Freddie Mac May Face $30 Million Tax Bill

Freddie Mac, the nation’s No. 2 mortgage finance company, has estimated it will owe as much as $30 million in back taxes, the Wall Street Journal reported.

That figure is just a fraction of the $4.5 billion the company expects to report in income when it restates earnings.

Freddie Mac board member George Gould said in a letter to U.S. Rep. Christopher Shays (R-Conn.) that the back taxes won’t materially affect earnings. The extra earnings will mainly come from unrealized gains on securities, he wrote.

Gould had testified at a September hearing that the company's potential tax burden would be "minuscule" compared with the money involved in the restatement. What he didn't mention was that the Internal Revenue Service was looking at Freddie Mac's tax treatment of certain transactions related to the restatement.

Shays didn’t find out about the IRS review until after the hearing, the Wall Street Journal reported. In a sharply worded letter to Gould, he asked why the information was not included in his testimony. Freddie Mac had estimated the IRS review could result in a tax bill of as much as $750 million.

Gould told Shays in his letter that the IRS was unlikely to require Freddie Mac to pay that much because it would first have to rule against the company and then impose full penalties.

Meanwhile, Shays has asked House Financial Services Committee Chairman Michael Oxley (R-Ohio) to investigate the lobbying activities at Freddie Mac and Fannie Mae, another government-sponsored enterprise that guarantees most of America’s mortgages. Shays believes the companies are too influential over the legislative process.

"They have all these advantages, yet they have the chutzpah to dictate what laws they will comply with and they continue to tell Congress and the White House what type of regulation is acceptable to them," Shays said in a letter last week to Oxley. "They publicly praised the regulatory proposals made this fall by the administration and the House Financial Services Committee, and then proceeded to kill them behind closed doors."

Fannie Mae and Freddie Mac have become the subject of growing criticism. Freddie Mac disclosed widespread accounting irregularities this summer, and Fannie Mae this past week announced a $1.28 billion error in calculating unrealized gains in the third quarter.

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