Horse's name is "Taxpayer"
In September the IRS started a mini-furor when it issued Notice 2008-83 which states,
For purposes of section 382(h), any deduction properly allowed after an ownership change (as defined in section 382(g)) to a bank (as defined in section 581) with respect to losses on loans or bad debts (including any deduction for a reasonable addition to a reserve for bad debts) shall not be treated as a built-in loss or a deduction that is attributable to periods before the change date.
Section 382 of the Internal Revenue Code limits the use by an acquiring company of certain net operating losses (NOLs) and built-in losses of the acquired company. The reason for the rule is to prevent profitable companies from purchasing loss companies to shelter some of it’s income from taxes.
Citizens for Tax Justice (CTJ) issued a report on the IRS rulingon November 7th:
[W]hile the major presidential candidates debated solutions for reforming the federal corporate income tax, a little-noticed ruling by the Internal Revenue Service (IRS) opened the door for widespread corporate tax avoidance by a few of the biggest, most profitable financial institutions in the country. The IRS ruling, which took Congressional tax writers by surprise, will almost certainly push the federal government—and many states—further into the red at a time when they can least afford it.
CTJ lists four reasons why the ruling is a bad one:
- Usurpation of Congress – The IRS has overstepped it’s authority by stepping into the domain occupied by congressional tax writers.
- Artificial Competitive Advantage – Banks will have a competitive advantage and will be able to grow more rapidly at the expense of taxpayers.
- Cost to Federal Taxpayers - It is estimated that the ruling could cost taxpayers as much as $140 billion.
- Cost to States – Most states base their corporate taxes on federal rules, therefore, the new ruling will have the effect of reducing state government revenues.
Wells Fargo will be the single biggest beneficiary because of it’s recent purchase of Wachovia Bank. It is estimated that Wells Fargo will get a federal tax cut of $19 billion dollars as a result of the rule.
In a letter to Treasury Inspector Eric Thorson, Senator Charles Grassley (R-IO) has asked for an investigation of the ruling raising concerns about “preferential treatment” of Wachovia.
Other blog posts on Notice 2008-83:
Tax Lawyers Decry Financial Bailoutt NOL Tax Break for Banks – Paul Caron
Bank Section 382 Ruckus – Joe Kristan
More on the Bailout: Treasury’s “Override” of Enacted Law - Linda Beale
1 response so far ↓
1 Well’s Fargo Rule May Be Reversed (For Everyone But Well’s Fargo) // Nov 22, 2008 at 1:50 am
[...] I blogged about the IRS special Notice at The Well’s Fargo Rule: Banks Can Buy Net Operating Losses. [...]
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