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

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

JPMorgan hopes that its concession may break the stalemate and bring the parties closer to an agreement, which could happen as early as this week. The proposal would deliver as much as $6.4 billion in Washington Mutual assets to the New York bank, up from about $6.1 billion under a prior 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, doesn't have the approval of certain parties involved in the Washington Mutual 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.

JPMorgan declined to comment.

The 2009 stimulus bill allowed companies to apply losses from 2008 and 2009 against any taxes paid in the previous five years. Washington Mutual was eligible for as much as $2.8 billion under the law. JPMorgan originally said it should be allowed to claim all refunds because it had agreed to purchase Washington Mutual's assets.

But the bill specifically excluded any companies that received bank-bailout aid from getting the tax refunds. JPMorgan received $25 billion in 2008. The Wall Street bank had argued to other parties in the case that the bailout ban wouldn't apply because Washington Mutual, and not JPMorgan, was the taxpayer. The bank also argued the refund wouldn't go to the bank directly, instead it would be held by the FDIC in receivership and JPMorgan could access the funds if sued over Washington Mutual-related issues.

Washington Mutual bank bondholders and the FDIC balked at JPMorgan's potential stimulus benefit.

If the latest proposal is approved, JPMorgan wouldn't be able to tap the FDIC receiver for refund money in the event of a lawsuit. But it would get about $300 million more from a separate pool of refunds originally reserved for creditors and not tied to the 2009 stimulus bill, giving it a total of $6.4 billion in Washington Mutual assets.

Also, JPMorgan still has the ability to ask the corporate arm of the FDIC to cover as much as $500 million in future legal claims, according to the original Washington Mutual purchase agreement.

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