Bailout Watch 368: GM Lobbies Feds to Drop $7b Tax Bill

GM may be avoiding death with Uncle Sugar’s $13.4b (and counting) bridge loans to nowhere. But it’s not doing so well on the tax front. The Detroit News reports that GM’s been “quietly” lobbying Uncle Sam to drop a $7b tax bill. Without success. OK, folks, hang onto your green shades. “The tax liability stems from GM’s plan to reduce its $62 billion debt to $30 billion by offering bondholders equity in exchange for existing debt. GM also wants to use stock rather than cash to fund half of its contributions to a retiree health care fund to be managed by the UAW. But the debt swapped for equity could be considered income for tax purposes and GM’s ability to offset that income with prior-year losses, a common accounting practice, is sharply limited under a complex provision of the 1986 tax code that applies when a company changes ownership. The code was written to limit the ability of companies to buy other money-losing companies just to avoid paying taxes. GM plans to issue new stock to bondholders and the UAW and has already issued the government warrants, which may trigger a ‘technical ownership change,’ GM said in its memo.” And thus, a $7b tax bill. Now, let’s define chutzpah.

Chutzpah is when you kill your parents and then plead for mercy from the sentencing judge because you’re an orphan. Alternatively, “If Congress does not act quickly, the investor disclosures required to complete the debt to equity conversion will need to discuss the potential significant income tax consequences… which could further complicate and jeopardize the planned company restructuring,” GM’s memo said.

God forbid we should jeopardize GM’s restructuring by making them pay tax for it! Even worse, the DetN has completely removed itself from the spade-calling business.

“A legislative fix to GM’s tax issue was included in a $25 billion bailout bill that passed the House in December, but died in the Senate. Since the Treasury used funds from the $700 billion Wall Street rescue to aid GM, no fix was included.”

Fix? How about tax waiver? Or tax dodge? Or a non-loan addition to Uncle Sugar’s contribution to GM’s survival? Anyway, this whole bailout buffet thing has moved well past farce, deep into the realm of tragi-comedy.

“It’s smart for GM to ask for this,” [associate professor of accounting at the University of Michigan’s Ross School of Business Michelle] Hanlon said. “It would be silly for the government to loan them billions and then make GM give most of it back.”

Silly?