IRS Gives Multinationals Relief in the Credit Crisis

The Treasury is pulling out all the stops to provide relief to companies facing high interest rates for short-term credit; and thanks to the Internal Revenue Service (IRS) large multinationals have an additional weapon in the battle for short-term cash. The IRS issued a notice about a new program
that makes it easier for companies to borrow cash from overseas subsidiaries without triggering U.S. taxes. The program covers loans made in tax years 2008 and 2009. "Recently, circumstances affecting liquidity have made it difficult for taxpayers to fund their operations," the agency stated, and the program would "facilitate liquidity in the near term."

Tax and accounting analyst Robert Wilens told The New York Times that the program could lead to "a tremendous amount of money to shore up corporations," adding "this is a substitute for commercial paper, and right now companies are having major difficulties rolling over commercial paper."

The new program is far more generous than the existing program, under which companies could receive tax-free loans twice a year from overseas subsidiaries but were required to repay them within 30 days. Now, parent companies can borrow from subsidiaries three times a year and have 60 days to repay the loans. But according to The Wall Street Journal, the program needs clarification over issues including how much time companies will need to wait before they can borrow again after the initial 60 days expires. Companies that have repaid loans under the old program and then immediately borrowed again for another 30 days have been challenged by the IRS.