By on August 4, 2009

Wall Street Journal reports that GM will be allowed to carry-forward $16 billion in net losses from “Old GM,” creating a massive tax shelter. Normally this isn’t allowed to happen as the tax code has specific provisions to prevent firms from buying other firms strictly for their tax losses. Under normal conditions, tax losses die with the old firm when it completes its bankruptcy proceedings. Not so with GM, which sought preservation of tax losses as part and parcel of its 363 sale. “The result seems to retain the cake while eating it,” says Duke law professor Jeffrey Coyne. “They get to sell quickly and without the many procedural protections because this is not a plan. They get to keep the [net operating losses] using a provision that requires the transfer to happen as part of a plan.” And yet another hidden bailout sneaks through, unlikely to ever appear in a final accounting of the cost of rescuing GM.

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21 Comments on “Bailout Watch 577: New GM Is Old GM . . . for Tax Purposes...”


  • avatar
    menno

    Nothing surprises me any more.

    “Rules? Laws? Constitution? WHAT rules, laws or Constitution? We just make sh*t up as we go along.” Barack Obama and company.

  • avatar
    KixStart

    Since they can’t realize any benefit from this until they have some profit to tax, this isn’t exactly “bailout,” as they’ll be fully bailed whenever these tax losses come into play.

    The benefit is loss * tax rate.

    If this tax benefit makes GM look better, sooner, we can sell off our chunk, sooner and for more money. That would be a plus to us. At the cost of the revenue, of course.

    Not that any of this makes sense in any way… There are a lot of facets to the issue.

  • avatar
    PeteMoran

    Maybe some genius on Wall Street can work out a way to slice’n’dice these gifted tax “losses” to sell them derivative-style. After-all GM won’t need losses to offset “profits”. Hello Vegas!

  • avatar
    toxicroach

    The tax losses won’t make GM look better— they will make it look WORSE. Even if GM gets profitable, it will be posting those losses to protect the income from taxation.

    So if GM gets profitable, it will be quite a long time before the financial statements would let you know that.

    Or maybe I’m wrong.

  • avatar
    fiasco

    menno: Nothing surprises me any more.

    “Rules? Laws? Constitution? WHAT rules, laws or Constitution? We just make sh*t up as we go along.” Barack Obama and company.

    Same could be said for his predecessor. And most all of them in DC and state capitols.

    Off to replace a dying CV joint in one car, and no turbo boost in the other…and that’s why I like cars.

  • avatar
    Samuel L. Bronkowitz

    // creating a massive tax shelter //

    So we need a tax shelter from the government to avoid paying taxes to the government that owns the car company that it bought with our tax dollars.

    Damn.

  • avatar
    rnc

    It allows them to carry a $19B deferred tax asset on thier books, they didn’t carryover any losses on the IS. When they have a positive net income the deferred tax asset will be used to offset the current tax liability.

    I would think that at some point a large F shareholder (other than the Ford family) would step up and challange this. The other things were done within the applicable laws, this one is clearly not.

  • avatar
    menno

    Yes, fiasco, I have to agree with you (and some of the regulars here would already know that about me as I’ve written it too often, now, according to some). I don’t think we’ve had a decent President since Gerald Ford, to be honest.

    Thankfully, at least most CARS have gotten far better since 1976. Well, perhaps with a few exceptions.

    Here’s one to hopefully embarrass GM and Chrysler:

    When I lived in the UK, I had a VERY limited car budget (everything there is extremely expensive and my work was 40 miles from my home – there were NO homes available near my work). I had to budget for ‘petrol’ expenses (at 300% of what I’d been paying in America).

    So after a fiasco with an old used Citroen Dyane (a very slightly ‘modernized’ 2CV), I bought a new 1967 Fiat 124 built by drunken Russians 20 years later (a 1987 Lada Riva sedan). Then I bought a new 1990 Lada Riva sedan. Crude. But effective.

    Frankly, the cars were better than the previous new car I’d bought in the USA for commuting, a 1984 Pontiac 1000 (aka Chevrolet Chevette in drag).

    That speaks volumes about not only how bad GM products were as late as the 1980’s, doesn’t it?

    As for Chrysler…. well! I must be a slow learner. I gave them chance after chance and finally threw in the towel after a 1999 Neon.

    I figured that if the company couldn’t figure out how to build an engine which could retain a head gasket over 50,000 miles after 80 years of trying, then I was all done with them.

  • avatar
    jkross22

    Well, how many other rules did this “Ch. 11” violate? Looks like it’s on a roll!

    This wasn’t a bankruptcy filing at all. No cleaning house of leadership, carrying forward debt to offset “profits”… Where is our lovely media covering this joke?

    I know! They’re too busy reporting on these items:

    Michael Jackson
    Bill Clinton shows no signs of slowing down
    Marines ban Twitter, Facebook, other sites
    Watch your step and Iran trip can be safe
    Fined guy: Music theft ‘came naturally’ Video

    All from CNN. Nice job, guys.

  • avatar
    essen

    rnc, you are so correct. This is definitely anti-competitive and unfair to Ford, who played by the rules.

  • avatar

    I figured that if the company couldn’t figure out how to build an engine which could retain a head gasket over 50,000 miles after 80 years of trying, then I was all done with them.

    That’s the way I felt about GM and my wife’s POS Buick with the intake gasket and coolant problems–making cars for 90 years and you still can’t get this right? Done with them.

    John

  • avatar
    Buick61

    It’s all low-level stuff compared to what Wall Street managed to pull off while the media was all up in arms over a few million dollars in bonuses.

    It’s all hocus pocus money on paper. Whatever gets GM to be profitable and pay us back our tax money is fine by me.

    And, for the record, my Buick is 48 years old (and driven daily until 1999) and it doesn’t have any head gasket problems–or any mechanical problems for that matter–so GM does know how to build engines.

    How many 1961 Toyopets are still around?

  • avatar
    FleetofWheel

    Perhaps the govt can allow new GM and Chrysler to use other creative accounting such as:

    * Tally 10% of all Ford US sales as GM sales

    * Grant the New Chrysler corp the right to produce and price all spare replacement parts for small Toyota sedans

    * Allow GM a veto on any 1 forthcoming Ford new vehicle design every 2 years

  • avatar
    Bunter1

    “so GM does know how to build engines.”

    Let’s make that “so GM did know how to build engines.”

    Fixed.

    No extra charge.

    Bunter

  • avatar
    lw

    I’m pretty sure that I won’t get a tax refund this year from the feds.. I expect two checkboxes on the 1040A.

    – Check here if you would like your refund in the form of GM Shares
    – Check here if you would like your refund in the form of a voucher for a new GM car that gets greater than 30MPG

  • avatar
    Geotpf

    Buick61 :
    August 4th, 2009 at 4:13 pm

    And, for the record, my Buick is 48 years old (and driven daily until 1999) and it doesn’t have any head gasket problems–or any mechanical problems for that matter–so GM does know how to build engines.

    How many 1961 Toyopets are still around?

    A very high percentage of those sold in the US still exist-but it’s highly unlikely you will ever see one, because sales were exceedingly poor. In the eight years between 1957 and 1965, Toyota sold a grand total of 2,314 vehicles in the United States. That is, in Toyota’s first eight years worth of selling vehicles in the US, they sold fewer vehicles than they sell in one day in the US today.

  • avatar
    Happy_Endings

    Whatever gets GM to be profitable and pay us back our tax money is fine by me.

    Don’t expect that to happen. It costs GM more to make a car than what they get in return. Until that turns around, they won’t be making any profit.

  • avatar
    jpcavanaugh

    jkross22: This wasn’t a bankruptcy filing at all. No cleaning house of leadership, carrying forward debt to offset “profits”… Where is our lovely media covering this joke?

    And they still get to count Pontiac, Saab, Hummer and Saturn in their sales figures so that they can pretend to still outsell Ford.

  • avatar

    anyone wonder why there is no financial statement for last year? they’re criminals and the public is stupid.

  • avatar

    @menno – it would be a GM accountant or GM tax lawyer that came up with that idea, not the government or the PTFOA.

    Shame on the other branch of the government (the judiciary) for not blocking the 363 for so many reasons, including this one. It’s not normal for this to occur, and opens up a can of worms. If not this liability, then why not the rest of the liabilities?

    You can’t blame everything on the gummint.

    Andrew

  • avatar
    menno

    Andrew said “You can’t blame everything on the gummint.”

    Why not? They think they are in total charge of everything, and soon even want to tell doctors where they can live and for that matter, who can live (or die like dogs – it’s called euthanasia). Not to mention who can have children and when (or else, abortion time).

    So why can’t I blame them? They’re ostensibly in total control – they think. They’re ultimately responsible – since they want to be responsible for everyone else’s decisions. Therefore, when blame is assigned, they should get their fair share. They sure want to claim glory if/when things go right.

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