The Treasury's financial rescue plan includes a tax change that would allow banks to treat Fannie Mae and Freddie Mac preferred stock as ordinary losses.
According to a report by Grant Thornton's national tax office, approximately 800 banks held Fannie Mae and Freddie Mac preferred stock when it became nearly worthless after the government took over the two companies. These financial institutions are being forced to write down their preferred shares, but under current law must treat the losses as capital losses.
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