During heated debates leading up to President Bush’s signing of the $700 billion bailout bill on Oct. 3, no mention was made of changing the tax code to give big banks even more billions.
Yet the Treasury Department on Sept. 30 quietly issued a notice that it was changing Section 382. Ho hum? To lay people, perhaps, but not to corporate tax attorneys.
The Washington Post this week interviewed a partner at Jones Day, a law firm that represents banks. She said, “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
Jones Day estimates the change could mean a $140 billion windfall for banks — at taxpayers’ expense.
Congress approved Section 382 in 1986 to close a loophole in the tax code whereby companies, including banks, would buy other companies — not because they were profitable or compatible or thought to be undervalued, but simply because they were big losers (and sometimes intentionally so, to attract suitors).
The buyers could deduct the losses of these acquired companies from their own profits at tax time, saving bundles. Section 382 virtually shut down this tax-shelter scheme by severely limiting the “use of those purchased losses,” as the Post put it.
Because of the Treasury Department’s self-authorized action on Sept. 30, that limitation is now gone. This explains why Wells Fargo suddenly and successfully reenergized its interest in taking over Wachovia when that bank’s deal with Citigroup was nearly finalized.
Conservatives, saying it thwarts mergers, have wanted this section of the tax code obliterated for years but have never been able to get Congress to agree. Did the Bush administration finally get it done by taking advantage of the economic meltdown?
Congress, which the Treasury Department ignored in making the change, should be furious. It should find out whether the change was legal. And going forward, it should see to it that Section 382 reverts to its former language, and that any future proposed change is vetted by its banking committees.
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