GM Could Get $45 Billion Tax Break
Posted 03 November 2010 - 03:16 PM
Treasury could meanwhile lose over $5 billion on stock sale.
by Paul A. Eisenstein on Nov.03, 2010
GM CEO Dan Akerson will begin hyping the company's IPO in the coming days.
General Motors could be in for the sort of tax break that would make even the most pro-business lawmaker blush, a savings of as much as $45 billion that comes as part of its government-financed restructuring.
GM is expected to report its third quarterly profit in a row, this month, a welcome bit of news for a company that ran up tens of billions of dollars in losses in the years leading up to its 2009 bankruptcy – and which is now planning to go public again, with an IPO expected to be held around November 18th.
Those losses, which would normally be wiped out by the Chapter 11 filing, will instead be applicable as so-called tax-loss carry-forwards, the Wall Street Journal reports. That comes as the result of a little-known ruling on the government’s TARP program, which has been used to rescue troubled financial institutions, as well as automakers GM and Chrysler.
The tax savings for the giant maker would come to $45.4 billion. That’s on top of the billions of dollars GM saved when much of its debt, as well as significant bondholder and shareholder equity, was wiped out when the maker emerged from bankruptcy protection in July 2009.
Tax-loss carry-forwards permit a business to shield profits from federal taxes for up to 20 years by offsetting earnings against prior-year losses, as well as expenses for such things as pension programs.
The ruling, issued last year, is intended to help make GM more attractive to investors. That strategy will be tested, in the coming weeks, when the maker launches its return to public trading. While GM officials have so far declined to discuss details of the planned IPO, it has been reported that the maker will seek to sell about $10 billion in common stock, at somewhere between $26 and $29 a share, along with $3 billion in preferred shares. (Click Here for more.)
The federal government can only hope for a maximum payoff considering it holds a 61% stake in the “new” GM. It is expected to reduce that to below 50% with the IPO.
But the Detroit News is reporting that the Treasury could lose as much as $5.4 billion when it puts somewhere between 263 million and more than 300 million shares of government-held GM stock on the block. The newspaper estimates that at the planned share price, the government would generate up to $8.8 billion in revenue for that stake, which would represent about a third of the government’s $50 billion investment.
In all, Washington last month estimated that the bailout of General Motors, Chrysler, and Ally Financial – formerly known as GMAC – will ultimately generate $17 billion in losses.
Going forward, GM officials are reportedly aiming to boost the company’s stock price, perhaps to twice the initial strike price, which would sharply reduce losses when the Treasury further reduces its stake.
Posted 03 November 2010 - 05:16 PM
November 3, 2010 - 12:01 am ET
UPDATED: 11/3/10 11:03 a.m. ET
DETROIT (Reuters) -- General Motors Co. can get a tax break of up to $45 billion as part of its U.S. government-financed restructuring, documents filed with federal regulators earlier this year showed.
The Wall Street Journal earlier reported that GM would not have to pay federal taxes on up to $50 billion in profits. A later version of this story revised this figure to about $45 billion.
This figure also includes $18.88 billion of carry-forwards, according to the automaker's annual filing from April.
Under the Troubled Asset Relief Program, losses racked up by GM before its government-funded bankruptcy can be used to offset its future tax liabilities.
Read more: http://www.autonews....4#ixzz14GRIUbLo
Posted 03 November 2010 - 07:33 PM
WEDNESDAY, NOVEMBER 03, 2010
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
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