TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 3, 2018

Goldman Sachs Takes $5 Billion Hit From New Tax Law

Goldman (2017)Bloomberg, Goldman Takes One-Time $5 Billion Hit From New U.S. Tax Law:

Goldman Sachs Group said the U.S. tax reform will cut profit this year by about $5 billion, mainly because of a tax targeting earnings held abroad.

About two-thirds of the hit comes from the repatriation tax, while writing down U.S. deferred tax assets also contributed, the company said in a filing on Friday. The bank also accelerated the delivery of previously granted stock awards to many of its top executives to lower its taxable profit subject to this year’s higher rates.

While bank stocks have rallied on the tax bill’s lower corporate rates, the new law requires charges in the near-term as foreign earnings face taxation and the value of deferred tax assets declines. Citigroup Inc. said it expects a hit of as much as $20 billion, while Bank of America Corp. will take a $3 billion charge and Credit Suisse Group AG is at risk of posting a third consecutive annual loss.

Wall Street Journal, Goldman to Take a Big Charge Related to U.S. Tax Overhaul:

Tax HitZion Research Group estimates that S&P 500 companies will book quarterly hits of $235 billion in the coming weeks on the $2.8 trillion they have amassed in foreign operations. Drugmakers and technology firms, whose mazes of global intellectual-property arrangements rely heavily on subsidiaries in low-tax countries, account for 69% of the total.

Just five companies—Apple Inc., Microsoft Corp., Pfizer Inc., Oracle Corp. and Cisco Systems Inc.—account for one-third, according to Zion’s estimates.

Most large tech companies will take “a big hit” to their coming earnings, said Edward Kleinbard, a tax professor at the University of Southern California law school.

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Experts (well, anyone who is even slightly knowledgeable) are going to have to do a lot of work explaining to dumb journalists that when earnings fall this year because of the tax bill, the companies are actually saving big bucks on taxes, and it's all financial accounting rule effects.

Posted by: Eric Rasmusen | Jan 4, 2018 6:20:23 AM