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GM Could Be Free of Taxes for Years ($45 billion tax break)
Wall Street Journal ^ | November 3, 2010 | RANDALL SMITH and SHARON TERLEP

Posted on 11/03/2010 7:48:01 AM PDT by reaganaut1

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.

GM, which plans to begin promoting its relisting on the stock exchange to investors this week, wiped out billions of dollars in debt, laid off thousands of employees and jettisoned money-losing brands during its U.S.-funded reorganization last year.

Now it turns out, according 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.

"The Internal Revenue Service has decided that the government's involvement with these companies, both its acquisitions plus its disposals of their stock, means they should be exempt" from the rule, said Robert Willens, a New York tax consultant who advises investment banks and hedge funds.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Crime/Corruption; Government
KEYWORDS: gm; governmentmotors
One set of laws for Government Motors (and the UAW), another for the rest of us.
1 posted on 11/03/2010 7:48:07 AM PDT by reaganaut1
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To: reaganaut1

First they need to make a profit.


2 posted on 11/03/2010 7:49:34 AM PDT by scooby321
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To: reaganaut1
One set of laws for Government Motors (and the UAW), another for the rest of us.

Actually I don't see why this isn't the rule for everyone. Companies have good years and bad years. They should be able to use losses from bad years to offset their tax liability on profits from good years. This isn't really a tax break. They are just being taxed on their net profits.

The government should have never intervened in the auto industry, but this isn't one of the things they did wrong.

3 posted on 11/03/2010 8:02:35 AM PDT by untrained skeptic
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To: reaganaut1

Boy I bet the non-government bailed out and run car companies wish they could get such a sweet deal.


4 posted on 11/03/2010 8:03:19 AM PDT by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: reaganaut1

The residents will be eating ice cream with the Devil the day I buy another GM product.


5 posted on 11/03/2010 8:09:54 AM PDT by Venturer
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To: reaganaut1

Just like a Zombie. GM is dead as a company. The bailout, and the Volt has killed it. It’s just awaiting the bullet to the head to make it stop moving.


6 posted on 11/03/2010 8:13:44 AM PDT by ZX12R (IMPEACH OBAMA NOW!)
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To: Jet Jaguar; NorwegianViking; ExTexasRedhead; HollyB; FromLori; EricTheRed_VocalMinority; ...

The list, ping

Let me know if you would like to be on or off the ping list

http://www.nachumlist.com/


7 posted on 11/03/2010 8:33:10 AM PDT by Nachum (The complete Obama list at www.nachumlist.com)
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To: Nachum

Robbing the American taxpayers?


8 posted on 11/03/2010 8:36:14 AM PDT by ExTexasRedhead (REPEAL DEATHCARE)
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To: scooby321

“First they need to make a profit.”

Why? They’ve been getting along fine so far...


9 posted on 11/03/2010 8:50:52 AM PDT by ltc8k6
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To: ZX12R

No one I know will buy GM stock as long as there is a UAW member on the board. (No intentions to make a profit)


10 posted on 11/03/2010 9:01:27 AM PDT by griswold3 (Nov 2 is not just an election, it's a restraining order)
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To: scooby321

With Obama math - = +


11 posted on 11/03/2010 9:05:43 AM PDT by Vaduz
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To: reaganaut1
GM Could Be Free of Taxes for Years ($45 billion tax break)

If GM died the death that it so richly deserves for the graft and corruption in the Bailout, it would be free of taxes forever. This special deal for the UAW, with our money, is yet another reason for Americans to join in the permanent boycott of GM. I will not buy any GM product produced after that disgusting abuse of power and of my tax dollars. Ever. GM is dead to me.

12 posted on 11/03/2010 9:20:55 AM PDT by Pollster1 (Natural born citizen of the USA, with the birth certificate to prove it)
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To: untrained skeptic
Actually I don't see why this isn't the rule for everyone. Companies have good years and bad years. They should be able to use losses from bad years to offset their tax liability on profits from good years. This isn't really a tax break. They are just being taxed on their net profits.

Under normal conditions, I'd agree. However, when a company undergoes bankrupcy, the stockholders take it in the shorts, as do creditors. (In GM's case, bondholders as well). Why should they be able to carry forward tax credits when they don't carry forward debt? This is especially galling of the companies that got TARP funding. 

Everyone gets screwed but the unions. Nice.

13 posted on 11/03/2010 9:37:21 AM PDT by zeugma (Ad Majorem Dei Gloriam)
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To: zeugma
Under normal conditions, I'd agree. However, when a company undergoes bankrupcy, the stockholders take it in the shorts, as do creditors.

I guess it would depend on the type of bankruptcy, and I can't remember if the old GM was dissolved, or just restructured. GM still does have lots of debt and obligations. They still have a massively underfunded pension, which is a major cause of much or their debt.

In any case I don't see why the government should get to collect more in taxes just because I company had to restructure. Otherwise you are encouraging the government to step in and wipe out companies debt with private parties so they can wipe out the tax credits as well.

This wasn't a normal bankruptcy. It was a huge bailout for the unions, which should have gotten the politicians that were paying off their contributors tossed in jail for a very long time.

14 posted on 11/03/2010 10:25:17 AM PDT by untrained skeptic
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To: untrained skeptic
I guess it would depend on the type of bankruptcy,

Agreed.

This wasn't a normal bankruptcy. It was a huge bailout for the unions, which should have gotten the politicians that were paying off their contributors tossed in jail for a very long time.

Absolutely agreed.

The union shouldn't profit from the previous losses they aren't going to have to make whole.

Apparently GM was dissolved, as they are talking about an IPO.

15 posted on 11/03/2010 1:05:22 PM PDT by zeugma (Ad Majorem Dei Gloriam)
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To: reaganaut1

In the end it’s going to help them about as gov. subsidies helped the Trabant after the wall came down.


16 posted on 11/03/2010 1:16:51 PM PDT by Tribune7 (The Democrat Party is not a political organization but a religious cult.)
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To: untrained skeptic
I can't carry forward enough per year of my Obama Crash losses to break even in my lifetime, and GM is being made whole with my tax money?

They (we) forgave Chrysler's debt as well, btw.

17 posted on 11/03/2010 2:01:31 PM PDT by 4woodenboats (Defend America peacefully, vigorously, and swiftly against all enemies before she becomes a memory)
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To: zeugma
The union shouldn't profit from the previous losses they aren't going to have to make whole.

First of all I'm skeptical of anything the government does to wipe out tax credits and collect more taxes.

The bankruptcy did wipe out some of GM's debt, but not all of it. So you can say that some of those losses were wiped out by the bankruptcy. However, the whole purpose of bankruptcy is to help a company get back on sound footing, not to produce a windfall in new tax revenues for the government.

When you make money you have to pay taxes on earnings. When you lose money the government doesn't refund any of the taxes you have paid, they give you credits against future earnings. Those tax credits are kind of a liability for the government. I don't see why that liability should be wiped out as well.

However this seems to be a unique case. The stockholders got completely screwed. Their old stock became worthless. I can see the point where you could say that these tax credits belonged to them, and since they no longer have any interest in GM, those tax credits no longer belong to this new GM. But I don't see any efforts by the government to transfer those tax credits over to the stockholders they screwed over, and I see absolutely no reason the government should just make those tax credits disappear. It's just a multibillion dollar money grab by the government.

To me this falls under two wrongs not making a right.

Apparently GM was dissolved, as they are talking about an IPO.

That makes sense, because I don't see how they could so thoroughly screw over the stock holders and secured debt holders and still have it be the same company. I really don't understand how this was remotely legal anyway. They basically gave money that secured debt holders should have gotten to the unions, and handed over billions in taxpayer dollars, mainly to the unions. Then they bullied any investors that considered fighting it in court.

18 posted on 11/03/2010 3:31:19 PM PDT by untrained skeptic
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To: reaganaut1

Under normal IRS rules, a bankruptcy situation on the scale of GM’s would have disallowed the future use of tax credits for “losses”, unused from earlier years before the corporation was reorganized - until the IRS made a special rule change in 2009 applicable only to the “TARP”ed companies - gee, I wonder why they did that and whose idea that was??? /sarc


19 posted on 11/03/2010 3:51:17 PM PDT by Wuli
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To: untrained skeptic

“This isn’t really a tax break. They are just being taxed on their net profits.”

Yes it is. The “tax breaks” are for “losses” in previous years - years before the corporation was reorganized through the bankruptcy court. The “losses” not taken were “not taken” by the pre-reorganized corporation, which is in so many legal and financial terms considered “dead”, as its assets and debts have all been restructured. Many of those debts will already, and more legitimately, be taken as tax reducing losses, by the bondholders and investors that lost out in the reorganization. The new corporation has no right to the old corporation’s tax credits for “losses”, so much has already been forgiven in one way or another. That was always the rule, until the IRS made a 2009 ruling exempting the companies that benefited from TARP bailouts. Why them? THAT makes no sense.


20 posted on 11/03/2010 4:04:19 PM PDT by Wuli
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To: untrained skeptic
However this seems to be a unique case. The stockholders got completely screwed. Their old stock became worthless. I can see the point where you could say that these tax credits belonged to them, and since they no longer have any interest in GM, those tax credits no longer belong to this new GM. But I don't see any efforts by the government to transfer those tax credits over to the stockholders they screwed over, and I see absolutely no reason the government should just make those tax credits disappear. It's just a multibillion dollar money grab by the government.

I think we're both mostly on the same page with this. Like you, I don't like to see the government get a windfall profit off the dissolution of the company. However, I think I don't want the union to profit from their immoral deal with the devil even more.

That makes sense, because I don't see how they could so thoroughly screw over the stock holders and secured debt holders and still have it be the same company. I really don't understand how this was remotely legal anyway.

It wasn't legal. The problem though, is that the government has guns and is willing to use them at the drop of a hat. (This is the main difference between us and them. We have guns, but aren't willing to kill indiscriminately.) Thos involved understand the level the game was being played at, and largely swallowed their losses because the understood the consequences of not doing so. 

21 posted on 11/03/2010 4:19:04 PM PDT by zeugma (Ad Majorem Dei Gloriam)
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