Crisis-Driven Tax Law: The Case of Section 382

62 Pages Posted: 23 May 2018 Last revised: 16 May 2019

See all articles by Albert H. Choi

Albert H. Choi

University of Michigan Law School

Quinn Curtis

University of Virginia School of Law

Andrew T. Hayashi

University of Virginia School of Law

Date Written: May 18, 2018

Abstract

At the peak of the 2008 financial crisis, the Internal Revenue Service (“IRS”) issued Notice 2008-83, administrative guidance that suspended the Internal Revenue Code (“I.R.C.”) Section 382, an important tax rule designed to discourage tax-motivated acquisitions. Although styled as a mere interpretation of existing law, the Notice has been widely viewed as an improper exercise of the IRS’ authority that undermined the Service’s legitimacy. But, did the Notice work? The financial crisis featured a wide range of extraordinary interventions, many of which raised questions about eroding the rule of law and the long-term destabilizing effects of bailouts. In a financial crisis, regulators must weigh these real, but hard to measure, costs against the immediate effect of the proposed intervention. Toward that end, we examine and report the first evidence of the effects of suspending I.R.C. Section 382 during the 2008 financial crisis. Although find little evidence that the Notice affected bank merger activity, mergers that did occur while the Notice was in effect produced lower post-merger income growth. The results suggest that Section 382 may have some benefits in terms of discouraging tax-motivated acquisitions. We use Notice to illustrate the concerns that should guide lawmakers’ decisions about if and how to make law during a crisis.

Suggested Citation

Choi, Albert H. and Curtis, Quinn and Hayashi, Andrew T., Crisis-Driven Tax Law: The Case of Section 382 (May 18, 2018). Virginia Law and Economics Research Paper No. 2019-11; Virginia Public Law and Legal Theory Research Paper No. 2019-29. Available at SSRN: https://ssrn.com/abstract=3180731

Albert H. Choi (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

HOME PAGE: http://www.law.umich.edu/FacultyBio/Pages/FacultyBio.aspx?FacID=alchoi

Quinn Curtis

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

HOME PAGE: http://https://www.law.virginia.edu/faculty/profile/qc3q/2298852

Andrew T. Hayashi

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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