FDIC Attempting to Block $1.4 Billion Tax Refund for JP Morgan Chase (NYSE: JPM)

The Federal Deposit Insurance Corporation is seeking to block a proposed $1.4 billion tax-refund for JP Morgan Chase & Co.

JP Morgan Chase received the tax benefit after the FDIC seized Seattle-based Washington Mutual and sold its bank assets to JPMorgan for $1.9 billion. The large-cap bank has been involved in Washington Mutual Inc’s bankruptcy reorganization proceeding and reached a compromise earlier in the month with the FDIC in which JP Morgan Chase agreed to turn over $4 billion in disputed Washington Mutual deposit accounts in return for a portion of tax refunds expected from the fallen bank’s previous operating losses

JP Morgan Chase would get the right to $1.4 billion and the creditors of the failed bank’s holding company would get the remaining $2.7 billion of the $4.1 billion refund.

Under a little-known provision from the stimulus package, companies that lost money can use their previous losses to get refunds from taxes paid in the previous five years. The stimulus package also prevents companies receiving federal bailout aid from being able to make use of the write-off.

Washington’s bankruptcy organization plan filed on Friday for Washington Mutual which has been approved by a federal bankruptcy judge which affirms that JP Morgan Chase can rightfully take the $1.4 billion tax refund, but the FDIC disagrees.

“The FDIC is working with all parties involved to reach agreement with respect to all terms of the proposed settlement,” the agency said in a statement Monday. The plan submitted Friday “do not reflect the continuing discussions among the parties,” it said.