Friday, November 05, 2010

Tax benefits for some companies, but not others

While you're listening to the debates over whether the Bush tax cuts should be extended even for those in the top brackets, ponder this. The Obama administration made an executive decision last year to reinterpret tax regulations to give General Motors a $45.4 billion gift.
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.
Ford must be wondering why their competitor should reap such tax forgiveness. Just remember this story when you hear that those earning over a certain amount of money shouldn't have the Bush tax cuts extended even though many of those individuals are small business owners. Some businesses deserve tax benefits; others don't.