A secret $6 billion bailout for Puerto Rico?

Jonathan Strong
The Daily Caller
1/11/2011

The Obama administration is eying a secretive tax deal critics charge is an indirect bailout for Puerto Rico to the tune of billions of taxpayer dollars.

The U.S. territory, desperate for revenues in the midst of the recession, surprised industry with a $6 billion tax on foreign firms – including a significant bloc of U.S. pharmaceutical firms – late October in a rare weekend legislative session without any public debate in advance.

But now U.S. taxpayers, not the firms, could end up footing at least a significant chunk of the bill.

Gov. Luis Fortuño signed the new tax into law Oct. 25. That day, the Washington, D.C.-based whiteshoe law firm Steptoe & Johnson issued him a legal brief arguing U.S. firms should receive money from the U.S. government to offset the Puerto Rico tax increase, which Fortuño sent to the Internal Revenue Service, where a decision is pending.

The international tax law in question is complicated, but experts agree the tax, and the request, are an unusual use of portions of the tax code intended to avoid double taxation on U.S. firms in countries that have reciprocity treaties with the U.S.

“We would call it creative,” said James Hines, an expert on international tax issues and the L. Hart Wright Collegiate Professor of Law at the University of Michigan Law School. “It’s an unusual tax for sure.”

It’s an “indirect bailout,” said Dan Mitchell, an international tax expert and senior fellow at the Cato Institute.

Factions within the IRS are fighting over the decision.

The article continues at The Daily Caller.

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