• Feb 2, 2009
Ask for a little help from the government, and the next thing you know you're asking for the government to protect you from the very help it's giving you. General Motors is restructuring its debt load by offering equity shares instead of cash to debt holders, namely the government and the UAW. The UAW transaction concerns the VEBA health care fund in that GM wants to pay its obligation to the fund with shares.
The issue is that this transaction is a debt-asset swap and comes with a distressed asset tax (DAT) of $7 billion. The DAT was codified in 1986 to prevent companies from buying money-losing companies just to avoid paying taxes. In GM's case, the debt-asset swap counts as corporate income, but GM can claim it's 2008 losses against that income, greatly reducing its tax bill.

If the tax isn't waived, GM will need to immediately return $7 billion of the money it was just given. It is talking to the Treasury Department, but so far it's been no dice. GM has been lobbying to have a waiver provision put in the economic stimulus bill currently being wrangled over in the Senate, yet there's also been no movement there, either. It's almost inconceivable that the government will demand GM pay the tax. It's equally hard to believe that this is even taking place.

[Source: Detroit News via Market Watch]


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    • 1 Second Ago
  • 14 Comments
      • 5 Years Ago
      I don't think this is really an issue, just an article to sell papers. The law is designed so that companies don't buy other companies purely for the sake of losses carried forward. I would think it's hard to argue that GM negotiating with bond holders is a tax dodge and not as a business case. I'm not a tax accountant but I wouldn't think the IRS has a case.
      • 5 Years Ago
      Seems like a no-brainer to me. Obama will give them the relief.
        • 5 Years Ago
        Actually is sounds like the Treasury should pay the tax to itself since the federal government is the one that bought the distressed asset.

        Of course in doing so (paying itself) the government will claim to have done a good job in increasing revenues.
      • 5 Years Ago
      Erm? So, I'll repay the loan you've given me to get my near bankrupt business going again - maybe - with shares in that near bankrupt business. Yes: no? What?
      • 5 Years Ago
      Maybe Rick Wagoner should ask all the Senators and Representatives who just voted themselves a $4,700.00 raise in this downward spiraling economy for a special handout.

      Then again, those government officials probably need some economic relief because a $175,000 a year doesn't go as far as it used to. Now, where did I park my LearJet?
        • 5 Years Ago
        Ya and Rick Wagoners salary of $2.2 million for 2008 and his salary for 2009 which will be paid for with bailout money leaves him as one to judge.

        • 5 Years Ago
        I am sure the Feds can scrounge up enough change to pay Rick's $1.00 salary for 2009.
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