US Treasury Urges Swift Response To Corporate Lease-Back Tax Loophole

by Leroy Baker, Tax-News.com, New York

13 February 2004

Assistant Treasury Secretary for Tax Policy Pamela Olson has urged legislators to close a tax loophole exploited by corporations in the leasing of public infrastructure to local governments.

"It is essential that Congress deal with this issue," declared Olson addressing the House Ways and Means Committee. "Otherwise, any corporation with the wherewithal to do so could plan itself out of the corporate income tax."

The issue that Olson referred to concerns so called LILO schemes (lease-in lease-out) where municipalities are paid an up-front accommodation fee to lease their infrastructure to a corporation. Critics of these schemes point out that the cash received by the municipality pales in comparison to the federal tax benefits received by the corporations, which are able to depreciate taxpayer-funded bridges, subways, and rail systems as a result of the lease.

"We have every reason to believe that, if left unchecked, this trend will continue and grow," added Olson in her testimony to the tax-writing Committee.

The Treasury Department has calculated that closing this loophole would boost tax revenues by around $33 billion over the next ten years.

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