TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, August 10, 2014

NY Times: A Corporate Tax Break That’s Closer to Home

New York Times:  A Corporate Tax Break That’s Closer to Home, by Gretchen Morgenson:

Rage is rising over American corporations that chop their tax bills by acquiring entities in lower-tax countries. Medtronic, AbbVie and Mylan have all announced such plans — known as inversions — in recent months. And Walgreen was poised to relocate to Switzerland after it completes its purchase of Alliance Boots, but did an about-face last week in the face of widespread denunciation.

Some in Congress have proposed legislation to shut the door on this tax-savings tactic. But across town at the Internal Revenue Service, officials have recently opened the window to another. They did so in a ruling disclosed late last month by Windstream Holdings, a telecommunications company based in Little Rock, Ark.

The ruling allows Windstream to spin off its copper and fiber network into a real estate investment trust, or REIT. That sounds pretty ho-hum until you realize it means that Windstream won’t have to pay hundreds of millions of dollars in taxes. ...

How did the I.R.S. conclude that a telecom network is a real estate asset? As with all things tax-related, the details are somewhat complicated. ...

Robert Willens, an expert on taxes and accounting and author of The Willens Report, predicted that electric utilities, cable operators and other telecoms would most likely join the REIT ranks as a result of the I.R.S. stance.

But Mr. Willens also said the I.R.S.’s decision allowing the Windstream spinoff to be tax-free meant that almost any company whose business involved real estate would be able to reduce its tax obligation by shifting taxable income derived from those assets to a nontaxable REIT entity. “Any sort of business in which real estate is an important factor — retailing, for example — could separate the real estate from the operating business on a tax-free basis,” he said. “So it strikes me as almost unlimited what can be done here.”

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