Bank of America, Wells Fargo Probably Won't Pay Income Tax For 2009
This tax season will be kind to Bank of America and Wells Fargo: It appears that neither bank will have to pay federal income taxes for 2009.
Bank of America probably won't pay federal taxes because it lost money in the U.S. for the year. Wells Fargo was profitable, but can write down its tax bill because of losses at Wachovia, which it rescued from a near collapse.
The idea of the country's No. 1 and No. 4 banks not paying federal income taxes may be anathema to millions of Americans who are grumbling as they fill out their own tax forms this month. But tax experts say the banks' situation is hardly unique.
"Oh, yeah, this happens all the time," said Robert Willens, an expert on tax accounting who runs a New York firm with the same name. "Especially now, with companies suffering such severe losses."
Bob McIntyre, at Citizens for Tax Justice, said he opposes the government giving corporations such a break.
"If you go out and try to make money and you don't do it, why should the government pay you for your losses?" McIntyre said. "It's as simple as that."
For 2009, Bank of America netted a $2.3 billion benefit related to income taxes, according to its annual report: It had a benefit of $3.6 billion from the federal government, and an expense of $1.3 billion that it paid to different state and foreign governments.
It's not unusual for a company's debt to the federal government to vary widely from its debt to state governments, as appears to be the case with Bank of America, said Douglas Shackelford, a tax professor at UNC Chapel Hill.
The Federal Government often offers more tax deductions than the states; for example, Bank of America wrote down its federal taxable income with credits from low-income housing and losses on foreign subsidiary stock.
Company tax returns aren't public, so it's difficult to say for certain how much a company pays to, or receives from, tax coffers in any year .
The bank's $3.6 billion current federal tax benefit for 2009 came in a year when it lost $1 billion in the U.S., according to its latest annual report. For the previous year, when the bank had profits of $3.3 billion in the U.S., it listed a current federal tax expense of $5.1 billion.
Wells Fargo was profitable in 2009, with $8 billion in earnings applicable to common shareholders. But its tax payments were reduced because of Wachovia's losses.
Wells netted an overall tax benefit of $4.1 billion in 2009. It got a benefit worth nearly $4 billion from the federal government, and another worth $334 million from state governments. It had an expense of $164 million in foreign taxes. Wells did record an overall income tax expense of $5.3 billion, but that was offset by the tax benefits of the Wachovia losses.
Tax Breaks and Stimulus
The topic of corporate tax breaks has gained buzz recently because of a provision in the 2009 stimulus bill, which allows companies to "carry back" their losses for 2008 and 2009 to the previous five years, instead of just the previous two years.
Homebuilders and other industries that suffered big losses in 2008 and 2009, but made a lot of money in the years before that, stand to gain billions in refunds. However, the stimulus bill provision does not apply for Bank of America and Wells Fargo, because companies that received TARP loans are ineligible.
UNC's Shackelford said the argument for carry backs stems from the belief that it's "arbitrary" that taxes are collected on an annual basis.
"There's no reason we couldn't collect them on a monthly basis or a two-year basis. Then your losses and gains would be offset over the period," he said. "The carryback enables you to not be penalized because your losses got bunched in a different year from your gains."
The stimulus bill provision, he said, was helped by business lobbying. "There's an awful lot of companies that paid a lot of taxes in the 2004 period, then they lost a lot of money, and they went to their legislators and said, 'Please help us,'" Shackelford said.
McIntyre, at Citizens for Tax Justice, co-authored a report in 2004 related to carrybacks, after the Bush administration expanded many corporate tax breaks. The report examined 275 of the country's largest companies and found that nearly one-third paid no federal income taxes in at least one year from 2001 to 2003. The companies overall were profitable in those years, but took advantage of tax breaks.
"If you or I lose money in the stock market, we don't get to carry back our losses to any significant degree," said McIntyre. His group works on closing tax breaks for corporations.
"Getting a refund from the past, that's just weird," he added.
Federal Judge Decides Not To Revoke Bond For Charlotte Pastor Rev. Wright & Wife
The government lost its bid Wednesday to have the pastors of a popular west Charlotte church jailed just two weeks before their trial on tax evasion charges begins.
But in an unusual move, a federal judge ordered Greater Salem City of God pastors Anthony and Harriet Jinwright to live separately to limit their communication with each other.
Prosecutors told the judge the Jinwrights were continuing to commit crimes by not paying two years' worth of taxes -- a violation of their release on bond. They said the pastors owe about $85,000 in taxes for the years 2007 and 2008.
But defense lawyers argued that the Jinwrights don't have the money to pay the overdue taxes. The pastors have been working with the Internal Revenue Service to set up a payment plan, the lawyers said.
"If you put them in jail, they are for sure not going to be able to pay their taxes...," Ed Hinson, Anthony Jinwright's lawyer, told the judge. "It'll hamper our ability to defend (the tax evasion) case."
The Jinwrights are charged with tax evasion, conspiracy to defraud the IRS and filing false tax returns. They are accused in an indictment of not reporting $1.8 million in taxable income.
Both Jinwrights have pleaded not guilty and have been free on bond since their indictments in 2009. Their trial is scheduled to begin April 6.
On Wednesday, U.S. District Judge Frank Whitney rejected the government's motion to revoke the Jinwrights' bonds and jail them. But he said there is probable cause that the pastors are conspiring not to pay their overdue taxes and ordered them not to live together so their communication would be limited.
"The government has shown they are involved in a conspiracy," Whitney said. "I'm going to have to separate them."
But Whitney said he believed revoking the Jinwrights' bonds would be inappropriate. The pastors are not a flight risk or a danger to the community, said Whitney, who allowed the couple to continue to work together at their church and to meet together with lawyers for trial preparation.
"I'm not going to put them in detention," Whitney said. "I am trying to address the issue - to limit the interaction of co-conspirators when they're out on bond."
Prosecutors told the judge about the Jinwrights' lavish spending habits and questioned whether the couple was really unable to pay taxes.
In their 2007 joint tax return, the Jinwrights reported their total wages as $465,507, according to the prosecutors. That, they said, didn't include their housing allowance of $160,833 and car allowance of $45,826.
The prosecutors listed some of the Jinwrights' expenditures that year: about $178,000 for eight vehicles, $4,000 in car wash expenses, $311,000 on their two homes, $4,000 in lawn care, $9,000 in home repairs and upkeep, nearly $3,000 for Time Warner Cable and Direct TV, $4,200 in house cleaning expenses and close to $20,000 for furniture.
Anthony Jinwright received more than $4.1 million from the church from 2001 through 2007, according to the indictment. Harriet Jinwright got more than $1.2 million from the church during that time.
The indictment alleges that since 2001, the Jinwrights have leased 18 vehicles, including a Bentley GT worth $175,232 and a Rolls-Royce Phantom worth $352,500.
The pastors have bought a $990,000 house on Lake Norman and leased a $3.7 million house, according to prosecutors.
"Defendants' contention that they lack the ability to pay their outstanding tax liability of $85,000, given their substantial income, is incredible," prosecutors David Brown and Craig Randall argued in a court document.
"It is a direct slap in the face to millions of honest, hardworking citizens of the United States who earn substantially less income than defendants and still manage to bear their fair share of the nation's financial responsibilities."
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Sources: WCNC, McClatchy Newspapers, WBTV, Wells Fargo, BOFA, Wikipedia, Youtube, Google Maps
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