Friday, December 18, 2009
To help get Citigroup out from under government control, the IRS has decided the bank can keep $38 billion in tax breaks—an amount that is likely to turn the government’s bailout investment into a financial loss. When Washington made the decision to rescue teetering institutions like Citigroup last year, it promised American taxpayers they would see a profitable return on their investment once the U.S. sold its shares of the firms. But analysts now say that no matter what the government gets for its shares of Citigroup, that amount is likely to be eclipsed by the sum of lost tax revenues resulting from the IRS’s decision.
“The government is consciously forfeiting future tax revenues. It’s another form of assistance, maybe not as obvious as direct assistance but certainly another form,” tax accounting expert Robert Willens told The Washington Post. “I’ve been doing taxes for almost 40 years, and I’ve never seen anything like this….”
On Thursday, Rep. Dennis Kucinich (D-Ohio), the chairman of the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform, challenged the logic of the IRS decision and called for an investigation.
Meanwhile, Citigroup is struggling to buy back its independence. Shortly after the bank’s leadership announced plans to rid itself of government involvement, Citigroup was unable to convince enough investors to buy up $5 billion in shares owned by the Treasury Department. Market analysts said the bank overestimated the readiness of the stock market to purchase Citigroup shares. Compounding the problem was the fact that Wells Fargo, another bailout recipient, beat Citigroup to the punch by getting investors to buy $12.5 billion of its shares controlled by the government.
Kucinich Panel to Investigate Citigroup Tax Ruling (by Binyamin Appelbaum, Washington Post)
U.S. Gave Up Billions in Tax Money in Deal for Citigroup's Bailout Repayment (by Binyamin Appelbaum, Washington Post)
Government Reconsiders Quick Sale of Citigroup Stake (by Eric Dash, New York Times)
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