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.

Albert Choi, Quinn Curtis & Andrew Hayashi, Crisis-Driven Tax Law: The Case of Section 382, 23 Florida Tax Review, 1–72 (2019).