While Congress and the nation were busy debating the $700 billion bailout package in late September, Treasury issued a five-sentence notice that could reap banks up to $140 billion in tax breaks, the Washington Post reports. The provision reverses an obscure policy written into law more than 20 years ago to close a loophole used to avoid paying taxes. Furious lawmakers say Treasury acted illegally, but they've stayed mum to avoid upsetting recent bank mergers and disrupting the economy even further.
Lawmakers crafted the original policy to address a practice they considered a scam: acquiring shell companies with losses on their books to offset profits and lessen taxes. Conservatives have been lobbying unsuccessfully for its repeal for two decades. The quiet reversal stunned tax lawyers whose clients stand to benefit. "They basically repealed a 22-year-old law that Congress passed as a back-door way of providing aid to banks," said one expert. More than a dozen tax lawyers told the Post the move was illegal.