IRS says ‘tax avoidance’ at heart of Solyndra bankruptcy

[Tertius]

IRS said in court papers that there was little reason for the shell company to exist other than to help the owners avoid taxes. Argonaut is the investment arm of a family foundation headed by Oklahoma businessman George Kaiser, a fundraiser for Barack Obama’s 2008 presidential campaign.

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The Internal Revenue Service urged a bankruptcy judge to reject solar panel maker Solyndra LLC’s bankruptcy plan Wednesday, saying it amounts to little more than an avenue for owners of an empty corporate shell to avoid paying taxes.

“The undeniable conclusion is that tax benefits drive this plan,” attorneys for the IRS wrote in a bankruptcy pleading.
Arguing that the bankruptcy court ought not confirm a plan “whose principal purpose is tax avoidance,” attorneys said in filings in U.S. Bankruptcy Court in Delaware that the tax breaks would be worth more money than funds set aside for creditors.

Taxpayers are on the hook for more than a half-billion dollars after the company filed for bankruptcy last year, just two years after winning a loan guarantee from the Department of Energy.

What’s more, government attorneys said that as far back as 2010, Solyndra owners had “planned meticulously” to be able to use Solyndra’s net operating losses to offset future tax liabilities.

“The only reason for the shell corporation to exist post-confirmation is to enable its owners to exploit these tax attributes, which would be lost in liquidation,” the IRS argued in court papers.

One owner valued the so-called tax attributes at $150 million, dwarfing the $7 million to $8 million set aside by the reorganization plan for unsecured creditors, according to the government’s objection, which was filed by the Justice Department on behalf of the IRS.

Under Solyndra’s reorganization plan, two big investors in the company, Madrone Partners LP and Argonaut Ventures, together would own nearly all of a shell company formed in the wake of Solyndra’s bankruptcy reorganization.
But the IRS said in court papers that there was little reason for the shell company to exist other than to help the owners avoid taxes. Argonaut is the investment arm of a family foundation headed by Oklahoma businessman George Kaiser, a fundraiser for Barack Obama’s 2008 presidential campaign. Madrone has ties to the family that owns Wal-Mart Stores Inc.

Even as company officials negotiated a restructuring deal with the Energy Department to keep Solyndra afloat, the company’s owners were “intently focused” on how to preserve their ability to use net operating losses as they privately prepared for the possibility that Solyndra would go broke, according to the government attorneys.
In one email, dated Dec. 7, 2010, Steve Mitchell, a managing director at Argonaut who served on Solyndra’s board, told attorneys that there was a “decent likelihood” that Solyndra would go bankrupt within 10 days.
Mr. Mitchell devoted much of the rest of the email to “the need to preserve an estimated $750 million of NOLs in Solyndra,” referring to net operating losses, according to the court filing.

“We need to discuss appropriate course of action in the event of filing and trustee appointment,” Mr. Mitchell told the attorneys. “The company has a significant NOL, potentially as high [as] $750 million, and George [Kaiser] has a high interest in understanding any manner in which we can preserve the NOLs.”

A spokesman for Mr. Kaiser was not immediately available Wednesday.

The government attorneys said that while the reorganization plan had “some marginal benefits,” there was no doubt that the most important priority was to “preserve a shell corporation to be able to reduce future tax liabilities by hundreds of millions of dollars.”