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Sunday, November 8, 
6:44 am

BofA wins with Countrywide's losses

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willens.jpgFor the past 20 years, Robert Willens has been a tax and accounting specialist at Lehman Brothers Inc.On Monday,  Willens launches an independent consulting firm for investors, called Robert Willens LLC.

Willens has also been a long-time contributor to The Deal. Today, he weighed on the structure of the Bank of America/Countryside merger. Willens highlights the benefits of Countrywide's troubles for BofA:

Countrywide, of course, has losses in its assets which have yet to be "cashed-in" for tax purposes. These losses are valuable commodities because, assuming no limitations on their use, each dollar of loss can offset a dollar of otherwise taxable income saving the beneficiary some $0.35 in tax.

However, as Willens points out, there are limitations to how much BofA can benefit from Countrywide's status:

almost certainly, C is a "loss corporation"; a corporation which possesses "net unrealized built-in losses" (NUBILS). The rules which inhibit "trafficking" in tax losses are found in Sec. 382 of the tax code. Thus, Sec. 382(a) is activated in cases where a loss corporation undergoes an ownership change. Here, the business combination, however it winds up being structured, will give rise to an ownership change because the existing B shareholders will end up with ownership of well in excess of 50 percent of the stock of the combined entity.


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