On July 10, 2009, the Department of Justice issued a press release regarding the verdict in a Federal Court case regarding lease-in, lease-out (LILO), and sale-in, lease-out (SILO) tax shelters. The case involved a tax refund claim filed by Altria Group, Inc. Altria Group claimed the tax refund based on the purported tax shelter characteristics of the LILO and SILO investments.
According to the Justice Department, Altria claimed ownership of four investment properties, which were owned by tax-indifferent entities (i.e., entities that do not generally pay federal taxes), for the purpose of taking the tax deductions which those entities could not. In order to validly obtain the tax deductions, the entity must actually own the property. At issue in trial were the characteristics necessary to show ownership and whether Altria’s interests could be considered ownership under those characteristics. Altria claimed it met the tests. However, the jury found that Altria never acquired the benefits and burdens of ownership and that the transactions lacked economic substance. The jury accordingly rejected Altria’s $24 million refund claim.
The Justice Department reports that investors put money into hundreds of LILOs and SILOs in the late 1990s. There may be billions of dollars in claimed tax deductions from these type of tax shelters. The Justice Department reports that it has won in all four court cases in which the tax shelter was rejected and the tax deductions disallowed.