Bailed-out banks to gain from tax breaks
By Stephen Ohlemacher |
December 18, 2009, Friday
|
Print Edition
Print Edition
CITIGROUP and other banks starting to repay the billions of dollars they borrowed from the United States government are getting another boost as they exit the bailout program: billions more in tax breaks.
Tax law allows money-losing corporations like Citigroup Inc and General Motors Co to use current net operating losses to offset future taxable income, reducing their tax bills for up to 20 years after the losses occur.
Under ordinary circumstances, those tax breaks would be severely limited if the companies underwent an ownership change, much like many of them did when the government acquired big blocks of their stock.
Losing the tax breaks would have substantially reduced the value of the companies, even as the government was trying to prop them up with bailout funds.
The Treasury Department didn't want that to happen, so it started issuing tax guidance about a year ago that said the rules didn't apply when the government, through its bailout programs, caused the ownership change.
Last week, Treasury issued additional guidance saying the rules also won't apply when the government sells its stock. The new rules mean that Citigroup and other bailout companies will still be able to take advantage of tax breaks worth billions of dollars, once they become profitable and start paying taxes again.
For tax purposes, it's like the government's ownership never happened, said Robert Willens, a corporate tax accountant in New York.
Tax law allows money-losing corporations like Citigroup Inc and General Motors Co to use current net operating losses to offset future taxable income, reducing their tax bills for up to 20 years after the losses occur.
Under ordinary circumstances, those tax breaks would be severely limited if the companies underwent an ownership change, much like many of them did when the government acquired big blocks of their stock.
Losing the tax breaks would have substantially reduced the value of the companies, even as the government was trying to prop them up with bailout funds.
The Treasury Department didn't want that to happen, so it started issuing tax guidance about a year ago that said the rules didn't apply when the government, through its bailout programs, caused the ownership change.
Last week, Treasury issued additional guidance saying the rules also won't apply when the government sells its stock. The new rules mean that Citigroup and other bailout companies will still be able to take advantage of tax breaks worth billions of dollars, once they become profitable and start paying taxes again.
For tax purposes, it's like the government's ownership never happened, said Robert Willens, a corporate tax accountant in New York.
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