FROM THE OFFICE OF PUBLIC AFFAIRS March 11, 1999RR-3014 Today's Lease-In/Lease-Out (LILO) ruling is another important step in our efforts to curb the use of tax shelters and restore fairness and rationality to the tax system. We believe that the LILO transaction is deliberately designed to exploit a tax rule that
mischaracterizes prepaid rent to produce significant tax benefits with little or no real business
risk. The LILO transaction allows U.S. taxpayers to defer or avoid tax on substantial amounts of
income through the use of back-to-back leasing arrangements with foreign parties, often
municipalities. The revenue ruling states that these transactions lack economic substance and
therefore do not generate the tax benefits as promised by its promoters.
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