House Auto Bailout Bill Lifts 22-Year-Old Tax Restrictions
Provision Would Drastically Lower Tax Bill for Would-Be BuyersBy Kendra Marr
Thursday, December 11, 2008; 2:50 PM
The proposed $14 billion bailout for Detroit's automakers includes a provision that would shelter the companies' profits from taxation.
The bill, passed by the House last night, would allow the automakers to deduct their losses from future profits for 20 years in the case of an ownership change. It lifts 22-year-old tax restrictions that were designed to prevent firms from acquiring shell companies with big losses on their books in order to offset gains and avoid paying taxes.
A change in ownership is highly likely in the case of Chrysler. Its chief executive, Robert Nardelli, has said the company is "looking for alliances, partnerships, opportunities to get further synergies across the auto industry."
Himanshu Patel, a JP Morgan analyst, wrote in a note today that the provision included in the bailout bill might be "aimed at making the automakers more attractive to future takeover by a profitable enterprise which could both speed and make more likely repayment of government loans."
For instance, General Motors has $43 billion in debt. Its acquisition would be a huge boon to any successor company, said Robert Willens, a corporate tax expert.