Friday, December 18, 2009

CITI Given IRS Tax Break: Really Helping Ourselves?

How the IRS sort-of-saved Citi

Who says the IRS isn’t, umm, understanding?
The US tax authority exempted the Citigroup, and some other bailed-out companies, from rules which would otherwise have led to the troubled bank losing $38bn worth of tax credits.
Citi had planned to repay the US government’s Tarp stake, and under IRS regulation, companies that encounter a change in ownership lose these tax credits. The rule is designed, according to the IRS, to prevent profitable companies from buying loss-making ones to evade taxes.
The rule-change has nevertheless raised eyebrows. From the Washington Post on Wednesday:
The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.
The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.
from the FT.

Did the government(us) give CITI a tax break to ultimately help the balance sheet? Possibly as a way to deal with upcoming losses and/or maybe provide new lending? In owning a huge piece of this bank aren't we really helping ourselves using creative accounting...

What do you think? Please discuss below.

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