Brain Top Off!

Facing a $ 17 billion second quarter loss and $ 32 billion in spill cleanup costs, BP has decided to take a $ 10 billion tax credit. This credit is intended as a cash till payday advance for companies in trouble. It is still argued how legal this tax credit really is. The government can be angry when they realize they have helped pay for so much of the oil spill cleanup.

Losses lead to BP tax credit

Tax credits like these are accessible to all companies that are in some severe financial trouble. In just the second quarter of this year, BP has reported losses of over $ 17 billion. Most of this loss is from the falling prices of BP stock. Though BP has not needed to borrow money fast to keep their operations going, they’re facing heavy losses.

How BP tax credit will effect things

With a $ 10 billion tax credit, the government will end up paying of BP’s bill when it comes to the oil spill cleanup. BP agreed at the very beginning of things to put $ 20 billion towards cleanup efforts. If the U.S. Government gets $ 10 billion less in taxes, though, then the net effect is halving BP’s cost of the cleanup.

Arguments against BP’s tax credit

Press Secretary Robert Gibbs said in reference to the BP tax credit, “I don’t think anybody would prefer that [BP] do that.”. The SEC accepted $ 535 million from Goldman Sachs while Goldman Sachs tried to write it off on their taxes, which is the only thing this situation even compares to. It is an especially difficult situation because no other company has ever been in a situation like this — promising loans until payday to the U.S. Government, and then writing off those exact same loans.

Reasons BP deserves the tax credit

As reprehensible as some individuals are saying the BP tax credit is, there is a possibly legitimate reason for them. All cleanup bills for the cleanup could be paid by BP. Quick payday could be the only BP can pay for the cleanup unless they find a way to stay solvent. If BP can’t discover a way to keep in business without the $ 10 billion, then they’d likely go out of business and be unable to pay for any of the expenditures of the oil spill cleanup. The IRS will choose if that is the case or not though.

Further reading

Daily Finance

dailyfinance.com/story/taxes/bp-claiming-9-9b-tax-credit-on-gulf-clean-up-costs/19571518/

Market Watch

miamiherald.com/2010/07/28/1749344/bp-eyes-10b-tax-credit-over-gulf.html#ixzz0uyReljAI

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