Treasury Overrides Congress Through Fiat, Giving Banks $140 Billion in Tax Breaks
by Craig Jennings, 11/13/2008
This is just unacceptable:
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
...
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
...
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The good folks at Citizens for Tax Justice have put together a handy guide on what the IRS ruling says and why it's just so very wrong (quoting directly):
- The IRS has apparently usurped the legislative role of Congressional tax writers.
- The new rules give an artificial competitive advantage to banks that can afford to expand now .
- The change could be incredibly costly to federal taxpayers.
- The new rules present an unnecessary and harmful challenge to already-stressed state governments.
