Sen. Charles Grassley, R-Iowa, the highest-ranking Republican on the Senate Finance Committee, is trying to ensure that banks such as Citigroup Inc. (C) and UBS AG(UBS) don’t benefit from a tax deduction on any penalties they may face for their involvement in selling auction-rate securities. According to Dow Jones Newswires, Sen. Grassley sent a letter to SEC Chairman Christopher Cox on Friday of last week asking Cox to increase any penalty the SEC imposes in the auction-rate security scandal to account for potential tax deductions.
“For example, if the SEC decides that Citigroup should pay $600 million in connection with Citigroup’s representations regarding auction-rate securities, Citigroup may be allowed to deduct this $600 millionpayment from its taxable income,” Grassley wrote.
“To prevent Citigroup from receiving this potential tax windfall at the expense of American taxpayers, the SEC should consider ‘grossing-up’ the payment by Citigroup to an amount of $923 million,” he wrote.
The article notes that to date, the SEC has not proposed any fine against the banks, which have entered into settlements with state regulators and the SEC.