Daily Tax Report ®

T-Mobile Asks IRS Not to Restrict Use of Sprint’s Losses

Nov. 12, 2019, 9:14 PM

T-Mobile US Inc. wants the IRS to ensure it isn’t subject to a proposed rule that could lessen the tax benefits of combining with certain companies that have large losses—ahead of a planned merger with Sprint Corp.

A letter two lobbyists submitted to Treasury on behalf of T-Mobile referenced the pending Sprint merger, deemed the “Combination” in a footnote.

“Our concerns are particularly pronounced for the pending Combination and other transactions involving large, publicly traded corporations where the target corporation is a loss corporation,” two Miller & Chevalier Chartered lobbyists said in the letter.

The letter, released Nov. 12 under the Freedom of Information Act, asks that T-Mobile’s merger with Sprint and other publicly announced transactions be grandfathered, or not subject to the proposal (REG-125710-18). Otherwise, the telecom giant could be limited in its ability to increase how much of Sprint’s losses it can use to offset taxes after the merger.

T-Mobile didn’t immediately respond to a request for comment.

The proposed rules would eliminate a method of calculating losses after a merger or acquisition, based on the values of certain assets held by the target company. This method, known as the Section 338 approach, helped maximize a target company’s built-in gains from those assets. This could increase the amount of the target company’s net operating losses that the combined company can use each year to offset its taxes after a merger or acquisition.

Built-in gains are based on differences between the value of a company’s investment in its assets and the fair market value of those assets.

Tax code Section 382 restricts how much of a target company’s net operating losses can be used after the company is acquired, a policy intended to keep companies from trafficking in those tax-reducing losses.

As of March 1, Sprint had federal net operating loss carryforwards from prior years of $21.3 billion, according to its most recent annual financial filing, posted at the end of May.

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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