Wednesday, July 28, 2010
BP said Tuesday that it plans to cut its U.S. tax bill by $9.9 billion, or about half the amount pledged to aid victims of the disaster, by deducting costs related to the oil spill. ...
The credit for BP could mean, however, that taxpayers will indirectly foot part of the bill for the $20 billion fund that BP established to compensate people and businesses harmed by the disaster.
On Tuesday, White House press secretary Robert Gibbs said U.S. taxpayers would not be responsible for the cost of the spill. When asked whether BP should be claiming a credit, Gibbs said, "I don't think anybody would prefer that they do that." Gibbs would not say whether the president would press BP on the tax deduction. He said, though, that "there are tax laws in this country that have been written for quite some time."
Lawmakers called for BP to renounce any claim for a refund. ...
Robert Willens, a corporate tax expert, said it's unlikely that BP will give up its tax credit, even if faced with public opposition. The company voluntarily established the $20 billion escrow account for victims of the spill and never promised the government that it would not seek any deductions associated with the spill, he said.
This month, Goldman Sachs promised not to ask for tax credits associated with the $535 million it paid in penalties to the Securities and Exchange Commission to settle a fraud charge. But as Willens says, that was specifically negotiated in Goldman's agreement with the SEC.
"The cost associated with the cleanup and the damage and all that -- that's just another cost of doing business from the tax perspective," [said Douglas Shackelford, a tax professor at the University of North Carolina]. "It's viewed no different from paying salaries or other costs they might incur."
- FireDogLake, Oil “Disappearing” the Way BP’s Tax Liability Disappeared
- Going Concern, BP's Tax Break Could Bring Congressional Belly Aching
- Gothamist, BP Gets $10 Billion Tax Credit For Oil Spill
- McClatchy, BP to Claim $10 billion U.S. Tax Credit for Gulf Oil Spill Costs
- New York Times, BP’s Blueprint for Emerging From Crisis
- Project on Government Oversight, BP Tax Deduction Explainer
- Wall Street Journal, BP Seeks Tax Cut on Cleanup Costs
Update: Dan Shaviro (NYU), Unjust $10 Billion Tax Credit for BP?:
Doug Shackelford is quoted near the end of the story, shedding some needed light on the subject. First he notes that only the arbitrariness of annual accounting gives rise to the apparently shocking credit for taxes already paid. If BP paid income taxes on multiple years of taxable income at the same time - as surely would be the sensible rule if not for problems of administrative convenience, steady cash flow to the government, etcetera - the same thing would happen without the specter of a horrifying "credit" and "refund." Or, if they'd made $32 billion in January through November and then lost the same amount from the oil spill in December, no one would be surprised by their reporting zero income for the year.
Second, Shackelford notes that "[t]he cost associated with the cleanup and the damage and all that -- that's just another cost of doing business from the tax perspective ... It's viewed no different from paying salaries or other costs they might incur." This is correct. If BP really loses the $32 billion, of course the normal rule is (and should be) that it gets a deduction, including with carryovers to other taxable years if necessary. So the issue, at least on its face, is a red herring.