FOR IMMEDIATE RELEASE|
TUESDAY, APRIL 29, 2008
TDD (202) 514-1888
STATEMENT OF ASSISTANT ATTORNEY GENERAL NATHAN J. HOCHMAN ON TODAY’S DECISION IN BB&T CORPORATION v. UNITED STATES
WASHINGTON – The Court of Appeals for the Fourth Circuit today agreed with a federal district court that BB&T Corporation (BB&T) is barred from obtaining a tax refund of approximately $4.5 million. The appeals court ruled that BB&T was not entitled to any tax deductions relating to a complex leasing transaction between that company and Sodra Cell, AB, a Swedish wood pulp manufacturer.
BB&T purportedly leased pulp manufacturing equipment from Sodra Cell and immediately leased it back to Sodra Cell. Sodra Cell never lost possession and control of the equipment. In January 2007, a federal district court found that the lease and lease-back arrangement completely offset each other and that the parties transferred no significant incidents of ownership. BB&T was thus denied all tax deductions it had claimed with respect to the transaction.
BB&T appealed the district courts order. The Fourth Circuit agreed with the district courts ruling, holding that the transaction was in substance a financing arrangement, not a genuine lease and sublease. In closing, the Fourth Circuit referred to Abe Lincolns riddle . . . ‘How many legs does a dog have if you call a tail a leg? . . . . The answer is ‘four, because ‘calling a tail a leg does not make it one.
This type of leasing arrangement is commonly known as a Lease-In, Lease-Out (LILO) transaction. The government has prevailed in both of the LILO tax shelter cases that have been decided in court. On April 18, 2008, a federal jury in Cincinnati, Ohio, found that Fifth Third Bancorp was not entitled to a $5.6 million refund in a similar LILO transaction.
Taxpayers seeking to hide behind bogus paper transactions should think twice. Today, taxpayers have once again been told by a federal court that the Government may look at the substance, rather than the form, of a transaction to determine its legitimacy for tax purposes, said Nathan J. Hochman, Assistant Attorney General of the Justice Departments Tax Division.
Hochman thanked Tax Division attorney Judith Hagley, who handled the case on appeal for the United States. He also thanked Tax Division attorneys Angelo Frattarelli and Jennifer Best, who handled the case in the district court on behalf of the United States. He also thanked the Internal Revenue Service attorneys, including Diane Mirabito, David OConnor and John Aramburu, who assisted them.