Don't Mess With Taxes

A couple of weeks ago, Texas Congressman Lloyd Doggett introduced legislation to roll back some of the tax breaks given banks in connection with financial bailout activities.

However, given that there realistically is no way the measure will make it into law with so few days remaining in the 110th Congress, Doggett and several of his colleagues have decided to appeal directly to Treasury Secretary Henry Paulson.

Bill would limit tax advantage of losses: Specifically, the Lone Star lawmaker is concerned about IRS Notice 2008-83, which was ordered by Paulson and which changed application of Internal Revenue Code Section 382 to allow some financial institutions to deduct unlimited losses from loans, bad debt, or additions to loss reserves that are from a bank acquired in a merger or takeover. about

As blogged here, Doggett and several of his fellow Democrats on the tax-writing Ways and Means Committee say H.R. 7300 "sets reasonable boundaries" on "Treasury's back-door giveaway" to banks. The notice, argue the Representatives, effectively amounts to a tax break worth more than $100 billion.

Follow-up letter to Treasury: On Thursday, Doggett and eight other Ways and Means members urged Paulson to reject requests to further expand the Section 382 loophole. Soon after Notice 2008-83 was published on Sept. 30, the Institute of International Bankers requested that Treasury also make this option available to foreign banks.

"We strongly believe that you have already overstepped your authority in issuing the original guidance and urge you not to compound this mistake by further widening this illegal loophole," wrote Doggett. "At a time when we should be working together to identify and limit tax loopholes -- not creating and then expanding them -- this backdoor bailout is precisely the wrong approach."

Letter co-signers included Democrats Chris Van Hollen of Maryland, Pete Stark of California, Jim McDermott of Washington, John Lewis of Georgia, Mike Thompson of California, Earl Blumenauer of Oregon, Bill Pascrell of New Jersey and Shelley Berkley of Nevada. 

In addition, the Ways and Means members told Paulson that "we strongly believe that you have already overstepped your authority in issuing the original guidance."

"It is disappointing when those who are charged with administering the tax laws demonstrate this contempt for them," wrote the tax-writing Representatives.