Citibank 2009 Annual Report Download - page 180

170
The Company has also examined tax planning strategies available to
it which would be employed, if necessary, to prevent a carryforward from
expiring. These strategies include repatriating low taxed foreign earnings for
which an assertion that the earnings have been indefinitely reinvested has
not been made, accelerating taxable income into or deferring deductions
out of the latter years of the carryforward period with reversals to occur after
the carryforward period (for example, selling appreciated intangible assets
and electing straight-line depreciation), holding onto available-for-sale
debt securities with losses until they mature and selling certain assets which
produce tax exempt income, while purchasing assets which produce fully
taxable income. In addition, the sale or restructuring of certain businesses,
can produce significant taxable income within the relevant carryforward
periods.
The Company’s ability to utilize its deferred tax assets to offset future
taxable income may be significantly limited if the Company experiences
an “ownership change,” as defined in Section 382 of the Internal Revenue
Code of 1986, as amended (the “Code”). In general, an ownership change
will occur if there is a cumulative change in Citi’s ownership by “5%
shareholders” (as defined in the Code) that exceeds 50 percentage points
over a rolling three-year period. The common stock issued pursuant to the
exchange offers in July, 2009 and the common stock and tangible equity
units issued in December, 2009 as part of Citigroup’s TARP repayment did not
result in an ownership change under the Code. However, these common stock
issuances have materially increased the risk that Citigroup will experience
an ownership change in the future. On June 9, 2009, the board of directors
of Citigroup adopted a tax benefits preservation plan (the “Plan”). This Plan
is subject to the shareholders’ approval at the 2010 Annual Meeting. The
purpose of the Plan is to minimize the likelihood of an ownership change
occurring for Section 382 purposes. Despite adoption of the Plan, future
transactions in our stock that may not be in our control may cause Citi to
experience an ownership change and thus limit the Company’s ability to
utilize its deferred tax asset and reduce its stockholders’ equity.