NEWS FROM WASHINGTON

Estate Tax Repealed, But … The House passed and sent to the Senate the Permanent Estate Tax Relief for Families, Farmers & Small Businesses Act to make the $3.5 million exemption and 45% tax rate permanent. The Senate failed to act, thus allowing the estate tax to be repealed next year. However, this will change the way assets are valued for capital gains tax purposes when heirs sell them – from market price at the time of death to original cost.

Senate Finishes Health Care – The Senate passed its health care bill on Christmas Eve, but health care isn’t done yet. The two bills passed by the House and Senate must be reconciled into one… Leaders in both houses have said they want a final bill for President Obama’s signature by the time he delivers the State of the Union address in late January.

Tax Extenders in Limbo – Although the House passed the Tax Extenders Act, the Senate delayed action until spring. Included in the House bill were the research and development tax credit, 15-year depreciation for leasehold and retail improvements, the deduction for state sales and property taxes and the deduction for classroom supplies. If they are renewed later, they are likely to be retroactive.

Unemployment Benefits Extended – Congress used the 2010 appropriations bill for the Dept. of Defense to extend two programs for unemployed workers through Feb. 28: emergency unemployment benefits and the COBRA health insurance subsidy.

Source: NRHA eNewsletter, North American Retail Hardware Association, December 28, 2009

TREASURY RECEIVES $45 BILLION IN REPAYMENTS

TARP Repayments Now Total $164 Billion

WASHINGTON – Today, the U.S. Department of the Treasury received repayments on its Troubled Asset Relief Program (TARP) investments in Wells Fargo and Citigroup in the sum of $45 billion, bringing the total amount of repaid TARP funds to $164 billion. Wells Fargo repaid $25 billion under the Capital Purchase Program (CPP) and Citigroup repaid $20 billion under the Targeted Investment Program (TIP), both of which will wind down at the end of this year. Treasury now estimates that total bank repayments should exceed $175 billion by the end of 2010, cutting total taxpayer exposure to the banks by three-quarters.

In addition, effective today, Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation and Citigroup terminated the agreement under which the U.S. government agreed to share losses on a pool of originally $300 billion of Citigroup assets.   This arrangement was entered into in January of this year under Treasury’s Asset Guarantee Program (AGP) and was originally expected to last for 10 years.  The U.S. government parties did not pay any losses under the agreement and will keep $5.2 billion of $7 billion in trust preferred securities as well as warrants for common shares that were issued by Citigroup as consideration for such guarantee.  With this termination, the AGP is being terminated at a profit to the taxpayer. 

Treasury currently estimates that TARP programs aimed at stabilizing the banking system will earn a profit thanks to dividends, interest, early repayments, and the sale of warrants. Total bank investments of $245 billion in FY2009 that were initially projected to cost $76 billion are now projected to bring a profit. Taxpayers have already received over $16 billion in profits from all TARP programs and that profit could be considerably higher as Treasury sells additional warrants in the weeks ahead.

Source: U.S. Treasury Department, December 23, 2009

Saints Coach Payton Leads Drywall Suit

Attorneys filed a class action lawsuit in New Orleans federal court on December 10 against Chinese drywall manufacturers Knauf Tianjin, Knauf Wuhu, and Knauf Dongguan (subsidiaries of the German firm Knauf Gips). Named as additional defendants alongside the German-owned Chinese firms are dozens of U.S. importers, distributors, building material suppliers, builders, and drywall installation contractors.

More than 2,000 homeowners are enrolled in the suit as plaintiffs — at their head, New Orleans Saints head coach Sean Payton, whose Mandeville home was built with drywall made by Knauf, according to the New Orleans Times-Picayune (“New Orleans Saints Coach Sean Payton is lead plaintiff in Chinese drywall suit,” by Rebecca Mowbray).

Payton’s high profile in New Orleans and nationally is only one reason for selecting him as lead plaintiff. His particular case also happens to be unusually well documented, the Times-Picayune reports: “With more resources to get to the root of the problem than many other people who have problem drywall in their homes, Payton and his family moved out of their house, then systematically took it apart. They took photos of the evidence along the way, then stored the damaged components in a warehouse, where KPT, the manufacturer, was able to inspect it.”

The formal complaint in the case runs to 591 pages. Most of those pages, however, are devoted to a long list of the parties to the suit — 383 pages just to list the 2,068 plaintiffs, and another 120 pages to introduce the defendants. Along with Knauf Gips and its three Chinese affiliates, the suit breaks out 43 distributor and supplier defendants (listed in alphabetical order, from 84 Lumber to Venture Supply Company), a handful of brokers and distributors, and nearly 500 builders, developers, and subcontractors, from Aburton Homes to Wellington Drywall (both Florida companies).

Additional pages are taken up with a list describing which of the smaller defendants are linked to which of the 2,000-plus plaintiffs. Although every plaintiff in the case is suing Knauf, only one or a few may be suing a particular drywall contractor or builder named in the suit.

As a class action suit, of course, the case will not examine every house involved. Instead, a handful of “bellwether” trials are planned to establish basic facts relating to the material and the damage it causes. The first case, a “bench trial” with no jury set to begin in January, involves seven Virginia homeowners whose drywall was allegedly made by Taishan Gypsum Co. Ltd., a Chinese-owned company, reports the Sarasota Herald Tribune ("First Chinese drywall trial is set for January,” by Aaron Kessler).

Taishan, which is owned by the Chinese government, shows no indication of intending to participate in the trial, reports the Herald Tribune. “However, because of the high stakes, Knauf Plasterboard Tianjin Co. Ltd., one of the other Chinese manufacturers, is expected to intervene on Taishan's behalf to present the defense,” the paper reports. “Knauf Tianjin itself will be the subject of the next bellwether trial – the first with a jury – in late February.”

It’s too early to tell what recourse homeowners whose drywall was made by other Chinese manufacturers may have in the court. But Judge Eldon Fallon, who presides over the New Orleans court where the thousands of federal cases are being consolidated, is clearly aware that the case involves many more drywall makers. On the court’s website for the Chinese drywall “Multi-District Litigation” is a page of links to photos of the distinctive identifying markings for 26 different versions of Chinese-made drywall — including 11 types whose makers are unknown.

Source: Southern Building Material Association, December 30, 2009