This tax season will be kind to Bank of America and Wells Fargo: It
appears that neither bank will have to pay federal income taxes for
Bank of America probably won’t pay federal taxes because it lost
money in the U.S. for the year. Wells Fargo was profitable, but can
write down its tax bill because of losses at Wachovia, which it rescued
from a near collapse.
The idea of the country’s No. 1 and No. 4 banks not paying federal
income taxes may be anathema to millions of Americans who are grumbling
as they fill out their own tax forms this month. But tax experts say
the banks’ situation is hardly unique.
"Oh, yeah, this happens all the time," said Robert Willens, an
expert on tax accounting who runs a New York firm with the same name.
"Especially now, with companies suffering such severe losses."
(Hat Tip: Francine Lipman.)
Update: From Peter Portia:
The real story here is how Wells Fargo got to write down those losses.In an astounding bit of good fortune
and timing, the Treasury in late 2008 changed the rules on how banks
can apply losses from an acquired institution. The rule change saves
Wells Fargo billions in taxes, an indirect federal expenditure likely
to be larger than the direct cost of an FDIC absorption of Wachovia’s
loan portfolio.Look at the remarkable coincidence at work here:Sep. 26: WFC decides to pass on Wachovia, leaving it to Citigroup.
Sep. 29: The IRS announces the rule change.
Oct. 3: WFC changes its mind and purchases Wachovia.Of course, some observers have a more jaundiced view of the events than I.