Bush Signs Tax Cuts, But Will Leasing Volume Grow?
Although the tax cut of about $350 billion amounted to a fraction of what President Bush wanted, the President did deliver modest incentives for business. The question for the leasing industry is: Will the incentives jump-start capital investment and thereby increase the volume of equipment leasing this year?
While the answer won’t be known for a while, President Bush signed the
Jobs and Growth Tax Relief Reconciliation Act of 2003 (the Act) on May 28, 2003. The government estimates that the resulting tax cuts and spending could generate stimulus of $210 billion for the economy in the next two years. This stimulus amounts to approximately one percent of the expected gross national product over that period.
*Tip: For a brief investor-oriented summary of the Act, click on
Summary. For the detailed analysis by the conference committee in Congress, click on
Conference Review and
To encourage investment, the Act contains two primary incentives. First, it provides for speedier bonus depreciation. Second, it allows small business to take larger immediate write-offs for certain investments.
The Act increases the existing first-year "bonus" depreciation deduction from 30 percent to 50 percent for qualifying property placed in service after May 5, 2003 and before January 1, 2005. A taxpayer may elect out of the 50 percent additional first-year depreciation deduction for any class of property for any taxable year. Property subject to a written binding contract before May 6, 2003 is excluded from increased depreciation under the Act.
The Act also extends the sunset date for investments to qualify for bonus depreciation from September 11, 2004 to January 1, 2005. Taxpayers may also continue to use 30 percent bonus depreciation for qualifying property acquired and placed in service before January 1, 2005 under the
Job Creation and Worker Assistance Act of 2002 (Public Law No.107-147).
*Terms to Know: The term placed in service generally means the time when property is ready for use or is in use for its intended purpose.
Qualifying property is generally defined as depreciable tangible personal property that is purchased for use in the active conduct of a trade or business.
The bonus depreciation provision is intended to provide an investment stimulus by increasing the rate of bonus depreciation by almost 67 percent. Businesses that invest to grow and expand will benefit from this provision. The Act also provides an investment stimulus for projects that require a longer lead-time for planning and production by extending the qualifying period for bonus depreciation.
*Technical Point: The rules with respect to placing property in service are the same as the rules for the 30 percent bonus depreciation. Watch out for sale-leaseback arrangements. If the property sold does not qualify for the higher first-year depreciation, the sale lease-leaseback will not qualify that property for the higher first-year depreciation. Existing sale-leaseback benefits under 167(k)(2)(D)(ii) apply. Further, the Conference Report states that like-kind exchange property might qualify for the 50 percent bonus depreciation. Though a Conference Report is not the law, the IRS often relies on these reports in drafting regulations. You should not rely upon the Committee Reports as controlling legal authority.
Differing interpretations of law already exist with respect to tax cuts on capital equipment, including aircraft. For example, a new business aircraft operating under Part 91 qualifies for the increased depreciation if a user (lessee) first places the aircraft in service after May 5, 2003 and before January 1, 2005, regardless of the cost of the aircraft. By contrast, a commercial aircraft subject to Part 135 or 121 of the Federal Aviation Regulations qualifies if (1) a user (lessee) first places it in service after May 5, 2003 and before January 1, 2006, (2) the aircraft costs at least $1 million to construct, and (3) the aircraft takes at least 12 months to construct. For more on aircraft, click on
NBAA Tax Cut Discussion and
*Tip: Consider the timing and value of bonus depreciation. You may trade tax relief today against increased taxes in later years. Bonus depreciation doesn’t increase tax benefits (other than the present value of receiving tax benefits earlier than under prior law); it simply creates a timing difference in realizing the benefits earlier. Accordingly, some lessors have not taken bonus depreciation due to the uncertainty of their tax appetite or their reluctance to cope with higher taxes resulting from fewer tax benefits in later years of a lease investment. As a lessor, if you accelerate tax benefits, the greater write-offs can enhance your yield significantly, depending upon the depreciation class of your leased property and your tax rate. Some lessors have even taken the benefits without passing them on to their lessees, making bonus depreciation an attractive way to increase after-tax yield and cash flow.
Small Business Expensing
Prior to passage of the Act, a taxpayer could elect to deduct up to $25,000 (for taxable years beginning in 2003 and thereafter) under Section 179 of the Code, in lieu of depreciation, of the cost of qualifying property placed in service for the taxable year. The $25,000 amount would be reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $200,000. A taxpayer could elect to expense these items, but could revoke the election only with the consent of the IRS Commissioner. In general, taxpayers could not elect to expense off-the-shelf computer software because it constituted intangible property under Section 179(d)(1) of the Code.
The Act increases small business expensing for new investment. The amount of investment that may be immediately deducted by small business increases from $25,000 to $100,000. Certain computer software now qualifies for the write-off. The amount of investment qualifying for this immediate deduction begins to phase out for small businesses with investments in excess of $400,000 (increased from $200,000). Both parameters are indexed for inflation beginning in 2004. These changes are effective for property placed in service in taxable years beginning in 2003, 2004 and 2005. As under prior law, the benefits are elective. A taxpayer electing the benefits of Section 179 may now revoke his election, but once revoked, it is final; the revocation is irrevocable.
These provisions have stirred some controversy and concern among small ticket lessors and leasing commentators. In the May 28, 2003 issue of Kit Menkin’s
Leasingnews.org, Menkin published commentary by lease training expert and author,
Taylor, who earlier wrote an article titled: “Kiss Small Ticket Leasing
Goodbye.” Taylor’s view seems to be that the new law will preempt leasing opportunities because the new write-off makes buying more attractive than leasing. Contrary views suggest that a limited group of small businesses can or will use the new tax benefits through purchasing equipment, leaving room for small ticket leasing to grow under the new law.
I would like to thank George Schutzer, and
Parrish, two of my tax partners, for commenting on this article.
Transactions Evolve as Off-Balance Sheet Rules Take Effect
For many public companies, June 15, 2003 marks the beginning of their full compliance with the financial reporting requirements of
FASB Interpretation No. 46—“Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (FIN 46), issued by the Financial Accounting Standards Board (FASB). These companies are not alone in taking new steps to respond to FIN 46. The changes reach well beyond FASB and accountants. FIN 46 affects most key players involved in leasing and financing. With increasing frequency, changes now arise in legal documentation, structuring and negotiating lease and other transactions. In effect, many disciplines have become entangled in the web Enron started weaving through its alleged wrongdoing with respect to off-balance sheet transactions. All structuring, documentation and legal processing of lease transactions will continue to adapt to FIN 46. The ideas expressed in this article represent a small part of a work in progress, without much certainty of how FIN 46 really works yet or why certain transaction changes are occurring.
Here are five major areas of change in lease transactions arising out of FIN 46:
1. Due Diligence Expands on Lessors. Lessors now find that they must look into a mirror, with the accountants standing behind them, to reflect on whether the lessor itself is a
variable interest entity (VIE)
or even the primary beneficiary of an entity used in a lease transaction.
*Terms to Know: A primary beneficiary is the enterprise that consolidates a VIE. See: Paragraphs 2(d) and 15 of FIN 46. A primary beneficiary absorbs the majority of the expected losses or receives at least a majority of the expected residual returns. See: Paragraph 2(d) and 6 of FIN 46.
Accountants ask questions of lessors to which the accountants expect written replies about the nature of the assets owned by lessors. They inquire about pecuniary or other variable interests that lessors will obtain, or expected losses a lessor may incur, in a proposed transaction. Even the lessor’s accountants need to analyze the status of a lessor’s portfolio and the impact of new lease transactions that may change a lessor’s status to a VIE or from a voting interest entity into a VIE. A voting interest entity is not subject to FIN 46. Other consolidation rules apply to them. The extent of such due diligence continues to develop in connection with a wide variety of structured finance transactions—leasing being far from alone.
*Warning: As a lessor, you may be asked by accountants to sign documents setting forth conclusory representations and warranties about your status as a VIE or voting interest entity. Avoid making such representations that may be as deceptively simple as: “The undersigned lessor is not a variable interest entity.” Such a conclusion may require complex accounting determinations and judgment. Lessors should insist that their accountants make that determination. Lessors can, and probably should expect to, provide facts in writing to accountants for purposes of enabling accountants to make consolidation decisions.
2. Accountants Negotiate Legal Documents. FIN 46 has pushed accountants to perform more like lawyers. Accountants now seem to read and actively negotiate documents on behalf of their lessee-clients with the intent to minimize or avoid the effects of FIN 46. For example, accountants may negotiate provisions in a synthetic lease to remove any material adverse change defaults on behalf of the lessee to more accurately identify the primary beneficiary or manage variable interests.
3. Lawyers Work the Accounting Rules. Lawyers have often ducked when accounting issues arose in transactions and pointed to the accountants to dispose of accounting concerns. FIN 46 now requires lawyers to become involved in structuring, negotiating and documenting deals under the new accounting principles and rules. For example, when a VIE is created or exists in a deal, lawyers should be prepared to address a host of consolidation and/or accounting issues during structuring and completing the deal.
4. Lease Terms Change. Changes in the accounting rules have begun to alter lease terms. Accountants and lessees now focus on the importance of VIEs and primary beneficiaries, to prevent an unwanted consolidation or deconsolidation of any entity. To avoid undue control of any entity by a lessor, manage variable interests and ascertain primary beneficiary among other FIN 46 issues:
Lessees may ask that lease terms provide more objective standards of enforcement by
Lessees and lessors may provide each other periodic reports or representations about their status as a VIE or primary beneficiary.
Financial reporting under leases by lessors and lessees relating to VIE and primary beneficiary status, or events that may change that status, may become more common.
Default provisions may limit lessor discretion and increase objective or commercially reasonable standards to address how control is exercised over an entity involved in a lease transaction.
Lessees may try to limit lessor transfers of interests in leases without lessee approval because certain transfers or transaction changes can alter the primary beneficiary.
FIN 46 drives almost every aspect of these new provisions. Lease
negotiations will continue to evolve under FIN 46.
*Tip: At the 2003 ELA Legal
Forum, lawyers began to evaluate and appreciate the extent of the changes. Lawyers can’t avoid this stuff. It’s not just for accountants any more. To purchase relevant handouts from the Equipment Leasing Association, click on
5. Transaction Structuring Reflects New Accounting Rules. The days of using special purpose entities (SPEs) with little concern for accounting rules have largely disappeared. While FIN 46 has not eradicated SPEs, SPEs often constitute VIEs. In other words, any time VIEs exist or are created, whether in an SPE or other entity or asset (such as a “silo”), lawyers, accountants, investment bankers and others should focus on structuring. For example, synthetic leases no longer work well, if at all, in an SPE under the new accounting rules. The lessee has the greatest share of variable interests and must consolidate the SPE unless the SPE has sufficient equity to prevent consolidation. Since lessees usually want to keep synthetic leases off of their balance sheet, FIN 46 deters the use of structures that forces a lessee to consolidate a VIE (such as a synthetic lease within an SPE lessor). Other structures are developing such as joint ventures and dispersed variable interest arrangements spawned by FIN 46.
*Tip: Don’t forget about the impact of FASB's Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
45). This Interpretation requires that balance sheets recognize certain guarantees as liabilities or at least disclose the terms of those guarantees. For the basics on FIN 45, see:
Introduction to Guaranty
Banks Worry About Impact of Latest Basel Capital Accord
The Basel Capital Accord has existed since 1988, but on April 29, 2003, the Basel Committee on Banking Supervision released its third major changes that worry and significantly impact approximately twenty
of the largest U.S. banks. According to the Federal Reserve, these U.S banks account for approximately 67 percent of all U.S. bank assets and 99 percent of U.S. bank assets held internationally. Some U.S. bank lessors will fall within this group. Although the New Accord takes effect in 2006, banks will need time to develop internal systems to adapt to the new rules.
*Action Item: The changes appeared in the Committee’s
third consultative paper
to its proposed new Basel Capital Accord (New Accord or Basil II). The Basel Committee will take comments on the consultative paper until July 31, 2003 at
BCBS.Capital@bis.org and intends to finalize the New Accord by the fourth quarter of 2003.
The Original Basel Capital Accord
In 1988 the Basel Capital Accord (Original Accord) established global standards for determining a bank’s minimum capital set-aside requirements. In essence, the Original Accord provides for minimum capital adequacy requirements worldwide for affected banks. The Original Accord is based on the concept of a capital ratio where the numerator represents the amount of capital a bank has available and the denominator is a measure of the risks faced by the bank and is referred to as risk-weighted assets. The resulting capital ratio may be no less than 8 percent. The Original Accord, sometimes called Basel I, affects many U.S. banks. The amount of capital set aside can increase or decrease pricing of bank financial products and limit exposure to certain credit risks (companies using credit). In short, the New Accord can impact competition among banks worldwide.
The New Basel Capital Accord
The New Accord creates a more flexible and comprehensive framework for capital regulation. It will replace the Original Accord and consists of three pillars: (1) minimum capital requirements, (2) supervisory review of capital adequacy, and (3) public disclosure.
Under the New Accord, the regulations that define the numerator of the capital ratio (that is, the definition of regulatory capital) remain unchanged. Similarly, the minimum required ratio of 8 percent will not change. The modifications occur in the definition of risk-weighted assets, which are the methods used to measure the risks faced by banks. The new approach for calculating risk-weighted assets are intended to provide improved bank assessments of risk and thus make the resulting capital ratios more meaningful. See:
Consultative Paper Text
at page 2, paragraphs 8 and 9.
The potential competitive disadvantages for U.S. financial institutions that arise from changes to the Original Accord has caused U.S. law makers to introduce legislation called the “United States Financial Policy Committee for Fair Capital Standards Act”
(H.R. 2043). The legislation would authorize the formation of a committee responsible for unifying the U.S. position and reporting to Congress on the impact of changes under the New Accord would have on the U.S. and global financial systems.
*Tip: If you are affected by the New Accord, such legislation may provide you an avenue to make an impact on the new global regulations. See: Basel Bill Would Unify U.S. Position, Promote Competitiveness in Capital Accord, BNA Banking Report, Vol. 80, No. 9 (May 12, 2003).
The most important change for the U.S. banking industry relates to new capital that banks must set aside for operational risk. Under the New Accord, operational risk means the risk of losses resulting from inadequate or failed internal processes, people and systems, or external events. See: Consultative Paper at page 8, Paragraph 40. The new framework could increase capital requirements of banks with specialized banking companies or markets, real estate portfolios, securitizations, fraud risk, potential systems failures and even terrorism risks. As a result of these impending rules, banks have begun to improve their risk management capabilities and expand their public disclosure of operational risk. To avoid the impact on capital, banks have argued that these risks should be addressed under pillar (2) above, supervisory review, rather than through the imposition of capital set asides to mitigate operational risk. See: Basel Study Shows Slight Increase In Reserve Requirements for Large
Banks, BNA Banking Report, Vol. 80, No. 19 (May 12, 2003).
Because of the complexity of the New Accord, banks may need to partially adopt the New Accord. That approach will allow banks time to develop controls and systems to implement Basel II. As a result, it is possible that vastly different capital standards or other regulation could simultaneously exist in countries around the world in which a regulated bank does business. Such diverse standards or regulation could create great uncertainty and complexity in international banking and capital standards.
*Warning: The capital reserves may also adversely impact the types of transactions that bank lessors can do competitively and shift volume to less regulated bank lessors.
Numerous other changes will occur under the New Accord including allowing lower capital reserves for certain exposures, developing formula driven reserves for securitizations, creating acceptable internal ratings methodologies and distinguishing credit exposure of small to medium sized enterprise borrowers from larger companies.
*Tip: The point for lessors and lenders is you may now comment on the New Accord until the end of July. If you are an internationally active bank lessor, you should be aware of and influence the direction of the global regulations. Otherwise, the worry over potential impact of the rules may result in concern over competitive disadvantages in the cross-border or international leasing markets for your bank.
Merchant Power Companies Reduce Debt, But Don’t Solve Problems
Power merchants firms have expended tremendous energy to pay down enormous amounts of debt. However, according to a recent update of a report by
Standard & Poor’s,
the power companies have only slowed down the day of reckoning.
In November, S&P reported that twenty-three merchant power companies had $90 billion of debt to pay over the next four years. In April, S&P detailed how these merchants now have $80 billion of debt to pay over the same period with $23 billion due in 2003. See:
Merchant firms have refinanced debt, S&P says, but not cured core
Global Power Report, Col. 1, Page 1 (May 1, 2003).
*Warning: Lessors and lenders face the daunting prospect of mounting losses at the merchant firms as illustrated by the recent bankruptcy filing by NRG Energy. See:
NRG Energy files for Chapter 11 protection to restructure $9.2-billion in outstanding
debt, Global Power Report, Col. 1, Page 1 (May 22, 2003). Asset sales have somewhat mitigated the adverse impact caused by excessive supplies of cheap energy generated by merchant firms. Such sales have in part accounted for a reduction of $10 billion in debt industry-wide from $90 billion to $80 billion. While opportunities exist for good buys on distressed assets, lenders and lessors face the reality that the debt and lease defaults will continue for the foreseeable future.
5. Federal Leasing Gets a Lift from Award of the Boeing Tanker Deal
The Boeing Company racked up another victory recently, and so did the case for leasing by the federal government. In a win for Boeing’s defense contracting business, the U.S. Air Force awarded Boeing a $16 billion dollar contract to build 100 KC-767 aircraft. See:
Boeing Gets Another Boost From the Pentagon, The Wall Street Journal (S.W. Ed.), Page A:11, Col. 1, May 27, 2003. The Pentagon will use these aircraft to start the “recapitalization” of the Air Force airborne fuel tanker fleet. The current fleet consists of approximately 500 aircraft, each of which is about 40 years old. E.C. Aldridge, Jr., the Pentagon’s acquisition chief, emphasized in a recent press conference that the recapitalization will require far more than 100 aircraft and that the Air Force expects to order several hundred tankers from Boeing.
The Advantages of Leasing Prevail
For the leasing industry, this news is intriguing. A Leasing Review Panel at the Pentagon compared the merits and shortcomings of both leasing and purchasing the aircraft. The Secretary of Defense selected leasing and approved the Air Force proposal to enter into a multi-year Pilot Program for leasing general purpose Boeing 767 aircraft under authority of Section 8159 of the Department of Defense Appropriations Act of 2002. Leasing provides the most desirable financing for the military for two primary reasons:
The lease arrangement requires less initial cash outlay from the near-term Defense Department budget. If the Defense Department purchased the aircraft, it would have to reallocate about $8 billion from the Future Years Defense Plan (FYDP) and thereby cause in a loss of military capability.
Leasing accelerates the delivery of the aircraft due in part to quicker availability of lease financing than budget dollars from the Pentagon budgeting process. In addition, Boeing can respond quickly to start on immediate orders of the aircraft with its available production capacity. The aircraft will be delivered from 2006-2011.
The Lease Terms and Structure
Although the final lease documents have apparently not yet been finally negotiated or signed, the Pentagon has managed to improve the financial terms by a substantial margin over the original $29 billion price tag for the aircraft. During that period, the parties have engaged in extensive negotiations of lease terms. The essential lease terms include the following:
1. Fixed Cost Per Unit. Each KC-767 will cost $131 million for the “green” aircraft, a Boeing 767-200C, plus approximately $7 million of leasing financing costs.
2. Cap on Boeing Return. Boeing is entitled to no more than a 15 percent return on sales (ROS). If an aircraft costs more than $131 million, Boeing will absorb the overrun in costs from its profit (if any). If an aircraft costs less than $131 million, Boeing retains only the 15 percent ROS and refunds or credits the balance. This structure assures a firm (lessor’s) cost of the aircraft. Boeing always gets the best deal that any other Boeing 767 customer receives, a most-favored customer status.
3. Fixed Lease Term. The term of the lease of each aircraft is six years, which is a short lease term for an aircraft with a 40-year useful life.
4. Fixed Purchase Option. Boeing has apparently granted the Air Force an option to buy the aircraft at the end of the lease term for a total of $4 billion for the 100 aircraft or $40 million per unit.
5. Special Purpose Entity; Rent and Security. The structure involves the creation of a special purpose entity (SPE) that will be the owner-lessor. Boeing will apparently sell the aircraft to the SPE and receive its profit on sale (in its capacity as the manufacturer). The SPE will obtain bond financing from lenders and secure the repayment with the rents payable by the Air Force at a reported 4.36 percent interest/rent rate.
*Comment: Although this program is unique in federal leasing, it exemplifies the benefits of leasing large dollar assets to the federal government. Secretary of State Rumsfeld’s notion of a “transformational” Pentagon budget reportedly welcomes new ways of doing business based on market-based terms. See:
Creative Deal or Highflying Pork? By Leslie Wayne, New York Times (online), Section 3, Page 1, Col. 1, April 20, 2003. Given the increase in defense spending, coupled with U.S. budget deficits, perhaps it’s time for the federal government to continue using lease products instead of maintaining a bias that it must usually buy its property. After all the effort and political wrangling in this deal, leasing has demonstrated its value as an innovative way to finance large-ticket government property. Other agencies could take a page from the Pentagon’s book in this respect.
6. Leasing 101: What Is The “Economic Substance Doctrine” Under Federal Tax Law?
As the Senate approached the finish line on the President’s tax cut legislation (see
Article 1 above), it attempted to clarify the “economic substance doctrine” by amending Section 7701 of the Internal Revenue Code of 1986, as amended (Code). See pages 32 to 38 of the
Manager’s Report on H.R. 2.
for a full discussion of the doctrine. Ultimately, Congress did not adopt the amendment.
The Code provides specific rules for computing taxable income, including the amount, timing, source and character of items of income, gain, loss and deduction. Taxpayers generally rely on these rules in planning the federal income tax consequences of their transactions. However, the courts have denied tax benefits arising from transactions that were found to lack economic substance. See, e.g.,
ACM Partnership v. Commissioner, 157 F.3d 231 (3d Cir. 1998), aff’g 73 T.C.M. (CCH) 2189 (1997),
cert. denied 526 U.S. 1017 (1999). In essence, a transaction is generally determined to have no economic substance under this doctrine if the transaction is not motivated to obtain a bona fide economic benefit, but solely to reduce taxes.
The courts have also applied the so-called “sham transaction doctrine” and the “business purpose doctrine” to deny tax benefits where, in general, the courts could not identify a business purpose for the transaction except to obtain tax benefits. See, e.g.,
Knetsch v. United States, 364 U.S. 361 (1960) (denying interest deductions on a “sham transaction” whose only purpose was to create tax deductions).
The Senate’s amendment intended to clarify the economic substance doctrine and alleviate inconsistencies in the court decisions in applying the economic substance doctrine. In general, the amendment provided that a transaction has economic substance if the taxpayer establishes that:
the transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer’s economic position, and
the taxpayer has a substantial non-tax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose.
According to the Conference Report, a taxpayer can rely on factors other than profit potential to demonstrate that a transaction results in a meaningful change in the taxpayer’s economic position. However, if a taxpayer relies on a profit potential, the taxpayer should show that present value of the reasonably expected pre-tax profit is substantial in relation to the present value of the expected net tax benefits (if allowed). Moreover, the Conference Report indicates that the profit potential must exceed a risk-free rate of return.
As applied to leasing, a lessor of tangible property subject to a “qualified lease” would generally meet the profit test with respect to the leased property. For this purpose, a lease that satisfies the leveraged lease guidelines (Guidelines) would constitute a “qualified lease. ” The
establish criteria for obtaining an advance ruling purposes from the IRS that a lease is a "true lease" as contrasted with a loan or conditional sale. The Senate noted that, if its amendment passed, leveraged leases that comply with present law should not be affected.
Congress could revisit this issue later with a clarification of the economic substance doctrine as part of its effort to limit purportedly abusive tax shelters. Such an effort could result in requiring all leases to comply more strictly with the Guidelines to avoid failing the economic substance doctrine tests. The Senate action alarmed leasing professionals. On May 20, 2003, Mike Fleming, President of the Equipment Leasing Association, wrote a
letter to Secretary John W.
Snow, which said in part that “(t)he bill states that leasing tax benefit will not be respected until and unless the IRS authorizes such benefits. As a result, there are no assurances that any current leasing transaction would be respected if the economic substance proposal were adopted.” The leasing industry must remain vigilant should this issue rise again to preserve tax leasing for the future and avoid excessive restrictions to Guidelines criteria for standard leasing deals.
I would like to thank Michael
Parrish, one of my tax partners, for commenting on this article.
7.BLN Briefs: SEC Off-Balance Sheet Rules; Cape Town Treaty Progresses; IRS Chases LILOs
SEC Off-Balance Sheet Disclosure Rules Take Hold. Starting with the fiscal years ending after June 15, 2003, public companies must comply with the off-balance sheet arrangement disclosure requirements in registration statements, annual reports and proxy or information statements. The rules arise out of Section 401(a) of the Sarbanes-Oxley Act. Effective April 7, 2003, these disclosure rules include a separately captioned section in Management’s Discussion and Analysis (MD&A) highlighting the disclosures for readers. For the SEC discussion, click on:
Cape Town Treaty Progresses. U.S. Ambassador Tony P. Hall signed the Cape Town Convention in May, clearing the way for the U.S. Congress to sign up the new rules as early as this year. The rules will facilitate cross-border, asset-based financing and leasing of aircraft, rail and space assets. For a more on the convention, click on:
EXIM Supports Cape Town
and Cape Town Basics.
IRS Chases LILOs. Abusive lease in/lease out transactions don’t top the list of popular IRS transactions. Now the IRS is planning a wide-ranging campaign to go to court against taxpayers with abusive LILOs rather than settling abusive tax shelter cases, according to Chief Counsel B. John Williams. For more on abusive tax shelters, click on:
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