A Look at the Tax Provision Contained in the Bailout Bill

October 14, 2008 The Legal Intelligencer

On Oct. 3, President George W. Bush signed into law the Emergency Economic Stabilization Act of 2008 to help provide liquidity and stability to the nation's struggling financial institutions. The centerpiece of the act is the Troubled Asset Relief Program, which authorizes the Treasury Department to directly purchase troubled assets from financial institutions and to establish and manage an auction system pursuant to which such troubled assets may be purchased by private investors.

In addition to the TARP, the act also contains several significant tax provisions. These tax provisions relate to the treatment of gains or losses realized upon the sale or exchange by financial institutions of preferred stock in the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., the treatment of compensation payable to executives of companies participating in the TARP and the extension of relief from the cancellation of indebtedness rules for certain home mortgages.

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