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Sunday, October 19, 2008

WSJ: What Is the IRS's Authority for Expanding Bailout Tax Breaks?

Wall Street Journal:  Obscure Tax Breaks Increase Cost of Financial Rescue; IRS and Treasury Take Series of Steps for Investors Caught Up in Crisis, Sparking Complaints of Overstepping Authority, by Jesse Drucker:

The $700 billion financial rescue package approved by Congress to shore up banks also carries a parallel bailout of the financial sector and other industries through a series of obscure tax breaks.

Operating mostly under the radar screen, Congress, the Treasury Department and the Internal Revenue Service have been rolling back various provisions of the tax code to help out industries and investors caught up in the turmoil.

Bailout_3 

The most costly -- and most controversial -- of the moves provide billions in extra tax relief to big banks such as Wells Fargo & Co. and Spain's Banco Santander SA. Another change gives aid to investors stung by the auction-rate securities meltdown. Still another shift relaxes tax rules to help big multinationals bring back cash from overseas. ...

Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, has complained about the sudden loosening of the rules. "Congress should have been informed and consulted before Treasury took such an extraordinary action that likely will add billions of dollars to the deficit," he said.

Some experts argue that the Treasury has effectively shifted from administering parts of the tax code to changing tax laws on its own. "It doesn't seem possible that they have this authority," said Robert Willens, an independent corporate tax analyst.

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Comments

I thought Congress had the power to raise taxes? Something about that doormat, the Constitution.

Oh well, like an elderly person in the home they built years ago, Congress should do what it is told to do by the now ruling help.

Posted by: Paul from Florida | Oct 19, 2008 10:10:24 AM

So is this how they got the big banks to sign up for the bailout? Even the ones that didn't need it like Wells?

Posted by: flicka47 | Oct 19, 2008 1:29:07 PM

The article seems to be incorrect in some parts. For example, doesn't it seem odd that the entire $74 billion loss would be considered a built in loss for Setion 382 purposes when Wachovia has more than $40 billion in non-deductible goodwill listed on their balance sheet. I bet the benefit of the new Notice to both Wells and Santander is much less than the article claims because the built in loss that would be limited by Sec. 382 is probably a lot less than the $74 billion claimed in the article. In addition, the article claims that the clause which allows banks to change their fannie and freddie preferred to ordinary losses will also help big banks like Sovereign. It would be surprising if a bank the size of Sovereign did not have enough capital gains to cover the fannie loss. The capital to ordinary langugage was enacted to help small banks who were screwed by the government into owning fannie and freddie preferred. It was not passed to help bigger banks.

Posted by: Gallantry | Oct 19, 2008 6:41:14 PM

The IRS has been fabricating its own taxation policies for quite some time. Unfortunately, every time someone took the effort to point this out to people, they were presented as being delusional conspiracy theorists who just didn't want to pay their "fair share".

Posted by: Render | Oct 19, 2008 7:48:20 PM