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Bill Introduced to Overrule Treasury Decision Allowing Banks to Claim Losses

House Ways and Means Committee member Rep. Lloyd Doggett (D-Texas) introduced a bill Nov. 20 that would overrule Treasury Department guidance allowing banks to claim...
November 25, 2008

House Ways and Means Committee member Rep. Lloyd Doggett (D-Texas) introduced a bill Nov. 20 that would overrule Treasury Department guidance allowing banks to claim deductions for the losses of any financial institutions they acquire. Companion legislation has been introduced in the senate by Sen. Bernie Sanders (I-Vt.). The guidance (Notice 2008-83) sparked anger among both Republican and Democratic lawmakers because it has the potential to cost the government tens of billions of dollars in tax revenues without a single hearing having been held in Congress.

Treasury's guidance "essentially repeals, for banks only, substantial portions of Section 382 of the tax code," Doggett said. Section 382 prohibits companies from using anything more than a very limited amount of losses from companies they acquire as a way to reduce their own tax liability. Section 382 was enacted by Congress in 1986 to stop companies from sheltering their income by purchasing shell companies with losses on their books, Doggett said.

Senate Finance Committee Ranking Member Charles Grassley (R-Iowa) has also requested an investigation from the Treasury Department inspector general about the decision to allow banks the special privilege to claim the losses of banks they acquire. Grassley said the decision was a key to Wells Fargo's successful bid to take over Wachovia, a deal lost by Citibank.

"Without the issuance of the notice, Wells Fargo would have only been able to shelter a limited amount of income," Grassley said. "Under the notice, however, Wells Fargo could reportedly shelter up to $74 billion in profits," which potentially enabled Wachovia's senior executives to qualify for parachute payments that may not have been available under the Citibank deal, Grassley said.