1. 1 American Bar Association Section of Taxation Corporate Tax Committee September 13, 2003 Chicago, Illinois Whither Section 382? Moderator: Robert J. Mason Ernst & Young LLP Washington, DC Timothy C. Sherck Mayer, Brown, Rowe & Maw LLP Chicago, IL Daniel C. White Bryan Cave LLP St. Louis, MO Lisa Joire Ernst & Young LLP Washington, DC Mark S. Jennings Office of the Associate Chief Counsel (Corporate) Internal Revenue Service Washington, DC

2. 2 Example 1 L P Merger 1/1/2000 Former L Shareholders Public Pursuant to a merger on 1/1/2000, the former L shareholders receive 42% of the P stock plus rights to additional consideration under an earn-out arrangement P ESOP 42% 12%46% Treas. Reg. § 1.382-2T(j)(2)(iii)(B) Section 382(e) 1994 FSA Lexis 212 (Aug. 18, 1994)

3. 3 Example 2 P Former L Shareholders Public P ESOP 42% 12% 46% On 2/1/2001, P ESOP distributes P stock to plan participants; The distributed shares had been acquired by P ESOP on 1/1/1995 Treas. Reg. § 1.382-2T(h)(2)(iii)(B) Treas. Reg. § 1.382-2T(j)(3)(i) Treas. Reg. § 1.382-10T Treas. Reg. § 1.382-3(j) ESOP Participants

4. 4 Example 3 P Public P ESOP Investment Advisor to Mutual Funds files a Schedule 13G on 2/1/2003, reporting ownership of 9% of the outstanding P stock Treas. Reg. § 1.382-2T(k)(1)(i), (k)(2) Treas. Reg. § 1.382-3(a)(1)(i) PLR 9533024 (May 19, 1995); PLR 9610012 (Dec. 5, 1995); PLR 9725039 (June 20, 1997) 9% Mutual Funds Former L Shareholders

5. 5 Example 4 Former L Shareholders Public P ESOP On 2/1/2001, the acquisition of P stock by New Shareholder results in ownership change of P Section 382(e) Adjustments to value: Section 382(l)(1) Section 382(l)(4) Section 382(m)(5); Treas. Reg. § 1.382-8 Section 382(h)(6) New Shareholder 50% interest in Partnership FMV: $15M CFC 100% CFC stock P NUBIG Above market lease

6. 6 Example 5a ACB A, B, and C form Venture by each contributing $335M for Venture common stock, and Venture borrows $650M from Lender At a time when the fair market value of the Venture assets is $250, C acquires all of the Venture stock owned by B Section 382(k)(6) Treas. Reg. § 1.382-2T(f)(18)(iii); FSA 199910009 (Dec. 2, 1998), PLR 9441036 (Jul. 14, 1994), PLR 8945055 (Aug.16, 1989) Treas. Reg. § 1.1001-3 Venture Assets: $250M FMV Lender $650M Loan 33.3% 33.3% / 0% 33.3% / 66.6%

7. 7 Example 5b Same facts as Example 5a, except Lender holds $650M Venture convertible preferred stock (and not Venture debt) Treas. Reg. § 1.382-2T(c)(1) Section 382(l)(3)(C) and Treas. Reg. § 1.382-2T(l) Venture Assets: $250M FMV ABC Lender CS CPS (Testing date value ≈ 100%)

8. 8 Example 6a ACB Venture realizes $400M COD income upon the issuance of stock in cancellation of its debt pursuant to a title 11 proceeding; Venture reduces its NOL by $400M Section 108(a)(1)(A), (b)(1) and (e)(8) Section 382(b)(3)(A), (h)(3)(A)(i), (h)(6)(A) and (h)(7) Notice 87-79; PLR 9226026 (Mar. 26, 1992); PLR 9328021 (Apr. 16, 1993); PLR 8923021 (Mar. 10, 1989) Venture NOL $1B Assets: $655M basis $250M FMV Lender Stock in cancellation of debt ------Stock extinguished------

9. 9 Example 6b ACB Section 108(b)(1) Section 382(h)(3)(B) PLR 9226064 (Mar. 31, 1992); PLR 9409037 (Dec. 7, 1993) Venture NOL $1B Assets: $655M basis $250M FMV Lender Stock in cancellation of debt ------Stock extinguished------ Same facts as Example 6a, except Venture elects under Section 108(b)(5) to reduces basis in its assets by $400M