Senate To Hear Evidence On Comeback Of 'LILO' Tax Shelters

by Mike Godfrey, Tax-News.com, Washington

22 October 2003

According to a report in the Wall Street Journal, Congress is expected to hear testimony from an anonymous witness that a tax sheltering scheme known as LILO (Lease-in, lease-out), a scheme popular in the late 1990’s, is making a comeback despite the government’s best efforts to curb such activities.

If the evidence turns out to contain some substance, then it will be considered a massive blow to the IRS and other agencies that are devoting ever more resources to eliminating tax sheltering activities in a high profile campaign involving many well known firms. This is especially so given that the federal authorities though they had banished LILO transactions with a series of rulings commencing in 1999.

So-called LILO schemes work when a company leases a public building such as a town hall and then leases the property back to the authority that owns and runs the facility. The transaction is beneficial for corporations as it enables them to take advantage of large depreciation allowances on the taxable income.

The Senate hearing is expected to hear from the witness, who is to give evidence behind a screen and through a voice scrambler, that transactions very much akin to LILO deals are becoming popular with municipalities once again as local governments wrestle with tighter fiscal budgets.

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