Posted on Mon, Feb. 02, 2009
last updated: February 02, 2009 07:55:58 PM
WASHINGTON — One homebuilder that's under federal investigation and has left starter home communities in Charlotte, N.C., struggling with foreclosures is vying for a tax break in the almost $900 billion stimulus bill being considered by Congress.
Beazer Homes USA is one of 37 companies that signed on to a letter last week urging senators to give businesses a waiver on income taxes they'd owe on canceled debt.
The tax break, estimated to cost more than $19 billion, has widespread support across several industries — mortgage bankers, truckers, farmers and contractors among them.
Atlanta-based Beazer is the subject of a mortgage-lending probe involving the FBI, the Internal Revenue Service and the Department of Housing and Urban Development. The North Carolina Real Estate Commission is also investigating the company's lending practices.
According to congressional lobbying records, Beazer General Services uses two lobbying firms to work on the economic stimulus bill and tax issues. The records show that Beazer lobbyists are working for the business tax break, to support homebuyer tax incentives and to overhaul the Federal Housing Administration and other housing agencies.
Leslie Kratcoski, Beazer's vice president of corporate communications, declined to comment.
The tax-break proposal "would allow many companies to restructure their balance sheets and commit scarce capital to productive investment such as job creation and preservation, rather than servicing current debt obligations," said the letter sent to senators by companies including Rite-Aid, Western Union, Dish Network and MGM Mirage.
The proposal would also reduce "the level of 'toxic' debt held by financial institutions," it said.
Right now, overleveraged businesses can ask their lenders to renegotiate their loans. If the lender agrees, for example, that the borrower can pay back only $750,000 of a $1 million loan, the $250,000 that's forgiven is counted as income and the borrower has to pay taxes on that amount.
Some senators, led by Sen. John Ensign, R-Nev., want to waive those tax rules on "cancellation of indebtedness" for two years.
A version that made it into the Senate's economic stimulus bill but not in the House bill would delay rather than waive the tax owed and require that it be paid back over four years. It would apply only to transactions involving cash, which the business lobbyists say doesn't go far enough in this cash-strapped economy.
Making it more attractive for businesses to renegotiate their debt is an urgent concern because the debt to Gross Domestic Product ratio in the U.S. is higher than it's been in a century, said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, a leading proponent of the tax break.
"You must deleverage this debt in the American economy and until we do, the economy will continue to lean back on its heels," he said.
Josten said that commercial properties such as shopping centers tend to take out shorter-term loans than individuals — five or 10 years vs. 30 years, for example — and they tend to be backloaded in the final year. The borrrowers usually refinance before that last huge chunk of the payment is due. That's likely to become harder, however, with retailers closing stores and not producing rent.
Josten said that taxpayers ought to be in favor of the break because their pension funds are invested in the kinds of businesses that would benefit.
Rep. Mel Watt, a Charlotte Democrat, said he's generally supportive of helping homeowners and businesses get out of unreasonable debt without having to come up with more money to pay the government.
"There's always somebody who benefits from these policies that probably we would not like for them to benefit," Watt said. "That doesn't necessarily mean the policies themselves are bad. . . . The Beazer situation is one where you would not want the borrower to get the advantage of any kind of tax advantage because of the perception if not the reality that they abused a lot of people and engaged in a lot of unsavory activity. But writing this stuff so that 'good people' get the benefit and 'bad people' don't would be inordinately difficult."
Beazer has admitted that its employees violated federal lending rules, including misconduct related to down payment assistance. A 2007 series by The Charlotte Observer found that Beazer's sales tactics left 10 Beazer neighborhoods in Mecklenburg County, which includes Charlotte, with foreclosure rates of 20 percent or more.
Here's a list of the businesses that signed on to the Jan. 26 letter seeking a special tax break.
AK Steel Corp.
Beazer Homes USA Inc.
Cablevision Systems Corp.
CB Richard Ellis
Century Aluminum Co.
Community Health Systems
Frontier Communications Corp.
Georgia Gulf Corp.
Hovnanian Enterprises Inc.
International Game Technology
MGM Mirage Inc.
Morgans Hotel Group
NCI Building Systems Inc
Navistar International Corp.
Pinnacle Entertainment Inc.
Qwest Communications International Inc.
Smurfit Stone Container Corp.
Telephone and Data Systems Inc.
Tenet Healthcare Corp.
The Greenspun Corp.
Vail Resorts Inc.
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