But the amendment, announced by the Internal Revenue Service on Sept. 30, 2008 and revoked by Congress just three and a half months later, had a lot to do with why Wells Fargo beat out AT&T (T), Verizon Communications (VZ), General Electric (GE) and IBM (IBM) to top the list of 25 companies with the largest tax subsidies from 2008-2010 (see chart below).
The list was included in a report by the nonprofit advocacy group Citizens for Tax Justice (CTJ) that was released last week.
The report found that Wells Fargo (WFC) received $17.96 billion in tax breaks from 2008 through 2010, while earning more than $49 billion. Those subsidies allowed the bank to pay no taxes during those years, receiving instead a $681 million tax credit.The unprecedented 2008 decision by the IRS was intended to encourage relatively healthy banks to acquire banks in danger of failing during some of the darkest days of the financial crisis, according to tax consultant Robert Willens. Wells Fargo certainly appears to have gotten the message. On Oct. 3, 2008, just three days after the IRS relaxed its rules, Wells Fargo topped an earlier bid Citigroup (C) had made on Sept. 29 --the day before the rule change -- announcing it would pay $15.1 billion for Wachovia. (The deal closed at the start of 2009 and ended up costing about $12.7 billion, according to Reuters.) Willens says Wells Fargo's entire $17.96 billion in tax breaks could easily have come from the Wachovia deal -- adding up to considerably more than what Wells Fargo paid to acquire the bank. The IRS rule change allowed Wells Fargo to use $60 billion in losses on Wachovia's books to shelter its own income, according to Willens. Ordinarily, Wells Fargo would only have been allowed to offset $1 billion per year of taxable income with losses from Wachovia. The difference, Willens estimates, adds up to roughly $20 billion in tax savings for Wells Fargo. "It was widely believed that that was one of the motivators for Wells Fargo agreeing to make this acquisition -- the fact that they knew that they would be able to use those built-in losses to shelter as much income as they wanted to," Willens says.
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