The U.S. government agreed to forgo billions in tax revenue in a deal with Citigroup
earlier this week to help the company repay its bailout money, the Washington Post reports
. The Internal Revenue Service issued an exception to longstanding rules for Citi and other companies now partially owned by the government, allowing them to hold on to tax breaks that would otherwise decline in value once the government sells its stake to private investors.
The tax relief undercuts the Obama administration's claim that taxpayers would profit from the sale of government shares in various banks, as the lost revenue could easily outstrip any gains. It also casts the deal in a different light than it was reported Monday, when some news outlets said Citigroup had agreed to "harsh" terms.
Treasury officials said the rule change would make the government's shares of Citigroup more valuable, which will in turn benefit taxpayers.
"This rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks," Treasury spokeswoman Nayyera Haq said. "And it was certainly not written to prevent the government from selling its shares for a profit."