The Treasury Department’s financial rescue plan has quickly provoked controversy in the month since it was passed, not least because of an IRS rule change that could well violate the Tax Code.
The ruling involves how banks can write off the tax losses of other banks they acquire, a change that seems to re-open a loophole that Congress had supposedly closed 22 years ago. The IRS ruling, announced in a brief five-paragraph notice in late September in the midst of the debates over the financial rescue bill, took some observers by surprise, but it wasn’t widely publicized at first. However, as relatively healthy banks took advantage of the rule change to snap up distressed banks with the hope of deducting billions of dollars from their taxes, the rule change has quickly gained notoriety.
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