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The Honolulu Advertiser
Posted on: Saturday, March 27, 2010

Losing money in '09 pays off for BofA, Wells Fargo


By Christina Rexrode
Charlotte Observer

CHARLOTTE, N.C. 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 2009.

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."

Bob McIntyre, at Citizens for Tax Justice, said he opposes the government giving corporations such a break.

"If you go out and try to make money and you don't do it, why should the government pay you for your losses?" McIntyre said. "It's as simple as that."

For 2009, Bank of America netted a $2.3 billion benefit related to income taxes, according to its annual report: It had a benefit of $3.6 billion from the federal government, and an expense of $1.3 billion that it paid to different state and foreign governments.

It's not unusual for a company's debt to the federal government to vary widely from its debt to state governments, as appears to be the case with Bank of America, said Douglas Shackelford, a tax professor at University of North Carolina-Chapel Hill.

Company tax returns aren't public, so it's difficult to say for certain how much a company pays to, or receives from, tax coffers in any year.

BofA's $3.6 billion current federal tax benefit for 2009 came in a year when it lost $1 billion in the U.S., according to its latest annual report.

Wells Fargo was profitable in 2009, with $8 billion in earnings applicable to common shareholders. But its tax payments were reduced because of Wachovia's losses.

Wells netted an overall tax benefit of $4.1 billion in 2009. It got a benefit worth nearly $4 billion from the federal government, and another worth $334 million from state governments. It had an expense of $164 million in foreign taxes. Wells did record an overall income tax expense of $5.3 billion, but that was offset by the tax benefits of the Wachovia losses.

The topic of corporate tax breaks has gained buzz recently because of a provision in the 2009 stimulus bill, which allows companies to "carry back" their losses for 2008 and 2009 to the previous five years, instead of just the previous two years.