Paulson Gives Fannie And Freddie A Tax Break Too caught an underreported detail in the Fannie/Freddie bailout.

On Monday Hank Paulson had the IRS issue Notice 2008-76, which lets the mortgage companies keep all their net operating losses (NOLs) which can be used for the next 20 years to offset income, reducing the companies’ tax bills.

Typically, once a company is acquired, its NOLs are wiped out, to avoid takeovers aimed at just getting this tax credit. In this case, since the government is taking on the burden, “Paulson changed tax law so that the two lenders aren’t paying more in taxes to the government as a result of that same government becoming their controlling investor,” says Nevertheless, under the bailout deal, the government is forcing Fannie and Freddie to contribute to federal coffers through the annual 10 per cent dividend payout. Further, Willens points out that by giving the mortgage lenders a way to reduce their future income tax bills, the plan frees up more cash so Fannie and Freddie can meet the dividend requirements. To be sure, NOLs do not offset the dividend payout, NOLs only offset pre-dividend, pre-tax income.

via: Dealbook.

See Also: Outrageous Severance Deals For Fannie/Freddie CEOs, Paid For By You
Fannie/Freddie Bailout Seems Brilliant: Kudos to Paulson
Pathetic Freddie Mac Overstated Capital Cushion

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