Certain Tax Provisions of the Emergency Economic Stabilization Act of 2008 and IRS Guidance Relating to the Economic Crisis

H.R. 1424 (the Act), which was signed into law by President Bush on October 3, 2008, contains tax-related provisions that can have significant implications for financial institutions, certain hedge funds, and investment companies, in addition to a variety of other taxpayers. Specifically, the Act contains provisions that:

1. provide special rules with respect to executive compensation paid by employers participating in the Troubled Assets Relief Program (TARP);
2. treat certain sales of Fannie Mae or Freddie Mac preferred stock by financial institutions as giving rise to ordinary income or loss;
3. prevent the deferral of certain compensation from “tax indifferent” parties;
4. require broker reporting of basis information with respect to securities transactions;
5. retroactively extend through 2009 certain rules relating to regulated investment companies; and
6. extend the period during which there is an exclusion from income for certain discharge of indebtedness income arising from discharges of indebtedness secured by the taxpayer’s principal residence.

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