Crisis-Driven Tax Law: The Case of Section 382

72 Pages Posted: 23 May 2018 Last revised: 29 Feb 2020

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: February 27, 2020

Abstract

At the peak of the 2008 financial crisis, the Internal Revenue Service (IRS) issued Notice 2008–83 (the Notice), administrative guidance that limited Internal Revenue Code (the Code) 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’s authority that undermined its legitimacy. But did the Notice work? There were many extraordinary interventions during the financial crisis that 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 distant and uncertain, costs against the immediate benefits of the intervention. Toward that end, we report the first evidence of the effects of limiting Code section 382 during the 2008 financial crisis. Although we find little evidence that the Notice affected bank merger activity, those mergers that occurred while the Notice was in effect produced lower post-merger income growth. The results suggest that Code section 382 may have some benefits in terms of discouraging tax-motivated acquisitions. We use the 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 (February 27, 2020). 23:1 Florida Tax Review 1 (2019), Virginia Public Law and Legal Theory Research Paper No. 2019-29, Virginia Law and Economics Research Paper No. 2019-11, 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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