Another SILO Pulled Down


A district court upheld the IRS’s denial of deductions by two large banks from a sale in, lease out (SILO) transaction, continuing a string of victories by the Service against the one-time promoted shelter. The opinion by the court for the Northern District of Ohio against KeyCorp and PNC Financial Services Group cited the decision a month earlier by the Fourth Circuit regarding a lease in, lease out (LILO) strategy employed by another bank, BB&T (101 AFTR2d 2008-1933, “ Tax Matters: LILO Comes Up One Leg Short,” JofA, Aug. 08, page 84).

The IRS moved as long ago as 1996 to deny tax benefits of LILOs, which the plaintiffs in the instant case had participated in until 1999, when the IRS issued Revenue Ruling 99-14 designating them as abusive shelters. “One might have thought that banks would step away from similar transactions,” the court said. Instead, AWG Leasing Trust, a partnership of the two banks, paid $423 million in 1999 to purchase a German waste incineration facility, with a long-term leaseback provision and repurchase option granted to the seller. The court upheld the Service’s $88 million tax deficiency for tax years 1999–2003. Congress outlawed SILOs in 2004, but many previous deals remain in effect, the court said. The case is AWG Leasing Trust v. U.S. (101 AFTR2d 2008-2397).

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