Two sources familiar with bailout terms said the company has asked Congress to address the matter in economic stimulus legislation, which is expected to be finalized by mid-February.

GM and its allies in Congress believe it makes little sense for the bailout to generate a massive cash liability, especially when the government demands the company cut expenses, according to the sources.

GM declined comment.

The House of Representatives made no tax changes for GM in its massive $825 billion stimulus package approved on Wednesday. However, the tax issue could be addressed in eventual negotiations with the Senate on a compromise stimulus bill.

The Senate will begin debating its version of the stimulus package next week.

Lawmakers have also discussed the issue with Treasury Department officials to see whether a fix should be handled administratively or through legislation, a congressional aide said. A decision from Treasury could come next week.

GM has lobbied members on the income tax liability, which is related to its use of stock to reduce debt and preserve liquidity, the sources said.

The company is trying to halve its $60 billion debt by offering equity to bondholders. GM also wants to fund part of a health care trust for retired union workers with shares, rather than cash.

Bailout legislation that died in Congress included a provision that would have allowed GM to avoid the tax bill, but the rescue package eventually approved by the White House and Treasury officials in December did not.

GM has received $9 billion of $13.4 billion in promised bailout loans from the government's corporate rescue fund. Chrysler received $4 billion.

Both companies must submit restructuring plans to the government by February 17 and demonstrate their longer-term viability by March 31.

Chrysler LLC, which is privately held and also received bailout funds, does not face a similar tax liability.

(Reporting by John Crawley; Editing by Bernard Orr)