WASHINGTON – Included in the failed $700-billion financial rescue plan by Congress was a tax change that would have allowed financial institutions to treat Fannie Mae and Freddie Mac preferred stock losses as ordinary losses.
About 800 institutions held Fannie Mae and Freddie Mac preferred stock when it became nearly worthless after the government took over the two companies. These financial institutions are being forced to write down their preferred shares, but under current law must treat the losses as capital losses, noted analysis by Grant Thornton. “Because this legislation has not yet been enacted, banks will not be able to assume ordinary tax treatment by September 30 when most are expected to write-down their preferred stock losses,” the tax advisory firm said. “However, the outlook on this bill may be favorable. Congress is expected to return to session quickly to try again to complete the bill.”
It was unknown at press time whether such provisions would survive in an amended proposal.
