article by professors at Harvard Law School and Indiana University Business School is correct (hat tip to Paul Caron’s taxprof blog and Glenn Reynolds's Instapundit), the Treasury acted contrary to law when it ruled that post-bankruptcy General Motors could utilize $45 billion in pre-bankruptcy net operating losses to reduce any corporate income taxes it may owe. The article is entitled “Can the Treasury Exempt Its Own Companies from Tax? The $45 Billion GM NOL Carryforward,” and the authors’ answer is No.
“Treasury solved this problem by issuing a series of "Notices" in which it announced that the law did not apply. On its terms, § 382 states that the NOL limits apply when a firm's ownership changed. That rule, the Treasury declared, did not apply to itself. Notwithstanding the straightforward and all-inclusive statutory language, GM would be able to continue to use its NOLs in full after the Treasury sold its stock.
The Treasury had no legal or economic justification for these Notices, which applied to Citigroup and AIG as well as to GM. Nonetheless, the Notices largely escaped public attention, though they had the potential to transfer significant wealth to loyal supporters (the UAW). That it could do so illustrates the risk involved in this manipulation. We suggest that Congress give its members standing to challenge such manipulation in court.”
Exempting a company from taxes contrary to law in order to confer benefits on a political ally is an act of gangster government. Maybe the House Ways and Means Committee should investigate whether the Treasury Department did that in this case.