Bankrupt Subprime Mortgage Lender Fremont Settles $89m Tax Dispute
Bankrupt subprime lender and servicer Fremont General will settle more than $89m in tax obligations to the Internal Revenue Service (IRS) without actually paying a majority of the back taxes. Last week, the U.S. Bankruptcy Court for the Central District of California, Santa Ana Division approved a motion that allows Fremont General to claim a net operating loss (NOL) deduction for 2004 that’s attributable for its 2006 tax obligations, according to a regulatory filing with the Securities and Exchange Commission (SEC). In addition, Fremont General will deduct additional 2004 taxes, thanks to a temporary extension to the period when companies can claim the credit. The extension from two years to five went into effect when President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009, the same legislation that extended and expanded the homebuyer tax credit. The NOL carryback extension is a boon for large publicly traded homebuilders, who've recouped billions in taxes paid during profitable years. While approved by the bankruptcy court judge, the agreement must also meet the approval of the Congressional Joint Committee on Taxation, but according to the SEC filing, both Fremont General and the IRS anticipate that it is more likely than not the committee will approve the agreement “within the next several months.” All told, Fremont’s nearly $89.4m tax assessment is now reduced to about $2.8m, including interest. In addition, as a result of the IRS agreement, a California Franchise Tax Board tax claim of $13.3m was reduced to $550,000. Fremont was one of the largest lenders and servicers of subprime mortgages during the housing boom, before selling its $4bn subprime business in March 2007. On June 18, 2008, Fremont filed for Chapter 11 bankruptcy protection and continues to operate its business as “debtor-in-possession,” with residential and commercial real estate lending operations in Arizona, California, Florida, Georgia, Illinois, Maryland, New York and Texas. Write to Austin Kilgore.