By Martin Vaughan Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- House Ways and Means Committee Democrats on Thursday introduced legislation to reverse a Treasury ruling that lets banks use losses from banks they acquire to shave billions off their tax bills.
The Treasury ruling, issued Sept. 30, waived for banks only the limits on an acquiring company's ability to use net operating losses from the company being acquired.
Critics in Congress said that ruling enabled Wells Fargo & Co. (WFC) to take over Wachovia Corp. (WB), even though Wachovia had already agreed to combine with Citigroup Inc. (C).
But the House bill, introduced by Rep. Lloyd Doggett, D-Texas, would not affect the treatment of losses with respect to the Wells Fargo-Wachovia merger, and it would also carve out a November merger between PNC Bank and National City Corp. (NCC), in which the ability to preserve losses played a role.
According to the bill text, the Treasury ruling would be reversed either on the date when a congressional committee approves the bill, or when the chairmen of the Senate Finance and House Ways and Means Committees issue a joint statement that they intend to reverse the Treasury notice.
"The Treasury Department clearly exceeded its authority in its effort to subsidize bank mergers - and at the expense of taxpayers," said Doggett. "We should not reopen a previously closed tax loophole, and banks already 'too large to fail' should not enjoy the added incentive of tax avoidance to get even larger."
The tax code's loss-limitation rule was intended to prevent "trafficking in losses," or the act of a company acquiring another company solely to reap the tax benefits from losses.
The Treasury Department first relaxed those limits with respect to the U.S. takeover of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), and later relaxed them with respect to bank mergers generally.
At the behest of Sen. Charles Grassley, R-Iowa, the Treasury Department inspector general is investigating whether Treasury officials were swayed by any conflicts of interest in issuing the notice. Robert Steel, CEO of Wachovia, served as undersecretary for domestic finance under Treasury Secretary Henry Paulson, and prior to that, worked with current Treasury officials at Goldman Sachs Group Inc. (GS).
Grassley charged that the Treasury notice will allow Wells Fargo to shelter up to $74 billion from taxes.
House co-sponsors of the Doggett legislation include Reps. Fortney "Pete" Stark, D-Calif.; Jim McDermott, D-Wash.; John Lewis, D-Ga.; Earl Blumenauer, D-Ore.; and Bill Pascrell, D-N.J.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com
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(END) Dow Jones Newswires
November 20, 2008 17:53 ET (22:53 GMT)

Publié le 20 novembre 2008 Copyright © 2008 Dowjones