The ‘new’ General Motors technically cut all ties with the ‘old’ GM — still immersed in bankruptcy court – when it emerged from Chapter 11 bankruptcy earlier this year, but the new GM is likely to gain huge tax benefits from its bankrupt counterpart.
According to The Wall Street Journal, GM will be able to claim a $16 billion tax benefit stemming from operating losses tied to Motors Liquidation Company, better known as the old GM. Known as “tax-loss carry forward”, the strategy is usually safeguarded against in bankruptcy court – preventing entities from buying bankrupt companies only to benefit from the tax loophole – but GM’s ‘363 sale’ allowed the company to benefit from Motors Liquidation Company’s losses.
“The result seems to retain the cake while eating it,” Duke law professor Jeffrey Coyne told The Wall Street Journal. “They get to sell quickly and without the many procedural protections because this is not a plan. They get to keep the [net operating losses] using a provision that requires the transfer to happen as part of a plan.”
Because of its quick bankruptcy sale, GM will likely avoid paying federal taxes for years.
Although some might argue that the U.S. government’s majority ownership of GM makes it a moot point, there are still others set to gain from the tax loophole. The UAW’s retirement fund now owns 17.5 percent of GM and will also be exempt from paying taxes for the next several years. On the other side of the coin, companies like Ford that didn’t take a government handout will be at a disadvantage, paying billions in taxes that GM will avoid.
