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June 14, 2010
TIGTA - 2010-24
Karen Kraushaar
karen.kraushaar@tigta.treas.gov
TIGTA-PAO@tigta.treas.gov
(202) 622-6500

Most Unpaid Taxes of Participants in the Troubled Asset Relief Program Have Been Resolved

WASHINGTON - Some companies that received Federal funds under the Troubled Asset Relief Program (TARP) owed taxes at the time they received funding, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA reviewed 558 institutions that received TARP funding. Internal Revenue Service records showed that 130 of the 558 institutions had unpaid taxes totaling $530.8 million when they signed agreements with the Department of the Treasury in 2008. However, IRS records also showed that 97 percent of the unpaid taxes were resolved by December 2009.

According to TIGTA's report, the IRS faced several challenges in determining the taxes owed by companies receiving TARP funds, including identifying and tracking unpaid tax debts across the thousands of separate but related taxable entities operating domestically and overseas. The large number of subsidiaries owned or controlled by financial institutions in the TARP overwhelmed the ability of IRS computer programs to identify and track unpaid tax debts across the thousands of separate but related taxable entities.

"All recipients of Federal funds, including TARP participants, must meet their Federal tax obligations," said J. Russell George, the Treasury Inspector General for Tax Administration. "Going forward, it is important that the IRS closely monitor the net operating losses many TARP participants will be claiming for 2008 and 2009," he added.

In addition, the IRS will need to ensure that TARP participants follow appropriate tax laws when claiming refunds for losses and paying any taxes due as a result of IRS audits.

Recent tax law changes allow businesses to use losses to claim refunds for taxes paid in the previous five years when they were profitable. TARP participants were specifically excluded from taking advantage of new tax incentives that allow businesses to use losses, although they can still use net operating losses to claim refunds for taxes paid in the two years previous to incurring the net operating loss.

TIGTA did not make any recommendations in this report, and the IRS did not provide any comments on a draft of the report.