Equipment leasing and all things related

Leasing, especially the large ticket segment, has suffered through many attacks over the past several years, as Congress has tightened the availability of tax benefits for lessors. These attacks have been directed towards tax-oriented products such as SILOs, LILOs, and QTEs. Some of these actions, such as the LILO decisions, have resulted in not only additional tax bills, but also large book losses for the lessors involved. The recent FASB Staff Position on leveraged leases has only exacerbated the book problems, while other factors, like the new §470, have created pricing disruption in the marketplace. One firm, however, appears to be taking a proactive stance with its leveraged leases. In a recent 8-K filing with the SEC, Altria Group said that it will record tax benefits of approximately $1 billion in its first quarter, some of which relates to leveraged leases. Apparently, the IRS has concluded its examination of Altria’s tax returns for 1996 through 1999 and issued its final report, known as a Revenue Agent’s Report (RAR). While Altria agrees with most of the provisions of the RAR, it has taken issue with the disallowed benefits pertaining to certain leveraged leases of its leasing unit, Philip Morris Capital Corporation (PMCC), specifically leveraged leases with SILO, LILO, and QTE structures. According to its SEC filing, PMCC believes that the IRS position regarding these leases, as supported by case law described in various Revenue Rulings, IRS Notices, and the recent RAR, is incorrect. While not disagreeing with the content of these IRS pronouncements, PMCC does believe that the IRS has incorrectly applied these positions to its transactions. It feels that the contested transactions, while within the categories targeted by the IRS pronouncements, are factually and legally different from the transactions described therein. Accordingly, PMCC will continue its assertion that its transactions comply with the tax regulations and contest the additional federal income taxes and interest that have been assessed. The significance of PMCC’s position is that many lessors have settled similar assertions made by the IRS. You can find additional information on this issue in Note 19 to the financial statements in Altria’s 2005 Form 10-k. In the meantime, you go for it, PMCC.