Why Sprint’s losses may be a multi-year tax gift for a new T-Mobile US
Sprint’s losses may make for an advantageous tax situation if or when the a combined Sprint-T-Mobile US company passes regulatory review. Bloomberg Tax reports that Sprint’s net operating loss as of March 31, 2017 qualifying for federal tax carryforwards was $16.4 billion, which will likely give the combined company a hefty tax break.
T-Mobile US CFO J. Braxton Carter admitted as much in an April 29 conference call when he said new T-Mobile US “will not be a significant taxpayer until 2025.”
A carryforward allows a company to apply net operating losses to a future year to reduce tax owed when the company makes money. According to Bloomberg Tax, portions of Sprint’s net operating losses may be last as long as 20 years.
Although T-Mobile US and Sprint announced their intent to merge on April 29, the merger needs to pass U.S. regulatory scrutiny before moving forward. Agencies reviewing the deal include the Federal Communications Commission, possibly the Justice Department’s anti-trust division, and the Committee on Foreign Investment in the United States (CFIUS).
T-Mobile US’ 8K filing with SEC says a CFIUS review will be necessary. CFIUS may review the deal because both companies are owned by overseas telecom companies Deutsche Telekom and SoftBank, even though the companies had separately passed CFIUS review when the U.S. approved ownership of the respective telecoms by Deutsche Telekom and Softbank. Despite the challenging environment under the Trump administration, which rejected Broadcom’s bid to purchase Qualcomm, the CFIUS hurdle may not be insurmountable because of the prior, separate approvals.
