A discrete notice recently issued by the Department of the Treasury disclosed a change to Section 382 of the tax code. The little publicized modification will allow banks to reap massive rewards for mergers, according to a report in The Washington Post.
The U.S. Treasury modified a 22-year-old law that had outlawed firms from benefiting from certain tax shelters arising from acquisitions. And the windfall to banks could reach anywhere from $105 billion to $150 billion.
Treasury spokesperson Andrew Souza told the Post: "This is part of our overall effort to provide relief." The modification has been dubbed the "Wells Fargo" ruling, in reference to Wells Fargo's (WFC - Get Report) takeover bid for Wachovia (WB).
Banks have been lobbying for years to have the rule overturned, claiming it has prevented bank mergers, though the Treasury spokesperson said the decision was made independently.Twelve different tax experts interviewed by WaPo opined the Treasury lacked authority to make the ruling. One of them, Candace Ridgway, said it shocked the tax community. "It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops. I've been in tax law for 20 years, and I've never seen anything like this," Ridgway told the Post. The ruling has received very little public attention. According to the report, legislators in Congress were outraged at the brazen change but failed to object in case recent bank mergers unraveled, facilitating further chaos and destruction of wealth in the financial markets. "None of us wants to be blamed for ruining these mergers and creating a new Great Depression," an unnamed congressional aide said in the report.