Highway Bill Contains Further Measures Against Corporate Tax Shelters

by Mike Godfrey, Tax-News.com, Washington

12 May 2005

Measures to stamp out some corporate tax shelters have been added to a $295 billion highway bill pending in the Senate.

The 180-page bill, which includes items dealing with excise taxes, alcohol tax and fuel taxes, contains just under $20 billion in revenue raising items added by the Senate Finance Committee in order to boost highway spending without adding to the budget deficit.

The most crucial of these measures is the "economic substance" doctrine to prevent firms from entering into transactions that have no economic basis, used solely in order to produce a tax gain.

According to Senate Finance Committee Chairman Charles Grassley, who has led the charge against corporate tax sheltering in recent times, particularly on the issue of SILOs (sale in lease out) arrangements, the new legislation will end "an exceedingly generous transition rule permitting leasing tax shelter abuse in the transportation sector."

The bill also modifies the tax treatment of contingent payment convertible debt instruments, raising $462 million through 2015. This is designed to curtail a financial product tax strategy that allows debt issuers to claim an enhanced interest deduction.

Other measures will compel company bosses to sign a declaration that the firm's tax return is fully compliant with the law, and create a 'whistleblower's office' at the Internal Revenue Service allowing the agency to deal more effectively with those volunteering "valuable information about tax violations."

This latter provision will raise an additional $407 million in revenues through 2015.

Recommended