The U.S. tax agency has taken steps to help ease the credit crisis by allowing corporations to increase their use of tax-free loans from overseas subsidiaries.
The program, quietly announced late Friday by the agency, the Internal Revenue Service, was devised at the behest of the U.S. Treasury Department.
The program is intended to help ease the credit crisis by luring back into the U.S. economy a chunk of the estimated hundreds of billions of dollars kept overseas by U.S. corporations through their subsidiaries in low-tax countries. That money could help combat a core problem of the credit crisis: the reluctance by banks to give companies the short-term loans needed for daily business.
In an unusually explicit step into the world of financial policy, the IRS made it clear that the credit crisis was behind the action. "Recently, circumstances affecting liquidity have made it difficult for taxpayers to fund their operations," the agency said in a notice made public Monday. The IRS said it was undertaking the program "to facilitate liquidity in the near term."
Robert Willens, a tax and accounting analyst, said Monday that the program could result in "a tremendous amount of money to shore up corporations." He added that "this is a substitute for commercial paper, and right now companies are having major difficulties rolling over commercial paper" - that is, issuing short-term debt to finance their operations.
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