GM could be free from taxes “for years” – Huh? WTF?

When General Motors went through bankruptcy and became Government Motors, GM bondholders, you know, the ones who actually had money invested in the company, were kicked to the end of the line. The federal government (thanks to a $60B taxpayer bailout) ended up with 61% of the company. The Canadian government ended up with 12% and the unions got 17.5% while GM bondholders got 10% – 10 cents on their investment dollars. Government involvement basically turned the bankruptcy process on its head.

Over the last year: the regime’s “car czar,” Steven Rattner, resigned under a cloud of suspicion, GM (and the Treasury Dept.) lied about paying back its government loans, GM execs who were responsible for the collapse of the company scored huge bonuses, and their “car of the future” has been exposed as a lemon and a fraud. That’s quite a record of achievement there…

But there’s more. According to this story (from the WSJ), it looks like GM will benefit from unusual tax breaks that could allow them to operate essentially tax free for years.

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.

The government’s rationale, said people familiar with the situation, is that the profit-shielding tax credit makes the bailed-out companies more attractive to investors, and that the value of the benefit is greater than the lost tax payments, especially since the tax payments would not exist if the companies fail.

GM declined to comment.

Essentially this amounts to a $45B “gift” from the taxpayers and brings the bailout total to over $100B. Another example of “too big to fail” brought to you by our federal government. Must be nice to have friends in high places…


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