Citi's repayment of government bailout money, greeted Monday as being a bit premature and overambitious, turns out to have a major, hidden upside for the bank: the federal government will effectively give Citi a $38 billion tax break by allowing the company to claim all of its crisis-era losses as future tax deductions. This news, Politics Daily's David Sessions points out, "casts the deal in a different light." Populist bloggers are howling, while moderates try to figure out just how bad the government looks after these revelations. Here are the conclusions:

• Great Deal for Citi Financial commentator Barry Ritholtz calls it a "terrible deal" for taxpayers:
  

The Treasury Department, via the IRS, has made a terrible deal with Citigroup for TARP repayment: They repay $20 billion in TARP money, and in exchange we give them keep $38 billion in tax abatements. WTF?

• A Fine Tax Policy Applied Poorly Banking specialist Edward Harrison at Credit Writedowns goes into the background of the deal. The summary: there's a policy that "if a company loses money in one year," then makes a killing the next year, it can use some of its prior losses to lower the tax on the second year's profit. "This tax treatment," writes Harrison, "is designed to level the playing field for cyclical companies that operate at a loss for part of the business cycle." But in order to prevent predator companies from profiting from this policy, buying another company purely to "gain a tax benefit from [the other company's] huge net operating losses," the IRS "limits how much of the [net operating losses] a company can use post-merger." The issue here is that "the government's 34 percent stake in Citi is enough to count as a change of control under tax law in the event of sale. A sale of that stake by the government should reduce the $38 billion in deferred tax assets that Citigroup has on its balance sheet, meaning they should have to write this down immediately." Instead, the government is exempting Citi from this payment. So should taxpayers be mad? Well, "in all fairness," Harrison admits, the concept that Citi should pay more taxes to the government as a result of that very government selling a controlling interest is a bit twisted." Still, "experts," he reports, "calculate this decision will cost the treasury several billion dollars. Personally, I am astounded that the handouts keep coming."

• Explains Pandit's Satisfaction "A couple of days ago," writes New York Magazine's Adam Raymond, "when Citigroup reached its deal to pay back $20 billion of TARP funds, CEO Vikram Pandit sounded like a man who was pretty pleased with himself." Now, Raymond says, "we found out part of the reason why he feels so good."
  

• Makes TARP Look Good 'On Paper' Guest posting at the famed Naked Capitalism, blogger Jesse sardonically points out that "at least [the exemption] will make the results of the TARP program look better on paper if it drives up Citi's stock price by inflating their financial results."

• Makes Matt Taibbi Look Even Better Chris Ryan suggests the story supports the theory of the much-maligned Matt Taibbi "in the recent Rolling Stone article that highlights the extensive ties to Robert Rubin and Citi inside the Obama economic team. The conflicts of interest have been there all along and even before Obama was sworn in."

Want to add to this story? Let us know in comments or send an email to the author at hhorn at theatlantic dot com. You can share ideas for stories on the Open Wire.
Heather Horn