Wednesday, November 03, 2010

GM Could Get $45 Billion Tax Break, Thanks to Bailout

General Motors is expected to receive over $45 billion in tax breaks because of its government-financed restructuring. The huge tax incentive is a result of their federal bailout, which will allow GM to apply a tax credit to previous losses and business expenses. reports

    This is unusual because GM has changed ownership. Normally, when a company restructures, the government imposes limits on this form of tax benefit.

    The government inserted this clause in the bailout in order to make companies that benefited from the TARP program more attractive to investors. The rationale was that this would be a better deal for taxpayers because it would stop the bailed out companies from going out of business altogether.

    "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, Robert Willens, a New York tax consultant, told The Journal.

    The $45.4 billion in future tax savings is made up of $18.9 billion in carry-forwards based on past losses and savings related to costs such as pensions and property.

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