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Tax Code Goof: BP's $10B Credit for Gulf Oil Spill Loss
This was posted at my blog on Tue. July 27, and I just now got around posting on zh. To those bullies chasing my post all over net: I stand by my opinion, so let it rip!!
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By Dian L. Chu, Economic Forecasts & Opinions
There is no shortage of news from BP on Tuesday:
- The oil major reported its first quarterly loss--$17.15 billion--in eighteen years, and will sell about $30 billion in assets.
- The company also announced that CEO Tony Hayward will step down on Oct. 1 to work at TNK-BP--BP’s joint venture in Russia.
- Bob Dudley, an American BP executive, will succeed Hayward as the new Chief Executive
The more eyebrow-raising news; however, is that BP plans to claim almost $10 billion in U.S. tax credit as a direct result of the Gulf oil spill. Here is how the tax code and math work.
Under the U.S. corporate tax law, companies can take credits up to 35% of their loss. Since BP reported $32.2 billion charge related to the cost of the spill, 35% of that will give you roughly $10 billion in credit. So BP’s claim is pretty much what its spokesman said.
"This is the accounting process, we are going by U.S. laws.”
The intention of the tax code is to encourage investments and to help companies even out profit and loss, along with the associated taxes. Lawmakers just forgot to incorporate a rider clause for public safety and/or environmental damage related expense.
The tax credit, if claimed, could mean $10 billion of the Gulf aftermath costs would come out of taxpayers’ pocket. This could potentially be quite an embarrassment for the Administration as President Obama vowed that BP will "pay every dime owed" for the spill damage.
Of course, BP could conceivably “do the right thing” and drop its tax credit claim to avoid a crashing tsunami of public anger and outrage. However, don’t expect BP to give up on this sizable cost offset that easily, since BP has made considerable concessions such as a voluntary $20 billion oil spill fund, and speculation of U.S. government’s involvement in Hayward’s dismissal and Dudley's appointment.
As reputation goes, it is hard to imagine the IRS would let this $10 billion slip by. Could revenge of the IRS be in the cards, or as Leona Helmsley famously said “Only the little people pay taxes”?
Dian L. Chu, July 27, 2010
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They should not be allowed to take the tax credit until after the criminal investigation. Then if guilty, they should not be allowed to take it at all
How about this for a headline, "BP skimps on safety for years while US Government sits by and gets cut in for one third of savings?" It's called income tax. You make money and you pay it. You don't make money and you don't. Do you really want to make non deductible money spent to clean up mistakes? This will make companies much more resistant to clean ups.
Basic darwinian principles make it impossible for you to be as stupid as your post suggests you are. Especially given your posting in two places in an effort to stir this up, I must conclude that you got caught short BP and are desperate to get it lower. Nice try.
Any individual can get a very similar Tax Benefit.
Write a check for $30,000 to the Jehova's Witnesses.
You will reduce your tax payment by $10,000 if in the 35% bracket.
Did it make you more wealthy (in the wordly sense)?
So if they have lost $32.2 billion and have a $10 billion tax write off how are the taxpayers paying for this?
I am thinking that they should limit the losses that they can take on (ordinary) operating income to $3000/yr. Of course they should be able to balance the expensive against disaster "gains". They can take the entire $10 billion, but $3000/yr.... may take a while.
That would be fair and balanced given how private investors are limited to the capital gains losses they are able to take against ordinary income.
This is normal corporate behavior... nothing to see here folks.
No, the taxpayer will not "pay". A tax credit is deductible by BP against tax owed, or, in honest terms, money stolen from it at gunpoint by the state. Save your populist outrage for the continuing criminal enterprise known as the Federal Reserve.
We are a nation of laws (at least when convenient for the political and financial elite). Assuming that the environmental damage is 100% addressed, a reduction in BP taxes due to a loss does not trouble me. What troubles me is that there appears to be a massive cover-up on the amount of oil spilled and damage done.
Since the elite have declared war on the people, we should take whatever we can get by whatever peaceful means we can get it. There are no longer ethics. There are no longer morals. It is sad to see what my once great country has become. 10B will come nowhere close to the trillions already stolen.
so, there I was driving down the freeway…..
when I come up on a prius.
on the rear bumber was the osama/biden 08 sticker.
then it hit me……and explained the actions of these two, I dare not say morons as they are a brilliant man in one.
obama/biden=osama bin ladin. they just reversed a few letters.
its all clear to me now. its been in front of us all this time. or in back of us on the bumper.
http://www.youtube.com/watch?v=KOc_w5k5-C4&NR=1
http://www.youtube.com/watch?v=3NaQcVeSlgo
How true
Nice move by BP... our lawmakers are morons, and they should have designed a flat tax.
The Gulf oil spill will go down in history as much ado about nothing. If anything it further exposed the xenophobia that exists in the US. Had this been Exxon or off the coast of Canada instead we would have seen more understanding.
BP using this as cover to get rid of dog assets and use the tax code to their advantage is pure genius. I'm sure the only one happy about the whole thing is Tiger Woods since it got him out of the spotlight.
Updated DOW charts:
http://stockmarket618.wordpress.com
Do you think this will really get airtime? Or more, that Obama's administration will do anything about it?
Remember when Obama tried to get BP to pay for the displacement costs, and consequential damages, when HIS ADMINISTRATION imposed the six-month ban on off-shore drilling? Obama met with BP, and they announced two things. First, they announced the $20 billion reserve fund, to be independently-administered (by the Shyster Feinberg, but that's another story). Second, they announced the $100 million consequential damages fund.
And the story died. Obama team are amateurish, clumsy, and outwitted at every turn. I'll take BP's counsel and finance team over Obama's team, anyday.
Blaise
I have no problem with BP or any other public or private entity using the tax code in a leagl manner to offset losses of any kind . Surely the oil spill is an operating loss for BP. End of debate . Move on .
Dian Chu - welcome to the long-line of BP-haters just because it (used) to have British in its name. Are you still fighting the war of 1776? Will anti-BP whingers still be railing at the British while behind their backs the Chinese plant their red flag over all their US acquisitions.
BP are lucky that the warm waters and favorable currents of the gulf are dispersing the oil far faster than expected. Biological degradation of oil occurs faster in tropical conditions than the Arctic. The Exxon Valdez disaster will likely be proven a bigger ecological problem than Deepwater Horizon. And what has Exxon paid out for its errors over 20 years? A few million. Likewise Occidental petroleum paid only a few million for wrecking the North Sea with Piper Alpha and killing 10x as many people.
Dian. Get a grip on reality.
Occidental petroleum
Gore's oil company should not pay anything. He invented the Internet. He employs immigrants as massage therapists. Al Gore did not lose Bush waz chooozed.
Checkout www.worldvisionportal.org where the author layouts supposed NOAA data on the real oil leaks on the Biloix Dome 7 miles from the BP blowout well. This reference came from www.theoildrum.com (usually reliable) in response to the question as to why there are many NOAA ships now in that area. This posting is the Matt Simmon's claim with NOAA data maps. It is amazing that someone would go to this amount of trouble to change NOAA data maps to create such a ridicuous story. Isn't that illegal? Oliver Stone will make a great SiFi movie called "Biloxi Dome" and make millions on the conspiracy theory that millions of gallons of oil continue to leak while the public watches the successful killing of a meaningless well. Augustus, you need to stop all these silly rumors. As we all know, its over, leaks were never a problem, we need to drill with less regulation, big oil never lies, BP did nothing wrong.
The message is that the $20b deal extracted over 4 years from BP to be managed by that paragon of bureaucratic virtue (Ken Feinberg) nets out to $10b. BP has every right to take full advantage of the tax code, the administration knew full well that 20 was actually 10. The celebratory body language by the BP execs after the WH meeting was quite genuine.
Let's take a trip back in time to June 16, 2010 and watch
http://www.youtube.com/watch?v=dnVi155xfHw
How in the world do you call this a “Tax Code Goof”? This has its roots in the very underpinnings of the US Tax Code. Do you propose the US Government begin taxing 35% of revenues and prohibit companies from deducting the expenses it costs to generate those revenues? To be clear these expenses are a cost of the business operations. I am in no way trying to minimize the environmental tragedy or imply in any way that BP was not responsible. Just about every well that is drilled in the US involves some form of environmental remediation throughout its life. We have laws that require companies to undertake various forms of remediation throughout the life of a well. These expenses include events that are part of the normal course of business at just about every well but they also include expenses that are the result of accidents and negligence. In some cases the companies are required to pay significant fines but in all cases these expenses and fines are deductible for tax purposes. They are deductible in the same way a retail store can deduct its rent, labor costs, and the expenses of purchasing its goods at whole sale prices. I believe BP should be required to pay the maximum fines allowed under US law for their negligence. I also fully support revisiting and increasing the penalties that a company must pay if an event like the BP oil spill occurs again. By the way these penalties will still be deductible and should be for tax purposes. This is a poor excuse for blogging. By the way do a Google search for “tax credit”, you appear to have no clue what a tax credit is!!!
I'm disappointed ZH would post such nonsense.
Nothing more to be said. Pefect post . Thank you
Ditto Sui's comment. Shiney side out, guys.
It should be noted that the courts have consistently allowed deductions for costs incurred in the procurement of illegal income -- http://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_the_United_St.... Section 280E was enacted to bar costs for illegal drugs for dealers after the government lost a prominent court case on the issue.
!
Leona Helmsley famously said “Only the little people pay taxes”?
Leona was right, or course. Her crime was to break the code of silence. That's why they sent her to jail.
The whole system is rigged with Obama zimbabwe economics.
How much did BP pay in income taxes in last last few years? Wouldn't that determine their effective tax rate?
If a law were passed or amended to curb the deduction for BP specifically that would amount to a bill of attainder. Any law would have to be applicable to all companies over all time frames and not retroactive. Any attorneys out there will views on that?
It makes no more sense today than when you posted it on Seeking Alpha.
It seems that you are proud of not understanding that there is no income to tax if expenses are greater than revenues.
Keep up the interesting work.
I don't have a problem with this at all. The Obama administration pushed BP as far as they possibly could, making them liable for a tremendous amount of indirect consequences of the spill, e.g. Florida tourism and idled rig workers who had nothing to do with the spill in the first place.
For every action there needs to be a reaction - you can't have it all work one way.
I feel very badly for the fishermen of Louisiana and the GOM, but the oil company employees working in TX & LA far outweigh the number of fishermen, and the economic pain is being felt largely by the oil industry. Petro employees aren't as upset with BP as the average armchair American far removed.
"The Obama administration pushed BP as far as they possibly could,"
Yes! And in the process, they secured $20BB to disperce as they please. Watch that the money never gets accounted for and gets siphoned into Obama and friends re-election.
The Chicago mob at its best.
And therein, young Oracle is why BP will not be screwed out of the deduction for business expenses (not a credit) as any other filer.
Obama and his minions get to squander the 20 Billion buying votes and lining their pockets, in turn BP says naught, blows no whistle on the politicians malfeasance.
This whole relationship between BP and Obama is the same public demonstration that's taken place with the Administration and Wall Street. Its public propaganda.... business as normal will go on, taxes raised on the middle class, rights infringed, idiot TV pumped out, iPads sold, American Idol still will rate highly, nothing of significance will be on the MSM news (else you'd not be here)....
The Circus Continues Unabated.
Everybody goes through their Public Posturing whilst the Rape and Pillage Continue.
and right on cue BP and Coast Guard begin to pull out cleanup crews but stay committed to the region
July 30
http://www.youtube.com/watch?v=RsmgEc_3sqg
Is the cue the fact that there is NO OIL to skim from the surface?
Is the cue the fact that there is NO OIL to clean from the beaches?
What would you use as a "cue" to decide that the resources devoted to clean up could be reduced?
Would it be your plan to keep those operations going for an indefinite period, simply to increase costs but achieving nothing?
Hi Auggie, you too are right on cue.
Given that you say it is a fact there is no oil to skim from the surface perhaps you could provide some data to back that fact up.
Cleanup is a cost of doing business and should be tax deductible but not creditable against taxes due. Penalties and other costs of a criminal action would not be tax deductible, especially if found to be part of an illegal activity.
There is no direct Tax Credit for cleanup expenses. It is incorrectly stated in the article. The math should be something such as: BP has expenses from the spill of $30 billion; The company has a 30% regular tax rate; the company will not pay ~ $10 billion in taxes that it would have otherwise paid as income will be reduced by the expense.
The whole jist of the article is simply incorrect. The nonsense of the headline really reveals all.
Thank you.
This "article" is yet another example of the "Details? Details? I don't need no stinkin' details" method of analysis and commentary. Shoot first. Shoot second. Don't bother asking questions later.
Doesn't ZH vet guest posts before they get released? This kind of thing does not make ZH look great.
+1. This article is childish nonsense.
Thank you. The people who are commenting about this obviously don't know their a&& from 1st base about the IRC and how taxes work.
There is no credit, only a deduction.
Cheers,
your friendly local CPA
+1, it is ok for the USG to extort $20B from BP's shareholders, but it is not ok for BP's shareholders to follow USG tax law? Yeah, statists (and statist apologists) would have you believe that in the name of social justice...
Can't imagine why this should be a surprise. Losses are always deductable. That is the way our tax code was written. There will be no fix to this. BP will get its tax credit. We will pay.
It is not a loss. It is an assult.
as long as a lot of their 'loss' is going to recoup the ones that are displaced, etc and not just the loss of their business and lawyer expenses..
if they shaft paying out to help the gulf AND get the tax break, then sure, hang the muthers
It's not time to file for 2010, and there's no reason why this little loophole couldn't be legislated away. Anyone care to handicap the chances of that happening in CONgress?
loophole? Not paying taxes when you lose money is a loophole?
Yes, let's make a special law just for BP because you don't like them. How very 'Putinesque' of you.
BTW, corporations don't pay taxes, their customers do...but guess that concept is too difficult for some.
Prices are set at the margin by what customers are willing/able to pay, regardless of costs to producers. If customer spending covers costs, producers survive and prosper. If not, then the producers "retool" to a lower cost environment, or go out of business. (or get nationalized as TBTF)
Costs of production are not "passed on" to consumers, but are determined by them as the money spent on consumer goods allows producers to use this capital to bid on scarce factors of production.
All taxation is ultimately a tax on efficient production, falling squarely on the entrepreneur's bottom line. If a tax can be "passed on" then the price could've already been set that high and been absorbed by the market.
Well, we don't want to pay BP's taxes. We also don't want to pay those grossly inflated executive bonuses either.
Saying that corporations don't pay taxes because they just pass it on to their customers isn't entirely correct. It's like saying that workers don't pay taxes because they pass it on to their employers. Some does get passed to the next down the line but never all.
"It's like saying that workers don't pay taxes because they pass it on to their employers."
It's not anything like that.