Business & Economy,
Crime & Safety,
April 19th, 2011
So, the clean-up of BP’s Gulf oil spill may cost U.S. taxpayers after all.
President Obama has insisted BP would bear the entire cost of cleaning up the spill and making the injured business and wildlife whole again. And yet BP said today it plans to cut $9.9 billion off its tax bill based on the $32.2 billion charge it is expecting to take from the costs of the Gulf oil spill. That means that $9.9 billion that might have been going into the federal government’s general fund will be used to cut BP’s spill costs by a third.
At issue are tax-code provisions that allow companies to take refunds for losses. A company can’t pay taxes if it doesn’t have any income. “We have followed the IRS regulations as they’re currently written,’’ outgoing BP CEO Tony Hayward told investors on a conference call this morning.
To the White House, that must sound like fingernails scratching a blackboard. Don’t be surprised if this becomes the latest political hot potato in the BP spill.
We have seen this movie before. This year, J.P. Morgan Chase dropped its plan to claim a $1.4 billion tax credit that was owed to Washington Mutual, which the New York bank acquired at a firesale during the financial crisis. At the time, the tax credit didn’t seem like great public relations for a bank that had taken (and repaid) $25 billion in federal bailout money to be seeking a tax break.
Goldman Sachs Group agreed not to claim a $187 million tax break on the $550 million fine as part of its settlement with the SEC over the agency’s Abacus mortgage lawsuit.
BP hasn’t been fined for the spill, yet, so the issue is based on losses, not a penalty. But there is another difference between Wall Street’s dropped credits and BP.
For those companies, the tax credits were arguably gravy. For BP, the roughly $10 billion deduction is part of its strategy to keep the company’s cash flowing. BP has made a lot of concessions to the White House during the oil-spill crisis. It will be interesting to see if BP digs in its heels on this one.
By Michael Corkery WSJ Blogs