Under The Table

From Industry Shorts by Nichole Wagner:

While all eyes were fixated on the bailout bill at the end of September, the Treasury slipped a tax policy change under the Congress’ radar. It took several days for lawmakers to become aware of the change, but when they did, many were angry and questioned the legality and motivation behind it.

The change in tax code repealed a 22-year-old law that prevented tax-motivated mergers. The current policy has no limit on the amount of taxable income a bank can deduct after an acquisition. This change could cost taxpayers $105 billion to $110 billion says Robert L. Willens, a prominent corporate tax expert.

As of press time, legislators have not publicly declared that the alteration is illegal because they are afraid that recent bank mergers may unwind as a result. However, Charles Grassley, most-senior Republican on the Senate Finance Committee, is seeking an investigation into possible conflicts of interest.

In a letter, Grassley stated that he wants to investigate the independence of several Treasury officials who were also ex-Goldman Sachs executives, as well as the relationships between the Treasury officials and bank board members. Specifically, the relationship with Robert Steel, former Treasury advisor and ex-Goldman employee, who is now the chief executive of Wachovia.

The senator is disturbed that the tax change was made one day after Wachovia agreed to be acquired by Citigroup. This alteration gives the “appearance of preferential treatment” Grassley says by sweetening the deal for Wells Fargo that later stepped in and acquired Wachovia. Under the new tax code, the merger saved Wells Fargo nearly $20 billion in taxes.