Jeffrey Paravano, Firmwide Chair of Baker Hostetler's Tax Group, was quoted in an April 1, 2009, Seattle Times article, "WaMu staff Promised Retention Bonuses to Aid JPMorgan Transition May Face Big Tax." The article was also posted to the United Press International website.
According to the article, hundreds of former Washington Mutual employees, expected to lose their jobs this year after working temporarily as part of JPMorgan Chase's transition team, could be caught in the "congressional shotgun blast" aimed at recouping multimillion-dollar bonuses paid to executives at insurance giant American International Group. The retention bonuses JPMorgan Chase promised those workers to get them to remain during the transition would be taxed heavily under either of two bills in the Senate.
Paravano, a former Treasury Department official, estimated that 10,000 people nationwide would come under the proposed Senate bill, as opposed to 1,000 or so under the House bill (which has already passed the House and is in the Senate). A similar situation to the WaMu one exists in Cleveland, whose National City Bank was bought by PNC Financial Services Group after PNC received nearly $7.6 billion in bailout money. PNC asked several hundred National City workers to stay on temporarily to smooth the transition, Paravano said.
Paravano said the bills appear to have been drawn broadly to avoid unconstitutionally penalizing a narrow group of people—in this case, AIG executives. "Clearly, the purpose of the legislation originally was AIG," Paravano said. "But Congress knows how to target things, and I think they knew and understood that there were midlevel managers who were receiving smaller bonuses." Still, he said, should either bill become law in its current form, affected individuals could challenge it as a violation of the Constitution's "equal protection" clause—the requirement that government treat similarly situated parties similarly.
"This legislation isn't going anywhere quickly," Paravano said, "and if and when it does move, it likely will be a lot more carefully thought out."