Taxpayers susbidize Bank of America's Purchase of Countrywide

[Captain Hilts]

From the Washington Post:

Tax Breaks Sweeten Countrywide Purchase

By Allan Sloan
Tuesday, January 15, 2008; D01

Guess who's helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States.
That's because if all goes as planned, Bank of America, which is solidly profitable, will be able to offset part of its own taxable income with the losses Countrywide ran up before being acquired.

The tax break could total about half a BILLION dollars over the first five years. The losses could be worth considerably more to Bank of America starting in the sixth year.

So over the first five years, Bank of America can use a total of $1.35 billion of Countrywide's losses to shelter its income -- the aforementioned $270 million, multiplied by five. This saves the bank about $500 million of taxes.

http://www.washingtonpost.com/wp-dyn/content/article/2008/01/14/AR2008011402584_pf.html

[acmavm]

1. What a profitable 'little' scam. Don't it figure?

[BanzaiBonnie]

2. I heard the primary interest holders in BOA

are Arab. Does anyone else know if that's true?

[Captain Hilts]

4. Was this what they were talking about onC-Span this morning? How...

foreigners are beneficiaries of credit card debt....

[Frustratedlady]

3. This the CEO who got the obscene bonus of million$?

Cute!

[papau]

5. A stupid -wrong-incorrect - discussion of tax law at the Wash Post

the section they refer to is not a loophole - it is a LIMITATION on the value of the acquired company - a screwing of the buyer. If not acquired future earnings of Countrywide would be offset dollar for dollar by past losses that have not expired (less than 15 years old). Now future earnings of Countrywide can only be offset by the past losses up to the dollar limitation mentioned in the article. They do not get that amount as an automatic deduction against Bank America's earnings. What kind of a head up his ass "tax expert" are they going to these days - good grief - they have a few hundred of the best tax lawyers in the world within a few miles of the Washington Post building and they go to a hack on Wall Street! If I had a dollar for every deal I had to turn down before I retired because the wall street lawyers did not know squat I would be very rich. In any case for those that want the actual law - I've put the relevant ruling below. Key is the limitation of the losses as being usable only against future earnings of Countrywide - and not against current Bank America earnings.

section 382(f)

Following an 'ownership change' as defined in section 382(g), sections 382 and 383 annually limit the amount of a corporation's (1) taxable income that can be offset by certain of its net operating loss (NOL) carryforwards and by other tax attributes, and (2) income tax liability that can be offset by other tax attributes. The NOL carryforwards and other tax attributes to which limit applies are those that were available prior to the ownership change. This annual limitation is called 'the section 382 limitation.'

Section 382(b)(1) defines the section 382 limitation for any tax year ending after an ownership change as, in general, an amount equal to (A) the value of the stock of the corporation immediately prior to the ownership change,

multiplied by (B) the long-term tax-exempt rate. Section 382(f)(1) provides that the long-term tax-exempt rate shall be the highest of the adjusted federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the ownership change occurs. Section

382(f)(2) defines the term 'adjusted federal long-term rate' as the federal long-term rate determined under section 1274(d), except that (A) paragraphs (2) and (3) thereof shall not apply, and (B) such rate shall be properly adjusted for differences between rates on long-term taxable and tax- exempt obligations. The Conference Report for the Act indicates that the adjusted federal long-term rate is to be computed as the yield on a diversified pool of prime, general obligation tax-exempt bonds with remaining periods to maturity of more than nine years. 2 H.R. Rep. No. 99-841 (Conf. Rep.), 99th Cong., 2d Sess. II-188

(1986).

Section 621(f) of the Act provides that the amendments made by section 621(a) and (b), in general, shall apply to any ownership change following (A) an owner shift involving a 5-percent shareholder, occurring after December 31, 1986, or

(B) an equity structure shift occurring pursuant to a plan of reorganization adopted after December 31, 1986.

The adjusted federal long-term rate for the purpose of determining the long- term tax-exempt rate under section 382 is 6.41 percent for November 1986. This monthly rate is calculated in the same manner as the adjusted applicable federal rates for purposes of section 1288 are calculated.

To determine the long-term tax-exempt rate for purposes of section

382(b)(1)(B) of the Code for ownership changes that occur during January 1987, taxpayers must compare the adjusted federal long- term rates for November 1986, December 1986, and January 1987. The highest of these three adjusted federal long-term rates is the long- term tax-exempt rate for January 1987.

Each month, pursuant to section 1274(d), the Internal Revenue Service publishes a revenue ruling containing the applicable federal rates, including the federal long-term rates. In the future, the adjusted federal long-term rate for purposes of section 382 will also be published monthly in that revenue ruling. This monthly publication, starting with the rates for January 1987, also will specify the long- term tax-exempt rate for ownership changes that occur during that month (that is the highest of the adjusted federal long-term rates for that month and the prior two months).

Rev. Rul. 86-133, 1986-2 C.B. 59, 1986-46 I.R.B. 13.

[gratuitous]

6. More corporate welfare

Isn't that nice that the costs are socialized, but the profits are privatized? But if the public shared in the reward for the risk they've invested in, that would be socialism, and the absolutely Worst Thing in the World according to the folks who would otherwise realize all the money.