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WASHINGTON MUTUAL Message Board

  • newflowlogic newflowlogic May 11, 2013 11:53 AM Flag

    OWNERSHIP CHANGE

    In PLR 200806008, the IRS ruled that if an investment manager
    files a Schedule 13D or Schedule 13G that reports ownership
    on behalf of two or more economic owners of shares representing,
    in the aggregate, more than 5 percent of a loss corporation’s
    stock, and those economic owners do not file a Schedule
    13D or Schedule 13G that affirms the existence of a group, the
    loss corporation can rely on that absence to determine that the
    economic owners are not members of a group that constitutes
    an entity under the Treasury Regulations.8 Accordingly, neither
    the investment manager nor its clients constituted an entity
    whose members are properly regarded as a public group. The
    IRS reasoned that the mere fact that the investment advisers in
    PLR 200806008 retained the right to vote the stock that they
    had acquired on behalf of their clients and possessed discretionary
    powers to acquire or dispose of that stock did not mandate
    that the clients constituted a group of persons who had a formal
    or informal understanding among themselves to make a coordinated
    acquisition of stock. The investment decision of each client
    was not based on the investment decision of any other client.
    Their only connection was that they were clients of a common
    investment manager that had, in its discretion, purchased shares
    of the loss corporation on behalf of those clients. That sort of
    connection is not nearly sufficient to transform a group of clients
    who are unaware of one another’s existence into an entity whose
    ownership of stock must be aggregated in assessing whether the
    loss corporation in whose stock they have invested has undergone
    an ownership change.

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    • And from 10Q filed yesterday page 17
      "9.9 Treasury Regulation 1.382-3. For purposes of applying Article VI of the Charter, if the Board reasonably believes that any person may have violated the Article VI provisions (including whether a person is part of an single entity under Treasury Regulation Section 1.382-3 and thus is a Substantial Holder), then the Board shall be authorized to require such person to provide such information, representations, agreements and/or opinions of counsel (which if required shall be “should” level opinions issued by nationally recognized counsel approved by the Board, and for the avoidance of doubt, can include the shareholder’s regular counsel) in support of the position that no violation has occurred. "

    • This is actually not good because the IRS rules that the individual funds are treated together as one single entity because they have to coordinate among themselves to remain below 5% ownership. Do I read it right?

      • 1 Reply to brandmarty
      • Read this part: "There were several funds that held varying amounts
        of overlapping beneficial ownership of the taxpayer and were
        managed by a common group of individuals that act through
        several entities and an LLC, which the group of individuals
        owns. The group of funds sought to acquire more shares of the
        taxpayer in bankruptcy. The taxpayer was concerned that if the
        funds were grouped together and treated as one entity, that may
        create an ownership change limiting its ability to use its NOL
        carryforward. The taxpayer agreed the funds could acquire additional
        shares, provided each fund would own a certain number of
        shares or less, and the ownership of each fund would be treated
        separately and not aggregated for Section 382 purposes under
        an agreement. If the ownership were aggregated for Section 382
        purposes, however, the agreement treated the acquisition by the
        funds in excess of the shares acquired as void ab initio"
        In our case, 5% or more should get approval from the BOD and this was incorporated in Articles of incorporation of the charter.

    • In the continuing saga, the IRS released chief counsel advice
      201215007 (the ILM) on January 5, 2012 to further address the
      issue.9 The ILM was in response to a taxpayer that had submitted
      a private letter ruling request on the application of the
      entity rules in a bankruptcy situation and that later withdrew
      the private letter ruling request. In the ILM, the taxpayer was
      the parent of a consolidated group that had filed a chapter 11
      bankruptcy.10 There were several funds that held varying amounts
      of overlapping beneficial ownership of the taxpayer and were
      managed by a common group of individuals that act through
      several entities and an LLC, which the group of individuals
      owns. The group of funds sought to acquire more shares of the
      taxpayer in bankruptcy. The taxpayer was concerned that if the
      funds were grouped together and treated as one entity, that may
      create an ownership change limiting its ability to use its NOL
      carryforward. The taxpayer agreed the funds could acquire additional
      shares, provided each fund would own a certain number of
      shares or less, and the ownership of each fund would be treated
      separately and not aggregated for Section 382 purposes under
      an agreement. If the ownership were aggregated for Section 382
      purposes, however, the agreement treated the acquisition by the
      funds in excess of the shares acquired as void ab initio. Unless
      waived by the taxpayer, the funds would be required to sell
      any shares held in excess of the shares acquired. The number of
      shares to be sold by the funds would have been calculated for the
      group as a whole because the group’s ownership would have been
      aggregated. The funds proceeded with the acquisition per the
      agreement. In the ILM, the IRS noted that no fund had its own
      acquisition limit within which to operate under the agreement.
      To avoid exceeding the maximum ownership limit in the agreement,
      each fund had to know how much taxpayer common stock
      the other funds were acquiring (or not acquiring). The failure of
      e

 
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