JPMorgan Chase & Co. is abandoning its demand for a $1.4 billion tax break and instead will take a bigger up-front share of a Washington Mutual Inc. bankruptcy settlement, according to people close to the situation.

Ever since Wamu was seized by regulators in September 2008, JPMorgan Chase, the Federal Deposit Insurance Corp. and Wamu's bankrupt parent company have been tussling over billions of deposits, pension benefits and tax refunds tied to Wamu. JPMorgan Chase paid $1.9 billion for the thrift's banking assets and deposits.

JPMorgan Chase hopes that its concession may break the stalemate and bring the parties closer to an agreement. The proposal would deliver as much as $6.4 billion in Wamu assets to the New York bank, up from about $6.1 billion under a previous proposal. What it agreed to give up for the sweetened settlement proposal, people familiar with the situation said, is the potential for as much as $1.4 billion in federal tax refunds made possible by a provision in the 2009 economic-stimulus bill.

This proposal, however, does not have the approval of certain parties involved in the Wamu case, including the FDIC and bank bondholders. The FDIC told a U.S. Bankruptcy Court judge Wednesday that the new terms "positively address the concerns" of the FDIC receiver.

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