The news that the IRS has granted Citigroup tax breaks potentially worth more money than it will be giving back in repaying its TARP funds should not come as a surprise.
Last Friday, the IRS issued a revenue ruling that will allow the bank to retain billions of dollars in tax breaks on its supposed losses, even though Congress passed a law earlier this year to specifically prevent banks like Wells Fargo from taking advantage of such tax breaks. There is some wiggle room since the government is basically saying that when the bank pays back the government its TARP funds, the bank isnt really changing its ownership, so it shouldnt be subject to restrictions on deducting its losses the same way a company that acquires a loss-making company would be.
But the main point is that the government wants to be free of the headaches of the politically controversial TARP, and Citigroup wants to be free of the restrictions on executive compensation that the remaining TARP recipients are still subject to. By freeing itself just in time for bonus season, the bank will be able to retain more employees who might be tempted to jump ship to rivals that are not operating under such restrictions, even if it will be putting itself in further debt by offering more shares of its stock to a skeptical investing public.
The bank may be helping temporarily refill the Treasurys coffers a bit, but that wont last for long when the IRS allows it to write off a nearly equivalent amount from its taxes, at least until the next time it needs a federal bailout.
