IRS Exempts Citigroup from Tax on Repurchase of TARP Assets

Jason Peuquet — Wed, 16 Dec 2009 19:26:28 +0000

Date:

December 11, 2009

Who:

IRS

Who:

Treasury

Policy Area:

Financial Sector Policy

Economic Target:

Citigroup

Action Type:

Tax Break

Maximum Amount:

38000000000

Amount Spent Special Symbol:

Deficit Impact Special Symbol:

The IRS agreed to give up billions in tax money in exchange for Citigroup’s repurchase of $20 billion of its assets held by TARP.

Following long-standing carryback loss rules, federal tax law permits companies to reduce their taxable incomes in profit-earning years by the amount of losses in bad years. Under the law, the IRS, which is part of the Treasury, restricts the transfer of these benefits to new ownership, in the case of a merger, as a way of preventing companies from buying unprofitable firms to evade taxes. As the law exists, Citi’s repurchase of assets held by the Treasury would qualify as a change in ownership, and thus exclude Citi from the tax benefit.

Since Citi has built up $38 billion in losses, the IRS notice exempts up to $38 billion in future Citi profits from taxable income.

This IRS ruling adds to the list of methods in which the Treasury, FDIC, and Fed have supported Citi. Click to see companion programs under TARP (Capital Purcahse Program and Targeted Investment Program), FDIC Gaurantee of Citigroup Assets, and Fed Guarantee of Citigroup Assets.

Source:

Washington Post article 12/16/2009

Notes:

According to a Washington Post article, the exact value of the IRS ruling will depend on Citi’s future profits and other factors. But accounting experts estimated that Citi will save at least several billion dollars. Some experts have also said that the lost tax revenue could easily outweigh the profits the Treasury will likely make in selling its ownership stake in Citi.

Is not a top-level node

Citigroup Inc.

Maya MacGuineas — Mon, 20 Jul 2009 20:53:53 +0000

Date:

October 28, 2008

Economic Target:

Citigroup

Maximum Amount:

25000000000

Amount Spent:

Deficit Impact:

-6852000000

This institution received funds from the Treasury Department under the Capital Purchase Program in order to promote lending and market liquidity. The institution gives the Treasury Department warrants and dividend payments, while the Treasury buys preferred stock shares from the bank.

The Department of Treasury purchased $25 billion in Citigroup equity shares as part of the first round of equity purchases under the Capital Purchase Program. Since then, the Treasury has purchased an additional $20 billion of Citigroup preferred stock and joined the FDIC and Federal Reserve in a multi-agency government guarantee of approximately $301 billion of its assets.

At four different times during 2010, Treasury authorized the sale of up to 1.5 billion shares of Citigroup common stock. The proceeds from these sales are subtracted from the $25 billion original purchase.

Source:

Latest TARP Reports

Notes:

Maximum amount based on official Treasury statements. Amount spent indicates loans and purchases minus loan repayments (but not dividends), as of 12/8/2010 (http://www.financialstability.gov/latest/index.html). Deficit impact is net proceeds (excluding dividends) from Citigroup.

Is not a top-level node

Stimulus.org - Citigroup

IRS Exempts Citigroup from Tax on Repurchase of TARP Assets

Citigroup Inc.