BankingFinancial District

Treasury says Doral not entitled to $230M tax refund

Treasury Secretary Melba Acosta (Credit: Puerto Rico Senate) Treasury Secretary Melba Acosta (Credit: Puerto Rico Senate)

Following a “deep analysis,” the Puerto Rico Treasury Department denied Doral Financial Corp.’s request for a refund of $230 million it claims to have overpaid in taxes, voiding an agreement struck in March 2012.

In a statement released late Thursday, the agency said in denying the refund, it is “not breaching valid and binding obligations, but simply has no authority to pay a refund based on an agreement it believes to be null.”

Treasury Secretary Melba Acosta explained that the agreement between the bank and then agency chief Jesús Méndez — who in December 2012 was named executive vice president of operations of the bank’s retail and mortgage banking operations in Puerto Rico — was invalidated because it sought a refund for the nearly $230 million, when the overpayment never happened.

Although the agency usually refrains from commenting on specific taxpayer issues, Acosta broke that silence to say the evidence Doral presented to support its claim did not prove the payments should be reimbursed. The agency informed Doral of the decision, citing among its reasons that when the agreement was signed, refunds had prescribed under the Internal Revenue Code.

That said, Treasury had to review the decisions and conclusions of the 2012 agreement, given certain peculiarities found, including the fact that at the end of accounting fiscal year 2011-12 that agreement had not been recognized in the Commonwealth’s books, and given that it was a multi-million dollar amount, well above the agency’s typical agreements.

“The intention was to turn a potential tax savings resulting from a deduction for the depreciation of an asset into an overpayment of a tax in the amount of $229.8 million, which could be requested by Doral as a reimbursement to be paid in 5 years,” Acosta said. “This despite the fact that Treasury records did not show that Doral Financial Corp or its subsidiaries had paid excess contributions in that amount, which were supposed to be refunded.”

“In other words, that amounts to taking the future depreciation of an asset, and that the Treasury Department will pay in the present for the future tax savings that may be obtained from such depreciation,” she said. “Furthermore, to be able to achieve the possible tax savings, it was necessary that Doral had profit and therefore could take advantage of the tax savings.”

Doral, which has 30 days to appeal the agency’s decision, said Thursday it is evaluating its legal options in connection with the letter the agency sent and “anticipates taking appropriate action to protect its legal rights.”

“This unilateral action raises serious questions as to whether the government will make good on its promises and honor its legal agreements. Everyone is aware of the government’s tight fiscal situation,” the bank said in a statement. “But the way out of it cannot be for the government to default on its obligations and damage its credibility for generations to come.”

As previously announced, Doral is developing a revised capital plan intended to enable it to remain in compliance with the requirements of its regulators, namely the Federal Deposit Insurance Corporation and the Puerto Rico Financial Institutions Commissioner.

Among other things, this revised plan is intended to address a recent determination by the FDIC regarding the treatment of tax receivables from the Government of Puerto Rico. Doral noted that its customer deposits are FDIC-insured to the fullest extent of the law for up to $250,000 per depositor.

Comments (1)

  1. So, does this mean I can stop paying my debts because I think that they’re null?

Comment here