Wednesday, November 3, 2010

General Motors Could get Over $45 Billion in Future Tax Breaks

According to the ever-enjoyable Wall Street Journal, General Motors may come away from its near-death experience with over $45 Billion in tax breaks on future profits over. Yes, that is Billion with a "B". How exactly did that happen?

Somewhere in the hubbub of GM's catastrophic nosedive into failure, paperwork was put in place to utilize a "tax-loss carry-forward" plan that uses deferred tax assets.

In plain terms, GM gets to put the value of the money the Old GM "lost" (or threw away) prior to and during its bankruptcy on a piece of paper and say it wants to reduce taxable income by that much. This, apparently, can be applied over the next twenty years.

It seems that having limits in place is the norm in these "carry-forward" tax break situations, but the people running the country said any businesses getting TARP (Troubled Asset Relief Program) funds were exempt from such restrictions. This includes business like GM, which the government says will now look better to investors (feel free to discuss amongst yourselves below).

Tax consultant Robert Willens says, "The Internal Revenue Service has decided that the government's involvement with these companies, both its acquisitions plus its disposals of their stock, means [the companies] should be exempt." According to GM, US$18.9 Billion of the carry-forward breaks are from prior losses, while the rest is due to pensions, retiree benefits, property maintenance, etc.

By Phil Alex

Source: WSJ