NEW YORK ( TheStreet) -- General Motors' planned acquisition of AmeriCredit Corp ( ACF) could generate a $3 to $5 billion tax windfall that would allow the company to pay for the $3.5 billion deal the day it is completed. GM will use its past losses to shelter earnings from AmeriCredit. That could presage a host of similar deals by companies that are still rebuilding themselves in the wake of the financial crisis, according to Robert Willens, a well-known corporate tax expert and head of Robert Willens LLC. GM CFO Chris Liddell briefly alluded to the tax benefits on a public conference call following the deal's announcement. "AmeriCredit is a taxpayer and clearly under our ownership we would seal those--that taxable income with our tax losses," he said. He gave no specifics, and a company spokeswoman declined to elaborate on his comments. Accounting rules state that when companies have a better than 50% chance of earning enough money to make use of past losses to offset their tax bill they can claim the losses as an asset, often referred to as a "deferred tax asset." When companies have a history of repeated losses they must take a "valuation allowance" which is recorded as a liability. Following its emergence from bankruptcy protection at the end of 2009 GM reported a valuation allowance -- which is a combination of previous year losses -- of just over $45 billion. But if GM becomes consistently profitable again it can reduce the valuation allowance, converting the liability to an asset and giving a boost to earnings and book value. Chris Brendler, analyst with Stifel Nicholaus, believes AmeriCredit can grow earnings by 10-15% annually as part of GM. That adds up to some $8-12 billion through 2025, the year GM's net operating losses (effectively tax credits from past losses) expire. Assuming the standard corporate tax rate of 40%, those $8-12 billion of earnings would ordinarily result in a tax bill of $3-5 billion for AmeriCredit. As part of GM, though, AmeriCredit likely won't pay any taxes at all.
Neil Barofsky, TARP's special inspector general, estimates the government will need to sell its common stock holdings in GM for a little less than $134 per share in order to recoup its investment in the iconic car company.