No New Tax Break for Citi?

ABC News' Matthew Jaffe reports:

The Treasury Department is vehemently refuting a Washington Post story that says the government last Friday quietly agreed to give up billions of dollars in tax money from Citigroup as part of this week’s deal for the bank to pay back bailout funds.

The Post reported today that the IRS on Friday granted an exemption to tax rules for Citigroup and other companies that the government acquired a stake in as part of the $700 billion financial bailout. This move allows Citigroup to hold onto billions of dollars of tax breaks that would otherwise drop in value when the government offloads its stake to private investors and it helps the government record its predicted profit from the sale of these shares.

However Treasury officials argue that Friday’s guidance did not constitute a change in policy, but was merely a procedural formality that had to be issued in order for the Department to sell the Citigroup shares that it owns. The guidance was not applicable only to Citigroup, but to any company in which Treasury owns common stock, officials said, and it simply reflected a decision made last year to protect bailout recipients.

Back in 1980 the government ruled that corporations can use losses for tax purposes – if a company loses money, they won’t owe as much in taxes. But, the government said, a company cannot receive a tax break for buying out another company, a move designed to prevent tax evasion among corporate raiders.

So last year, when TARP was enacted, the Bush administration decided that Treasury would not own companies that it invested in as part of the bailout. For instance, the government would own shares in Citigroup, but not Citigroup. Therefore Citigroup and other bailout recipients are not considered to be buying out the government, and so regular tax rules apply, such as the companies being able to count their losses for tax purposes.

In other words, Friday’s guidance from Treasury was merely the Department clarifying that – as stipulated by the Bush administration’s decision last year – Citigroup and other companies are not considered to be buying out the government and therefore they are allowed to count their losses for tax purposes.

The Post story can be found HERE.

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