February 25, 2011
CNN: GM's Sweetheart Tax DealFollowing up on my prior post, Rasmusen Presents The Lawlessness of the GM NOL Ruling (Feb. 14, 2011): CNN, GM's Sweetheart Tax Deal:
The U.S. Treasury is giving up $14 billion in tax revenue because of a sweetheart deal it's giving General Motors.
The automaker is expected to post its first profitable year since 2004 when it reports fourth-quarter results on Thursday. But GM won't have to worry about being hit with a big tax bill because billions in previous losses will provide shelter for years to come.
That break will reduce GM's U.S. tax bill by an estimated $14 billion in the coming years, and its global taxes by close to $19 billion, according to a company filing. ...
While it's unclear why GM was allowed to carry over its losses, some experts insist that GM got preferential treatment.
"A lot of things were done differently here," said Heidi Sorvino, head of the bankruptcy practice at Lewis Brisbois Bisgaard & Smith. She said that the tax break was just another example of how GM's bankruptcy process was unlike any previous bankruptcies.
Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks.
Treasury spokesman Mark Paustenbach said GM's ability to hang onto the tax breaks it had before bankruptcy "depends on the application of long-standing tax rules to GM's particular facts. The Treasury Department did not publish any guidance during the economic downturn that changed these rules either in general or for corporations that received government assistance."
- GM's Special $45 Billion NOL Provides Lucrative Tax Shelter (Nov. 3, 2010)
- GM's Tax Shelter Not Available to Other Car Makers (or Other Taxpayers) (Aug. 1, 2009)
(Hat Tip: David Herzig.)
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Will other companies also follow suit? Will GM's special NOL rules set precedence for other companies?
Posted by: Marc Johnson | Feb 25, 2011 8:31:27 AM
Maybe they were using Turbotax...
Posted by: Some Smart Alec | Feb 25, 2011 8:40:45 AM
"Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks."
Has the current GM gone through bankruptcy? I thought the new GM was an entirely different entity from the original GM, with the original GM being the one that went bankrupt and it's assets were purchased by the new GM. Can bankruptcy's benefits be transferred to a new company in this arrangement?
Posted by: Mark1971 | Feb 25, 2011 8:51:48 AM
Mark1971: That's one of the key points that Ramseyer and I are puzzling over in the paper we're writing now on GM: it appears that even *after* the illegal NOL IRS notice, New GM should still not get the tax break, because it's a new company, not a reorganized old company. I keep expecting to see some weird Section 363 bankruptcy law exception pop up to explain it, but so far all I see is a gaping hole in GM's legal justification for its accounting. If anyone reads this and can answer Mark1971's question, please let me know (email@example.com) .
Posted by: Eric Rasmusen | Feb 25, 2011 10:15:02 AM
The can give GM any advantage they want and ultimately the company will fail for the same reason it failed the first time: The vehicles are made by union workers of the worst sort, the UAW.
Posted by: John | Feb 25, 2011 4:40:11 PM
"...The Treasury Department did not publish any guidance during the economic downturn that changed these rules either in general or for corporations that received government assistance."
Right. They Treasury Department didn't publish any "guidance"; it just allowed GM to keep it's NOLs despite all the existing guidance to the contrary. Treasury didn't even bother trying to square the grace given GM with existing guidance. The lack of an explanation will make it very hard for similarly situated companies to achieve a similar outcome. How can GM's outcome be used as precedent when no one can explain how the outcome was due to a neutral application of the law?
Posted by: David Walser | Feb 25, 2011 5:18:20 PM