cial Institutions Reform, Recovery and Enforcement Act ("FIRREA") , Congress authorized the Resolution Trust Corporation (RTC) to review the 1988 FSLIC deals. In its subsequent report, the RTC questioned the tax treatment of losses on covered assets. The 1988 agreements had provided acquirers with capital loss protection. Under this scheme, the FSLIC agreed to protect acquirers against losses realized on "covered assets." Thus, if a covered asset with a book value of $100 was sold for $60, the FSLIC paid the thrift $40 for the book loss. The RTC report questioned the acquirers' practice of disregarding the FSLIC assistance for the purposes of determining whether the acquirer in such a situation had suffered a tax loss on the transaction. Acquirers were declaring tax losses, even though these losses were fully compensated; in addition, the acquirers were allowed to treat the FSLIC assistance as tax-exempt. This double dipping was costing the government in excess of $11.5 billion.
In 1991, the Treasury Department issued a report stating t
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