In the last several years, the IRS has reinvigorated its enforcement program. A major part of this has been the IRS’ stepped up efforts to detect and deter aggressive tax shelters. We have been particularly effective in rooting out these tax shelter transactions. And I’ve said publicly that during my tenure here at the IRS, you can expect these efforts to continue. Promoters and participants in aggressive tax shelters should know that the IRS will remain vigilant.
Our success in uncovering tax shelters, however, is just the start of the process of resolving these problems. Today, I’m pleased to announce that the IRS has decided to launch a settlement initiative for both Lease-In/Lease-Out (LILO) and Sale-in/Lease-Out (SILO) transactions. Under the initiative, more than 45 of the nation’s largest corporations that participated in these shelters will receive a letter with the offer. Shelter participants will have 30 days to make a decision to accept the offer.
To refresh everyone’s memory, LILOs and SILOs involved complex and convoluted purported leasing arrangements in which some of the nation’s largest corporations supposedly leased or purchased large assets, such as foreign rail systems or sewer systems, and immediately leased them back to their original owners. Under the arrangement, these corporations, which include companies in the Fortune 500, buoyed their balance sheets by gaining billions of dollars of tax deferrals. Using LILOs and SILOs, these companies, including many of the nation’s top banks, put off the recognition of current income for tax purposes for many years.
The IRS designated LILOs as “listed transactions” in 2000. SILOs were designated in 2005. Since then, the government has gone to court and successfully challenged these deals as having no purpose other than creating tax benefits. But there are hundreds of these transactions that have yet to be fully examined and/or adjudicated. With the government’s recent victories in court demonstrating the strength of our position, the time has come to find the most effective way to resolve these existing disputes. As IRS Commissioner, I believe that the settlement initiative the IRS is offering today achieves this.
The public has a right to expect that large corporations be good corporate citizens and meet their compliance obligations. The nation’s leading commercial enterprises have the legal and accounting resources to take full advantage of favorable provisions of tax law. But they are not entitled to use their extensive resources to twist provisions of tax law to the point that they no longer reflect the Congress’s intent. As a basic matter of fairness to all taxpayers, the IRS cannot allow LILO and SILO deals to stand. The time has come for these shelter participants to put these cases behind them. The best way for them to do so is to act on the settlement offer they will now receive.