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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 09/09/2008 : 16:42:33
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Fannie, Freddie Get Tax Pass, Too
A special IRS rule written just for the beleaguered mortgage lenders will squelch their tax bill for years to come.
Marie Leone - CFO.com | US
September 8, 2008
Wouldn't it be nice if the Internal Revenue Service issued a new tax rule that applied just to your company to help it retain all the net-operating losses it could? In that way, the NOLs could be used over the next 20 years to offset income, and reduce the company's tax bill.
That's what Treasury Secretary Henry Paulson did for Fannie Mae and Freddie Mac on Monday, when he had the IRS issue Notice 2008-76, which essentially allows the two government-sponsored enterprises to retain all of their NOLs, despite a change of control of ownership, tax expert Robert Willens told CFO.com.
Under the tax code — specifically Section 382 — NOLs are severely limited when there is a change of control. The rule is in place to prevent acquiring companies from buying up targets just to gain access to their NOLs. The NOLs for Fannie and Freddie are substantial. Over the last four quarters, Fannie and Freddie recorded about $14 billion in aggregate losses.
In essence,
Paulson changed tax law so that the two lenders aren't paying more in taxes to the government as a result of that same government becoming their controlling investor.
If the Treasury Department were simply another company, such a takeover would constitute a change of control under the tax code. But the new ruling creates a big exception for the two mortgage lenders. And while the IRS ruling was issued without any basis in law, says Willens, the NOL provision of the bailout was done "very effectively." He explains that the new rule eliminates the "testing dates" that normally would have applied to Fannie and Freddie, or any other company, in the event of a takeover.
....Nevertheless, under the bailout deal, the government is forcing Fannie and Freddie to contribute to federal coffers through the annual 10 percent dividend payout. Further, Willens points out that by giving the mortgage lenders a way to reduce their future income tax bills, the plan frees up more cash so Fannie and Freddie can meet the dividend requirements. To be sure, NOLs do not offset the dividend payout, NOLs only offset pre-dividend, pre-tax income.
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Changing the rules (or simply making them up as this mess unfolds) does not bode well for the nation.
What good are rules and laws if they can be changed so easily, or rewritten or reinterpereted by unelected bureaucrats?
While it it nice that the government is going to get a 10% return on its investent by taking over Fred & Fran, this makes me wonder what will happen to the regular investors who bought and still own these two GSE's?
Bad news for the honest & trustng investors of F&F.
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