Sunday, November 11, 2012
Wall Street Journal: Tax Twist: At Some Firms, Cutting Corporate Rates May Cost Billions:
What Uncle Sam has given to the earnings of companies like Citigroup, AIG, and Ford he soon might take away.
President Barack Obama has said, most recently during last month's presidential debates, that the 35% U.S. corporate tax rate should be cut. That would mean lower tax bills for many companies. But it also could prompt large write-downs by Citigroup, AIG, Ford and other companies that hold piles of "deferred tax assets," or DTAs.
After posting big losses, these companies have tax credits and deductions they can use to defray future tax bills, thus providing a boost to earnings. But a tax-rate reduction means some of those credits and deductions, counted as assets on the balance sheet, would be worth less, since lower tax bills would mean fewer opportunities to use them before they expire. That would force the companies to write down their value, resulting in charges against earnings. ...
The double-edged sword has some tax watchers wondering whether companies may pressure Congress for a provision enabling them to avoid write-downs if rates are lowered. A spokeswoman for Lockheed Martin, which has $5.4 billion in deferred tax assets, said the company believes tax change should "include transition measures that mitigate impacts and avoid negative unintended results" for companies that based their planning on the current tax system.