Obscure Tax Breaks Increase Cost of Financial Rescue

IRS and Treasury Take Series of Steps for Investors Caught Up in Crisis, Sparking Complaints of Overstepping Authority bailout

....Operating mostly under the radar screen, Congress, the Treasury Department and the Internal Revenue Service have been rolling back various provisions of the tax code to help out industries and investors caught up in the turmoil.

The most costly -- and most controversial -- of the moves provide billions in extra tax relief to big banks such as Wells Fargo & Co. and Spain's Banco Santander SA. Another change gives aid to investors stung by the auction-rate securities meltdown. Still another shift relaxes tax rules to help big multinationals bring back cash from overseas.

The total sums involved aren't clear, but the cost will easily amount to tens of billions of dollars, tax experts say.

The latest such move was unveiled on Tuesday, when the Treasury Department declared that the cash infusions for banks won't be considered "federal financial assistance." Normally, that type of funding would count as taxable income for the recipients, and could trigger other unfavorable tax consequences for banks receiving assistance that take part in mergers. ....