Company Letter on the Temporary Waiver of the Income Tax Related to the Cancellation of Indebtedness
January 26, 2009
TO THE MEMBERS OF THE SENATE COMMITTEE ON FINANCE:
As Congress considers a stimulus package to jumpstart the economy, the undersigned companies urge you to include in that package provisions that will provide businesses such as ours with the resources needed to grow, create jobs and at a minimum avoid unnecessary layoffs. In this regard, we urge your support for a temporary suspension of the current "cancellation of indebtedness" rules.
The undersigned companies collectively employ thousands of employees throughout the country. We operate across all sectors of the economy, providing a comprehensive perspective of the economic challenges facing all American businesses and their workers. As you well know, this is an extremely difficult time for any business and its employees, and unfortunately, most economists predict that 2009 will be worse than last year.
Specifically, we urge you to support a proposal that would provide tax relief for companies that purchase their own or related party debt at a discount, by suspending the current "cancellation of indebtedness" rules for a temporary two-year period. Under current law, if a company or related party purchases its own debt at a discount, the company is required to pay income tax on the difference between the purchase price and the original issuance price of the debt. The proposal would suspend these rules temporarily to provide an incentive for companies to reduce debt levels in the U.S. economy.
If enacted, the proposal would allow many companies to restructure their balance sheets and commit scarce capital to productive investment such as job creation and preservation, rather than servicing current debt obligations. The proposal would also allow financial institutions to strengthen their balance sheets by selling distressed or discounted debt, thus fulfilling the exact purpose originally envisioned for the TARP—reducing the level of "toxic" debt held by financial institutions—but would do so using private sector money rather than public funds.
On a broader scale, the proposal would facilitate the "deleveraging" of the U.S. economy which many economists feel is essential before the economy can grow again. In short, a temporary suspension of the cancellation of indebtedness rules would help get the U.S. economy back on track.
We greatly appreciate the recognition of the problem evidenced by the inclusion of a solution in the Chairman's mark. Unfortunately, it is insufficient in the current economic crisis to allow business to deleverage their enterprises and break the current paralysis in the debt market. Specifically, the mark has two major deficiencies. First, the provision in the mark is applicable only to cash-for-debt exchanges. In today's economic conditions, the legislation must provide necessary flexibility and apply to all restructurings, including debt-for debt, equity-fordebt, cash-for-debt, and similar exchanges. Second, the four year spread period does not provide the desired stimulative affect.
We urge your support for this proposal and thank you for your attention to this critically important matter.
Sincerely,
AbitibiBowater Inc.
AK Steel Corporation
Beazer Homes USA, Inc.
Cablevision Systems Corporation
CB Richard Ellis
Centex Corporation
Century Aluminum Company
Comcast Corporation
Community Health Systems
Dish Network
Expedia
FairPoint Communications
Frontier Communications Corporation
Georgia Gulf Corporation
Hovnanian Enterprises, Inc.
International Game Technology
Lennar Corporation
Liberty Media
M.D.C. Holdings
MGM Mirage, Incorporated
Morgans Hotel Group
NCI Building Systems, Inc
Navistar International Corp.
Pinnacle Entertainment, Inc.
Qwest Communications International Inc.
Rite-Aid Corporation
RXR Realty
SARESREGIS
Smurfit Stone Container Corporation
Sprint
Suddenlink Communications
Telephone and Data Systems, Inc.
Tenet Healthcare Corporation
The Greenspun Corporation
Vail Resorts, Inc
Western Union
Wynn Resorts, LTD.
Cc: Members of the United States Senate
Members of the United States House of Representatives