Paul L. Caron

Wednesday, November 3, 2010

WSJ: GM's Special $45 Billion NOL Provides Lucrative Tax Shelter

GM Wall Street Journal, GM Could Be Free of Taxes for Years:

General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion. ... [A]ccording to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won't have to pay $45.4 billion in taxes on future profits.

The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy.

Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.

But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.

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2nd comment. I have another question. The reason I was looking at this was I'm trying to find out if Chrysler got a similar tax break. I'm working with Mark Ramseyer on a paper on the Chrysler bankrtupcy. Anybody know? I'm at

Posted by: Eric Rasmusen | Nov 5, 2010 8:37:02 AM

How big is the tax break? Is it a tax deduction of 45.4 billion, or a tax credit of 45.4 billion?

What filing would it be that the WSJ got its story from?

I looked at your 2009 post on this, which suggested that the tax break was illegal, clearly contrary to the US Code. If it is, who has standing to sue? (In general, if the IRS says, "Eric, we like you, so we've decided you dont' have to pay income tax this year," is there any way to stop it?)

Posted by: Eric Rasmusen | Nov 5, 2010 8:34:59 AM