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13 Bailed-Out Banks Failed to Pay Taxes
Revelation Stokes Lawmakers' Anger

By Amit R. Paley
Washington Post Staff Writer
Friday, March 20, 2009

Thirteen of the largest recipients of the government's massive bailout failed to pay more than $220 million in federal taxes, congressional investigators said yesterday, prompting a new round of accusations that banks were abusing the financial rescue program.

The Internal Revenue Service said late yesterday that a portion of the money had been paid back since congressional investigators gathered their information. Still, many in Congress were furious, noting that firms with the largest tax liabilities owed $113 million and $102 million.

"This is shameful. It is a disgrace," said Rep. John Lewis (D-Ga.), chairman of the House Ways and Means Committee's oversight subcommittee, which examined the IRS data. "The American people are fed up, and they are fired up. And they are not going to take it anymore."

The head of the federal watchdog agency charged with prosecuting fraud in the program said his office would investigate to see whether any crimes had been committed by the firms, none of which were named. Executives of banks receiving bailout funds had to certify that their firms did not owe taxes, and if they knowingly lied, they could be prosecuted.

The disclosures ratcheted up anger on Capitol Hill at both the conduct of Wall Street firms benefiting from taxpayer dollars and the Treasury Department's oversight of the program. Lawmakers are still furious over multimillion-dollar bonuses to executives at firms receiving bailout money as well as lavish retreats and expenses by those companies.

"We're eroding confidence in the way taxpayer dollars are managed and spent," said Rep. Artur Davis (D-Ala.). "And the cost of that? It's going to make it harder than ever for us to do the things that must be done to get this economy moving forward."

Neil M. Barofsky, the special inspector general for the bailout, said it should have been the Treasury's responsibility to ensure that banks were complying with the provisions of the bailout agreements. He said his agency would work with Treasury officials to solve the problem.

Asked to respond, Treasury spokesman Isaac Baker said, "Companies receiving government funds have certified to the federal government that they have paid all applicable taxes and have no tax deficiencies."

The tax data were released yesterday after Lewis's committee asked the IRS for tax information on the 23 largest recipients of the $700 billion federal bailout.

IRS officials cautioned that the tax data represent a snapshot and said there could be many reasons recipients have not paid. They said that major corporations are constantly audited and therefore the amounts of taxes due fluctuate.

"Given the complexity of corporate tax laws, people should not assume that all these taxpayers have necessarily done something wrong," said Frank Keith, an IRS spokesman. He said 50 percent of the $220 million in unpaid taxes described to the panel this month had recently been paid back, though he declined to describe the payments further or say whether more unpaid taxes had accrued by the bailout firms since then.

"The IRS recognizes that those entities that receive taxpayer support have a special obligation to pay their taxes, and these taxpayer accounts will remain closely monitored by the IRS to ensure that the full amount of taxes due are paid," Keith said.

The Post asked the 23 largest recipients of bailout funds yesterday whether they had any unpaid taxes. Spokesman for nine companies -- Bank of America, Wells Fargo, Citigroup, Capital One, Northern Trust, CIT Group, Marshall & Isley Corporation, Chrysler, General Motors -- said they had none.

The remaining firms either declined to comment, did not return phone and e-mail messages, or provided ambiguous responses.

Christina Pretto, a vice president for insurance giant American International Group, wrote in an e-mail that the company "has paid all taxes due and payable." But she added: "As is the right of every taxpayer, AIG in good faith and in accordance with applicable law contests the imposition of taxes to the extent that it believes they are not legally owed." She did not respond to a request to explain further.

A spokesman for PNC Financial said "there may be instances where we are in discussion with the United States about specific items." BB&T said it had no unpaid federal income taxes, but would not specify whether it owed federal employment taxes. A Regions Bank official said only that "our tax commitments are current."

The congressional anger came from both parties. Sen. Charles E. Grassley (Iowa), the ranking Republican on the Senate Finance Committee, said: "Unpaid tax liabilities damage confidence in our tax system and, in this case, increase cynicism that there are two sets of rules, one set for the big guys and one set for everyone else."

In a hearing yesterday to discuss oversight of the bailout, Lewis raised the possibility that the unpaid taxes described in the data were the tip of the iceberg.

"If we looked at all 470 recipients, how much would they owe?" he said.

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