IRS: Losses Claimed and Income to be Reported from Sale In/Lease Out (SILO)

Coordinated Issue - Losses Claimed and Income to be Reported from Sale In/Lease Out (SILO)


Effective Date: June 29, 2005

Coordinated Issue
All Industries
UIL 9300.38-00

ISSUES

1.
Whether a taxpayer entering into a transaction described in either of the situations discussed below is entitled to deduct currently depreciation under § 168 of the Internal Revenue Code of 1986, as amended, and to amortize transaction costs resulting from its participation in the transaction under § 162, or whether the taxpayer failed to acquire and retain “significant and genuine attributes” of a traditional owner, including “the benefits and burdens of ownership” of the property for U.S. federal income tax purposes.
2.
Whether all or a portion of the Equity Investment (as hereafter defined) made by the taxpayer should be treated under the substance over form doctrine as a financing arrangement.
3.
Whether a taxpayer entering into SILO transaction is entitled to deduct interest
expense resulting from its participation in the transaction under § 163, or whether the deductions are disallowed on grounds that no amount is paid for the use or forbearance of money.
4.
Whether § 6662, the Accuracy-Related Penalty on Underpayments, § 6662A, the Accuracy-Related Penalty on Understatements with Respect to Reportable
Transactions, or § 6707A, the Penalty for Failure to Include Reportable Transaction Information with the Return, apply to SILO transactions.

CONCLUSIONS

1.
A taxpayer entering into a SILO transaction is not e ntitled to deduct currently
depreciation under § 168, or generally to amortize transaction costs resulting from its participation in the transaction under § 162, because such taxpayer does not acquire and retain “significant and genuine attributes” of a traditional owner, including “the benefits and burdens of ownership” of the property for U.S. federal income tax purposes.
2.
A taxpayer entering into a SILO transaction is not entitled to deduct depreciation because with respect to all or a portion of its Equity Investment the SILO is a financing arrangement rather than a true sale -leaseback.
3.
A taxpayer entering into a SILO transaction is not entitled to deduct interest expense resulting from its participation in the transaction under § 163, as no amount is paid for the use or forbearance of money.
4.
a. For tax years ending on or before October 22, 2004, the accuracy-related penalty under § 6662 should be asserted against a taxpayer entering into a SILO transaction only if the taxpayer is unable to establish reasonable cause and good faith under § 6664(c)(1) and the applicable regulations.
b. For tax years ending after October 22, 2004, the accuracy-related penalties under §§ 6662 and 6662A should be asserted against a taxpayer entering into a SILO transaction only if the taxpayer is unable to establish reasonable cause and good faith under §§ 6664(c)(1) and (d), respectively, and the applicable regulations. The penalty for failure to include reportable transaction information under § 6707A should be asserted against a taxpayer entering into a SILO transaction if the taxpayer failed to disclose the transaction under the § 6011 regulations.

FACTS

Described below are transactions in which a U.S. taxpayer (“X”) enters into a purported sale-leaseback transaction with a tax-exempt entity (“FP”), substantially all of whose payment obligations are economically defeased.1 BK1, BK2, BK3, and BK4 are banks. None of these parties is related to any other party, unless otherwise indicated.

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Situation 1

On the closing date of January 1, 2003 ("Closing Date"), X and FP enter into a
purported sale -leaseback transaction under which FP sells the property to X, and X
immediately leases the property back to FP under a lease (“Lease”). The purchase and sale agreement and Lease are nominally separate legal documents. Both agreements, however, are executed pursuant to a comprehensive participation agreement (“Participation Agreement”), which provides that the parties’ rights and obligations under any of the agreements are not enforceable before the execution of all transaction documents.

The Lease requires FP to make rental payments over the term of the Lease (“Lease
Term”). As described below, the Lease also provides that under certain conditions, X
has the option (“Service Contract Option”) to require FP to identify a party (“Service
Recipient”) willing to enter into a contract with X to receive services provided using the leased property (“Service Contract”) that commences immediately after the expiration of the Lease Term. The Service Recipient must meet certain financial qualifications, including credit rating and net capital requirements, and provide defeasance or other credit support to satisfy certain of its obligations under the Service Contract. If FP cannot locate a qualified third party to enter into the Service Contract, FP or an affiliate of FP must enter into the Service Contract. The aggregate of the Lease Term plus the term of the Service Contract (“Service Contract Term”) is less than 80 percent of the assumed remaining useful life of the property.2

On Closing Date, the property has a purported fair market value of $105x and X makes a single payment of $105x to FP. To fund the $105x payment, X provides $15x in equity and borrows $81x from BK1 and $9x from BK2. Both loans are nonrecourse and provide for payments during the Lease Term. Accrued but unpaid interest is capitalized as additional principal. As of the Closing Date, the documents reflect that the sum of the outstanding principal on the loans at any given time will be less than the projected fair market value of the property at that time. The amount and timing of the debt service payments equal or closely match the amount and timing of the Lease payments due during the Lease Term.

FP intends to utilize only a small portion of the proceeds of the purported saleleaseback for operational expenses or to finance or refinance the acquisition of new assets. Upon receiving the $105x purchase price payment, FP sets aside substantially all of the $105x to satisfy its lease obligations. FP deposits $81x with BK3 and $9x with BK4. BK3 usually is related to BK1, and BK4 usually is related to BK2. The deposits with BK3 and BK4 earn interest sufficient to fund FP’s rent obligations as described below. BK3 pays annual amounts equal to 90 percent of FP's annual rent obligation under the Lease (that is, amounts sufficient to satisfy X's debt service obligation to BK1). Although FP directs BK3 to pay those amounts to BK1, the parties treat these amounts as having been paid from BK3 to FP, then from FP to X as rental payments, and finally from X to BK1 as debt service payments. In addition, FP pledges the deposit with BK3 to X as security for FP's obligations under the Lease, while X, in turn, pledges its interest in FP's pledge to BK1 as security for X's obligations under the loan from BK1. Similarly, BK4 pays annual amounts equal to 10 percent of FP's rent obligation under the Lease (that is, amounts sufficient to satisfy X's debt service obligation to BK2). Although FP directs BK4 to pay these amounts to BK2, the parties treat these amounts as having been paid from BK4 to FP, then from FP to X as rental payments, and finally from X to BK2 as debt service payments.3 Although FP's deposit with BK4 is not pledged, the parties expect that the amounts deposited with BK4 will remain available to pay the remaining 10 percent of FP's annual rent obligation under the Lease. FP may incur economic costs, such as an early withdrawal penalty, in accessing the BK4 deposit for any purpose other than those contemplated by the interrelated arrangements.

FP is not legally released from its rent obligations. X's exposure to the risk that FP will
not make the rent payments, however, is substantially limited by the arrangements with
BK3 and BK4. In the case of the loan from BK1, X’s economic risk is remote due to the deposit arrangement with BK3. In the case of the loan from BK2, X’s economic risk is substantially reduced through the deposit arrangement with BK4. X's obligation to make debt service payments on the loans from BK1 and BK2 is completely offset by X's right to receive Lease rentals from FP. As a result, neither bank bears a significant risk of nonpayment.4

FP has an option (“Purchase Option”) to purchase the property from X on the last day of the Lease Term (“Exercise Date”). Exercise of the Purchase Option allows FP to
repurchase the property for a fixed exercise price (“Exercise Price”) that, on the Closing Date, exceeds the parties’ projected fair market value of the property on the Exercise Date. The Purchase Option price is sufficient to repay X’s entire loan balances and X’s initial equity investment and provide X with a predetermined after-tax rate of return on its equity investment.

At the inception of the transaction, X requires FP to invest $9x of the $105x payment in highly rated debt securities (“Equity Collateral”), and to pledge the Equity Collateral to X to satisfy a portion of FP’s obligations under the Lease.5 Although the Equity Collateral is pledged to X, it is not among the items of collateral pledged to BK1 or BK2 in support of the nonrecourse loans to X. The Equity Collateral upon maturity, in some cases combined with the remaining balances of the deposits made with BK3 and BK4 and the interest on those deposits, fully funds the amount due if FP exercises the Purchase Option. This arrangement ensures that FP is able to make the payment under the Purchase Option without an independent source of funds. Having economically
defeased both its rental obligations under the Lease and its payment obligations under
the Purchase Option, FP keeps, as its fee for engaging in the transaction, the remaining
$6x, subject to its obligation to pay the Termination Value (described below) upon the
happening of certain events specified under the Lease.

If FP does not exercise the Purchase Option, X may elect to (1) take back the property, or (2) exercise the Service Contract Option and compel FP either to (a) identify a qualified Service Recipient, or (b) enter (or compel an affiliate of FP to enter) into the Service Contract as the Service Recipient for the Service Contract Term. If X exercises the Service Contract Option, the Service Recipient must pay X predetermined minimum capacity payments sufficient to provide X with a minimum after-tax rate of return on its equity investment. The Service Recipient also must reimburse X for X’s operating and maintenance costs for providing the services.

As a practical matter, the Purchase Option and the Service Contract Option collar X’s
exposure to changes in the value of the property. If the value of the property is at least
equal to the Purchase Option Exercise Price, FP likely will exercise the Purchase
Option. Likewise, FP likely will exercise the Purchase Option if FP concludes that the
costs of the Service Contract Option exceed the costs of the Purchase Option.
Moreover, FP may exercise the Purchase Option even if the fair market value of the
property is less than the Purchase Option Exercise Price because the Purchase Option
is fully funded, and the excess of the Exercise Price over the projected value may not
fully reflect the costs to FP of modifying, interrupting, or relocating its operations. If the
Purchase Option is exercised, X will recover its equity investment plus a predetermined after-tax rate of return. Conversely, if the Purchase Option is not exercised, X may compel FP to locate a Service Recipient to enter into the Service Contract in return for payments sufficient to provide X with a minimum after-tax rate of return on its equity investment, regardless of the value of the property.

Throughout the Lease Term, X has several remedies in the event of a default by FP,
including a right to (1) take possession of the property or (2) cause FP to pay X
specified damages (“Termination Value”). Likewise, throughout the Service Contract
Term, X has similar remedies in the event of a default by the Service Recipient. On
Closing Date, the amount of the Termination Value is slightly greater than the purchase
price of the property. The Termination Value fluctuates over the Lease Term and
Service Contract Term, but at all times is sufficient to repay X’s entire loan balances and X’s initial equity investment plus a predetermined after-tax rate of return. The BK3 deposit, the BK4 deposit and the Equity Collateral are available to satisfy the
Termination Value during the Lease Term. If the sum of the deposits plus the Equity
Collateral is less than the Termination Value, X may require FP to maintain a letter of
credit. During the Service Contract Term, the Service Recipient will be required to
provide defeasance or other credit support that would be available to satisfy the
Termination Value. As a result, X in almost all events will recover its investment plus a
pre-tax rate of return.

For tax purposes, X claims deductions for interest on the loans , amortization of
transaction costs, and depreciation on the property. X does not include the optional
Service Contract Term in the lease term for purposes of calculating the property’s
recovery period under §§ 168(g)(3)(A) and 168(i)(3). X includes in gross income the
rents received on the Lease. If the Purchase Option is exercised, X also includes the
Exercise Price in calculating its gain or loss realized on disposition of the property.
The form of the sale from FP to X may be a head lease for a term in excess of the
assumed remaining useful life of the property and an option for X to purchase the
property for a nominal amount at the conclusion of the head lease term. In some
variations of this transaction, the Participation Agreement provides that if X refinances
the nonrecourse loans, FP has a right to participate in the savings attributable to the
reduced financing costs through renegotiation of certain terms of the transaction,
including the Lease rents and the Purchase Option price.

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Situation 2

The facts are the same as in Situation 1 except for the following. The Lease does not
provide a Service Contract Option. In lieu of the Purchase Option described in Situation 1, FP has an option (“Early Termination Option”) to purchase the property from X on some fixed date (e.g., 30 months) before the end of the Lease Term (“ETO Exercise Date”). Exercise of the Early Termination Option allows FP to terminate the Lease and repurchase the property for a fixed exercise price (“ETO Exercise Price”) that on the Closing Date exceeds the projected fair market value of the property on the ETO Exercise Date. The Early Termination Option price is sufficient to repay X’s entire loan balances and X’s initial equity investment plus a predetermined after-tax rate of return on its equity investment. The balance of the Equity Collateral combined with the balance of the deposits made with BK3 and BK4 and the interest on those deposits fully fund the amount due under the Early Termination Option.6

If FP does not exercise the Early Termination Option, FP is required to obtain at its cost residual value insurance (“RVI”) for the benefit of X, pay rents for the remaining Lease Term, and return the property to X at the end of the Lease Term (“Return Option”). The RVI must be issued by a third party having a specified minimum credit rating and must provide that if the actual residual value of the property is less than a fixed amount (“Residual Value Insurance Amount”) at the end of the Lease Term, the insurer will pay X the shortfall. On the Closing Date, the Residual Value Insurance Amount is less than the projected fair market value of the property at the end of the Lease Term. If FP does not maintain the RVI coverage as required after the ETO Exercise Date, FP will default and be obligated to pay X the Termination Value. If FP does not exercise the Early Termination Option, the rents for the remaining Lease Term plus the Residual Value Insurance Amount are sufficient to provide X with a minimum after-tax rate of return on the property, regardless of the value of the property. As a practical matter, the Early Termination Option and the Return Option collar X’s exposure to changes in the value of the property. At the end of the Lease Term, FP also may have the option to purchase the property for the greater of its fair market value or the Residual Value Insurance Amount.7

For tax purposes, X claims deductions for interest on the loans , amortization of
transaction costs, and depreciation on the property. X treats a portion of the property as qualified technological equipment within the meaning of § 168(i)(2). X depreciates that portion of the property over five years under § 168(g)(3)(C). X treats a portion of the property as software. X depreciates that portion of the property over 36 months under § 167(f)(1)(A).

X includes in gross income the rents received on the Lease. If the Early Termination
Option or an end -of-lease-term purchase option is exercised, X also includes the
exercise price in calculating its gain realized on disposition of the property.8
In some variations of this transaction, if the Early Termination Option is not exercised,
the Lease rents payable to X may increase for the portion of the Lease Term remaining after the ETO Exercise Date.

ANALYSIS

The substance of a transaction, not its form, governs its tax treatment. Gregory v.
Helvering, 293 U.S. 465 (1935). In Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978), the Supreme Court stated that “[i]n applying the doctrine of substance over form, the Court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed.” The Court evaluated the substance of the particular transaction in Frank Lyon to determine that it should be treated as a saleleaseback rather than a financing arrangement. The Supreme Court described the transaction in Frank Lyon as “a genuine multiple-party transaction with economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features that have meaningless labels attached.” Frank Lyon, 435 U.S. at 584. The Court subsequently relied on its approach in Frank Lyon to recharacterize a sale and repurchase of federal securities as a loan, finding that the economic realities of the transaction did not support the form chosen by the taxpayer. Nebraska Dep’t of Revenue v. Loewenstein, 513 U.S. 123 (1994).

A sale-leaseback will not be respected unless the owner/lessor acquires and retains
“significant and genuine attributes” of a traditional owner, including “the benefits and
burdens of ownership.” Coleman v. Commissioner, 16 F.3d 821, 826 (7th Cir. 1994) citing Frank Lyon, 435 U.S. at 582-84). Considering the totality of the facts and circumstances in the transactions described in Situations 1 and 2, X does not acquire presently the benefits and burdens of ownership, and consequently cannot claim tax benefits as the owner of the property. The transactions described above are, in substance, fundamentally different from the sale-leaseback transaction respected by the Court in Frank Lyon.

First, in Frank Lyon, the sales proceeds were used to construct the lessee's new
headquarters. In contrast, in the transactions described above, substantially all of the
$105x sales proceeds is immediately set aside by FP to satisfy its obligations under the
Lease and to fund FP’s exercise of the Purchase Option or the Early Termination
Option. As a condition to engaging in the transactions, FP economically defeases
substantially all of its rent payment obligations and the amounts due under the
Purchase Option or the Early Termination Option by establishing and pledging the
deposit with BK3 and the Equity Collateral. Moreover, even though FP may not pledge the deposit with BK4, FP fully funds its remaining rent obligations with the BK4 deposit and may have limited rights to access the funds held in that deposit. Consequently, the only capital retained by FP is the remaining $6x portion of the sales proceeds that represents FP’s fee for engaging in the transaction.

Second, in Frank Lyon, the taxpayer bore the risk of the lessee's nonpayment of rent,
which could have forced the taxpayer to default on its recourse debt. The Court
concluded that the taxpayer exposed its business well-being to a real and substantial
risk of nonpayment and that the long-term debt affected its financial position. Frank
Lyon, 435 U.S. at 577. In contrast, in the transactions described above, economic
defeasance renders the risk to X of FP's failure to pay rent remote. Moreover, because of the nonrecourse nature of the loans, the economic defeasance, X’s right to receive the Equity Collateral (which has been pledged only to X and not to the lenders) upon the exercise of the Purchase Option, and FP's obligation with respect to the Termination Value, a failure by FP to satisfy its lease obligations does not leave X at risk for repaying the loan balances or forfeiting its equity investment.9

Third, in Frank Lyon, the taxpayer’s return was dependent on the property’s value and the taxpayer’s equity investment was at risk if the property declined in value. The
economic burden of any decline in the value of the property is integral to the
determination of tax ownership. See, e.g., Swift Dodge v. Commissioner, 692 F.2d 651 (9th Cir. 1982). In the transactions described above, X bears insufficient risk of a
decline in the value of the property to be treated as its owner for tax purposes. In
Situation 1, regardless of any decline in the value of the property, X can recover its
entire investment, repay both loans, and obtain a minimum after-tax rate of return on its equity investment by exercising the Service Contract Option. Similarly, in Situation 2, any decline in the value of the property will not prevent X from recovering its entire
investment, repaying both loans and obtaining a minimum after-tax rate of return on its
equity investment through the rents for the remaining Lease Term plus the Residual
Value Insurance Amount under the Return Option. The failure of FP to satisfy its
obligations under the Service Contract Option in Situation 1 or the Return Option in
Situation 2 results in default and obligates FP to pay X the Termination Value. In each
situation, the BK3 and BK4 deposits and Equity Collateral are available to fund FP’s
obligations upon termination of the Lease. Thus, in both situations, the parties have
substantially limited X’s risk of loss regardless of the value of the property upon
termination of the Lease.

Fourth, the combination of FP’s Purchase Option and X’s Service Contract Option in
Situation 1, and FP’s Early Termination Option and continued rent and RVI obligations under the Return Option in Situation 2, significantly increase the likelihood that FP will exercise its Purchase Option in Situation 1 and its Early Termination Option in Situation 2 even if the fair market value of the property is less than the Purchase Option Exercise Price or ETO Exercise Price, respectively, because both options are fully funded and the excess of the exercise price over the leased property’s fair market value may not fully reflect the costs to FP of modifying, interrupting, or relocating its operations. See Kwiat v. Commissioner, T.C. Memo. 1992-433 (ostensible lessor did not possess the benefits and burdens of ownership because reciprocal put and call options limited the risk of economic depreciation and the benefit of possible appreciation); see also Aderholt Specialty Co. v. Commissioner, T.C. Memo. 1985-491; Rev. Rul. 72-543, 1972-2 C.B. 87. In contrast, in Frank Lyon, the lessee’s decision regarding the exercise of its purchase option was not constrained by the lessor’s right to exercise a reciprocal option similar to the Service Contract Option or the Return Option described in Situations 1 and 2, respectively. Similarly, X’s opportunity to recognize a return through refinancing of the BK1 and BK2 loans is also limited in those cases in which FP has a right to participate in any savings attributable to reduced financing costs, such as through renegotiation of the Lease rents and the Purchase Option price. See Hilto n v. Commissioner, 74 T.C. 305 (1980), aff’d, 671 F.2d 316 (9th Cir. 1982) (arrangement whereby lessor and lessee shared the savings from any refinancing of lessor’s nonrecourse debt was a factor supporting holding to disregard form of sale-leaseback transaction).

Moreover, these transactions differ materially from Frank Lyon in other respects. In
Situations 1 and 2, unlike in Frank Lyon, no regulatory realities require or encourage the transaction structure adopted by the participants. Further, in Frank Lyon, no additional deductions were created. In these transactions, however, depreciation deductions unavailable to FP are transferred to X as the transaction is structured by the participants, thereby creating new deductions that would not exist outside Situations 1 and 2.

In the transactions described above, X does not have a meaningful interest in the risks
and rewards of the property. Thus, X does not acquire the benefits and burdens of
ownership of the property and does not become the owner of the property for U.S.
federal income tax purposes.

In substance, the transactions described above are merely a transfer of tax benefits to
X, coupled with X’s investment of the Equity Collateral for a predetermined after-tax rate of return. X obtains, at most, a contingent future interest in the property, which will commence, if ever, only when FP fails to exercise its “purchase option.”

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Substance Over Form: The Financing Arrangement Argument

The government's primary position is that SILO transactions do not result in the transfer of tax ownership of property and that, at most, a contingent future interest is acquired by the taxpayer.10 Consistent with this characterization of the transaction, X can be viewed as the lender in a financing transaction involving a portion of the Equity Investment. The “proceeds” of the loan would in most cases equal the Equity Collateral amount ($9x), with the remaining $6x of the Equity Investment characterized as a fee that compensates FP for its participation in the transaction. Amortization deductions for this and other transaction costs should be disallowed currently except to the extent taxpayer can establish what portion of the costs are allocable to the deemed loan.

Borrowing: Section 163

Section 163(a) generally allows taxpayers a deduction for all interest paid or accrued
within the taxable year on indebtedness. Case law generally defines the term “interest”
to mean the amount that one has contracted to pay for the use or forbearance of
money. See, e.g., Old Colony R. Co. v. Commissioner, 284 U.S. 552 (1932); Deputy v. duPont, 308 U.S. 488 (1940).

In both Situations 1 and 2, the portion of the purchase payment attributable to the
Series A Lender borrowing must be disregarded, because that "loan" is without
substance. Neither X nor FP obtains use of those "borrowed" funds. Bridges v.
Commissioner, 39 T.C. 1064, 1078-79 (1963), aff'd, 325 F.2d 180 (4th Cir. 1963). See Rev. Rul. 2002-69, 2002-2 C.B. 760. Under these circumstances, the loan from the Series A Lender is disregarded. Also, the loan from the Series B Lender may be disregarded, depending on the facts and circumstances surrounding the understanding that FP will use the deposit with Payment Undertaker B to defease portions of its Lease obligations, including any restrictions on FP’s interest in that deposit.

In certain cases, the Government may make an alternative argument that the Series B
loan is in substance a loan between the Series B Lender and FP that in substance
involves neither X nor the property. Further, where BK-1 and BK-2 and/or BK-3 and BK-4 are unrelated, the Government may argue in the alternative, that in substance any loan is a loan between BK-1 and BK-3, or between BK-2 and BK-4, which in substance involves neither X, FP nor the property.

Aggravating factors

The failure to convey tax ownership and the absence of genuine debt are particularly
evident in SILO transactions that contain the features described below.

A. Single Entity and Special Purpose Corporation Transactions.

As distilled to its core, under this variant of the SILO structure:

(i) Single Entity, in its capacity as Lender, transfers an amount as a loan to X, which then uses the amount as part of the purchase price or head lease payment to FP;
(ii) FP transfers that amount to the Single Entity in the latter’s capacity as Payment Undertaker;
(iii) As Payment Undertaker, Single Entity obligates itself to use the amount to make Lease rent payments to X; and
(iv) X instructs Single Entity, acting as Payment Undertaker, to apply those Lease payments to satisfy X’s obligation to Single Entity in the latter’s capacity as Lender.

The circularity of the funds flow and the self-canceling nature of rights and obligations of the Single Entity are grounds for challenging the substance of this transaction.
Transactions involving a special purpose corporation (“SPC”), often set up as a direct
subsidiary of the Lender, are not substantially different from the Single Entity structure.
In the SPC structure, the SPC subsidiary or affiliate of Lender may act as Payment
Undertaker. Often, the amount paid by FP to SPC for acting as Payment Undertaker,
and SPC’s obligation to pay Lease rent, are the only asset and liability, respectively, of
SPC. Thus, there are no competing creditor claims that could interfere with the
automatic satisfaction of the purported rent and debt claims.11

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B. Form of Defeasance: Deposit Structure as Compared to Fee Structure.

As noted above, the recipient of funds from FP may act either as Payment Undertaker
or a Depository. If the entity acts as a Depository, the documents would reflect an
account held by Depository in the name of FP, and the amount on deposit would presumably remain an asset of FP, which, although it would be pledged to satisfy FP’s
obligations under the Lease, would remain subject to the claims of FP’s creditors. If the recipient of the funds acts as Payment Undertaker, the payment from FP would take the form of a fee for Depository’s assuming the obligation to pay FP’s Lease obligations.

If the defeasance, which as discussed is typically embodied in a Payment Undertaking
Agreement, provides for a “fee” paid by FP to Payment Undertaker rather than a
“deposit” by FP with Payment Undertaker, the Government’s position is enhanced. This is because, in the event of bankruptcy of FP, a deposit with a depository bank, even if pledged to X, arguably might be subject to claims of FP’s creditors. In contrast, a fee payment, if respected as such under local law, may no longer be the property of FP and thus not subject to such claims. Moreover, under a Payment Undertaking Agreement as distinguished from some deposits, FP foregoes any right to access the amount paid to the Payment Undertaker and make use of those funds.

C. Percentage of Economic Defeasance of the Amount Borrowed by X.

In Rev. Rul. 2002-69, the amount of X’s borrowing that was defeased equaled 90
percent of the borrowing. The higher the percentage, the stronger is the Government’s
position that there is, in substance, no bona fide borrowing. A 100 percent defeasance
presents the better case for the Government with respect to this factor.

D. The nature or history of the property makes it highly unlikely that FP will not exercise its fixed Purchase Option at the end of the Lease term.

In some instances, the nature of the property or its historic connection to the community itself minimizes the possibility that FP will fail to exercise the fixed Purchase Option. Either of these factors would favor the Government.

While the foregoing features reinforce the conclusion that a SILO transaction does not
result in a present transfer of tax ownership or the use or forbearance of money, this
does not mean that a SILO transaction lacking one or more, or all, of these features
must be respected. These factors only further enhance the Government’s litigating
position. For the reasons discussed earlier, SILO transactions in general differ
materially from the sale and leaseback transaction upheld in Frank Lyon, and taxpayers engaging in such transactions do not acquire the benefits and burdens of ownership of property and are not, therefore, entitled to the accompanying tax benefits.

The American Jobs Creation Act of 2004

The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418 (the “Act”), was enacted on October 22, 2004. Section 848 of the Act added new § 470, which
suspends losses for certain leases of property to tax-exempt entities. These
amendments generally are effective for leases entered into after March 12, 2004. See § 849(a) of the Act. The legislative history indicates that Congress intended no inference regarding “present-law tax treatment of transactions entered into prior to the effective date.” Moreover, the new provisions should not be read as “altering or supplanting the present-law tax rules providing that a taxpayer is treated as the owner of leased property only if the taxpayer acquires and retains significant and genuine attributes of an owner of the property.” See H.R. Rep. No. 755, 108th Cong., 2d Sess. at 660, 662-663 (2004). Accordingly, transactions entered into prior to the effective date of new § 470 are subject to common law requirements, and transactions subject to the new Code provision must first qualify as leases under those common law requirements, before the statute is applied.12

The Act also created § 6662A, which imposes an accuracy-related penalty on
understatements with respect to reportable transactions, and § 6707A, which imposes a penalty for the failure to include reportable transaction i nformation with a return.

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Penalties

Whether penalties apply to underpayments attributable to the disallowance of
deductions claimed by X as a result of its participation in a SILO transaction must be
determined on a case-by-case basis, depending on the specific facts and circumstances of each case, including the documentary evidence of tax avoidance purpose.13 On February 11, 2005, the Service notified taxpayers that it considered SILOS to be tax avoidance transactions and identified SILOs, and substantially similar transactions, as listed transactions for purposes of Treas. Reg. § 1.6011-4(b)(2). See Notice 2005-13, 2005-9 I.R.B. 630 (February 28, 2005).

A significant matter relevant specifically to the potential assertion of the accuracy-
related penalty attributable to a substantial understatement is whether the transaction
constitutes a tax shelter as defined in § 6662(d)(2)(C)(iii). If the transaction is a tax
shelter and meets the dollar thresholds for substantial understatement of income tax, a
corporation’s only defense to the penalty based on substantial understatement will be a
claim that it acted with reasonable cause and in good faith. I.R.C. §§ 6662(d)(2)(C)(i)
and 6664(c). A transaction entered into on or after August 6, 1997, will cons titute a tax shelter if a significant purpose of the transaction is the avoidance or evasion of federal income tax. I.R.C. § 6662(d)(2)(C)(ii). If so, then, as explained below, the requirements of Treas. Reg. § 1.6664-4(f) should be carefully scrutinized to determine whether a corporate taxpayer had sufficient "reasonable cause" to avoid the accuracy-related penalty attributable to a substantial understatement. Because a SILO transaction is designed to transfer tax benefits to a U.S. Taxpayer, for all such transactions that were entered into on or after August 6, 1997, the position should be that a significant purpose of such transactions is the avoidance of federal income tax and SILO transactions are tax shelters.

With the preceding in mind, the application of the penalties should be based on an
evaluation of the facts developed in view of the following legal standards:

The Failure to Include Reportable Transaction Information with Return

Section 1.6011-4(d) of the Income Tax Regulations requires a ta xpayer to file a
disclosure statement of Form 8886, Reportable Transaction Disclosure Statement, for
each reportable transaction in which the taxpayer participated. Section 1.6011-4(e)(1)
provides that a reportable transaction disclosure statement is due when the taxpayer
files an original or amended return that reflects the taxpayer’s participation in a
reportable transaction. The taxpayer also must send a copy of the disclosure statement
to the Office of Tax Shelter Analysis (OTSA) at the same time that the taxpayer first files a disclosure statement with a return.

If a transaction becomes listed after the filing of a taxpayer’s tax return and before the
end of the period of limitations for the final return reflecting the tax consequences, tax
strategy, or tax benefit, then a disclosure statement must be filed as an attachment to
the taxpayer’s tax return next filed after the date the transaction is listed regardless of
whether the taxpayer participated in the transaction in that year. Treas. Reg. § 1.6011-4(e)(2)(i).

Section 6707A imposes a penalty on a corporation in the amount of $200,000 for the
failure to include information on a return with respect to a listed transaction. The
penalty applies to returns and statements which are due after October 22, 2004, and
cannot be rescinded by the Commissioner for any reason.

The § 6707A penalty should not be asserted until a taxpayer fails to provide the
required disclosure statement with an original or amended return or fails to provide a
copy to OTSA, if applicable, even if the return is filed after the due date.14 In addition, the penalty should not be asserted against taxpayers who filed a return prior to February 11, 2005, unless they failed to disclose the transaction on the tax return next filed.

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Section 6662 imposes an accuracy-related penalty in an amount equal to 20 percent of the portion of an underpayment attributable to, among other things: (1) negligence or disregard of rules or regulations and (2) any substa ntial understatement of income tax. Treas. Reg. § 1.6662-2(c) provides that there is no stacking of the accuracy-related components. Thus, the maximum accuracy-related penalty imposed on any portion of an underpayment is 20 percent (40% for gross valuation misstatements), even if that portion of the underpayment is attributable to more than one type of misconduct. See D.H.L. Corp. v. Comm’r, T.C. Memo. 1998-461, aff’d in part and rev’d on other grounds, remanded by 285 F.3d 1210 (9th Cir. 2002).

For purposes of § 6662, the term “underpayment” is defined as the amount by which
any tax imposed exceeds the excess of the sum of the amount shown as the tax by the
taxpayer on his return, plus amounts not so shown previously assessed (or collected
without assessment), over the amount of rebates made. I.R.C. § 6664(a)(1), (2); Treas. Reg. § 1.6664-2(a)(1), (2).

Negligence or disregard of rules or regulations

Negligence includes any failure to make a reasonable attempt to comply with the
provisions of the Internal Revenue Code or to exercise ordinary and reasonable care in the preparation of a tax return. See I.R.C. § 6662(c) and Treas. Reg. § 1.6662-3(b)(1). Negligence also includes the failure to do what a reasonable and ordinarily prudent person would do under the same circumstances. See Marcello v. Commissioner, 380 F.2d 499 (5th Cir. 1967), aff'g 43 T.C. 168 (1964); Neely v. Commissioner, 85 T.C. 934, 947 (1985).

Treas. Reg. § 1.6662-3(b)(1)(ii) provides that negligence is strongly indicated where a
taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction, credit or exclusion on a return that would seem to a reasonable and prudent person to be "too good to be true" under the circumstances. If the facts establish that X reported losses from a transaction in which it merely purchased a future interest or engaged in a financing arrangement, then the accuracy-related penalty attributable to negligence may be applicable if X failed to make a reasonable attempt to ascertain the correctness of the claimed deductions.

The Tax Court sustained the application of the negligence penalty in Sheldon v.
Commissioner, 94 T.C. 738 (1990), stating that the taxpayer, “intentionally entered into loss-producing repos in order to generate a nd claim tax benefits.” The Third Circuit, in sustaining the accuracy-related penalty on grounds of negligence in Neonatology Associates, P.A., v. Commissioner, 299 F. 3d 221 (3rd Cir. 2002), explicitly warned: “When, as here, a taxpayer is presented with what would appear to be a fabulous opportunity to avoid tax obligations, he should recognize that he proceeds at his own peril.”

A return position that has a reasonable basis is not attributable to negligence. Treas.
Reg. § 1.6662-3(c). A reasonable basis is a relatively high standard of tax reporting,
one significantly higher than not frivolous or not patently improper. Thus, the
reasonable basis standard is not satisfied by a return position that is merely arguable or
colorable. Conversely, under Treas. Reg. § 1.6662-3(b)(3), a return position is
reasonable where based on one or more of the authorities listed in Treas. Reg.
§ 1.6662-4(d)(3)(iii), taking into account the relevance and persuasiveness of the
authorities and subsequent developments, eve n if the position does not satisfy the
substantial authority standard defined in Treas. Reg. § 1.6662-4(d)(2). Furthermore, the reasonable cause and good faith exception in Treas. Reg. § 1.6664-4 may relieve X from liability from the negligence penalty, even if the return position does not satisfy the reasonable basis standard. See Treas. Reg. § 1.6662-3(b)(3).

"Disregard of rules or regulations" includes any careless, reckless, or intentional
disregard of rules and regulations. A disregard of rules or regulations is “careless” if the taxpayer does not exercise reasonable diligence in determining the correctness of a
position taken on its return that is contrary to the rule or regulation. Additionally, a
disregard of rules or regulations is “reckless” if the taxpayer makes little or no effort to
determine whether a rule or regulation exists, under circumstances demonstrating a
substantial deviation from the standard of conduct observed by a reasonable person.
Additionally, disregard of the rules or regulations is “intentional” where the taxpayer has knowledge of the rule or regulation that it disregards. Treas. Reg. § 1.6662-3(b)(2).

"Rules or regulations" includes the provisions of the Internal Revenue Code and
revenue rulings or notices issued by the Internal Revenue Service and published in the
Internal Revenue Bulletin. Treas. Reg. § 1.6662-3(b)(2). Therefore, if the facts indicate that a taxpayer took a return position contrary to any published notice or revenue ruling, the taxpayer may be subject to the accuracy-related penalty for an underpayment attributable to disregard of rules or regulations, if the return position was taken subsequent to the issuance of a notice or revenue ruling.

The accuracy-related penalty for disregard of rules or regulations will not be imposed on any portion of an underpayment due to a position contrary to rules or regulations if: (1) the position is disclosed on a properly completed Form 8275 or Form 8275-R (the latter is used for a position contrary to regulations) and (2), in the case of a position contrary to a regulation, the position represents a good faith challenge to the validity of a regulation. This adequate disclosure exception applies only if the taxpayer has a reasonable basis for the position and keeps adequate records to substantiate items correctly. Treas. Reg. § 1.6662-3(c)(1). Moreover, a taxpayer who takes a position contrary to a revenue ruling or a notice has not disregarded the ruling or notice if the contrary position has a realistic possibility of being sustained on its merits. Treas. Reg. § 1.6662-3(b)(2).

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Substantial Understatement

A substantial understatement of income tax exists for a taxable year if the amount of
understatement exceeds the greater of 10 percent of the tax required to be shown on
the return or $5,000 ($10,000 in the case of corporations other than S corporations or personal holding companies). I.R.C. § 6662(d)(1).15 An understatement generally
means the excess of the correct tax over the tax reported on an income tax return.
I.R.C. § 6662(d)(2). This excess is determined without regard to items to which §
6662A applies.16 The reportable transaction understatement calculated under
§ 6662A(b)(1), however, is added to the understatement calculated under § 6662(d)(2) for purposes of determining whether an understatement is substantial under
§ 6662(d)(1).

Under § 6662A(e)(1)(B), in the case of an understatement, the addition to tax under §
6662(a) applies only to the excess of the amount of the substantial understatement over the aggregate amount of the reportable transaction understatements. Accordingly, the § 6662(a) accuracy-related penalty on underpayments attributable to a substantial
understatement of income tax does not apply to an underpayment attributable to a n
understatement on which the § 6662A penalty is imposed.

In the case of items of corporate taxpayers attributable to tax shelters, § 6662(d) does
not provide any grounds on which to reduce the understatement. I.R.C. §
6662(d)(2)(C)(ii). Therefore, if a corporate taxpayer has a substantial understatement
that is attributable to a tax shelter item, the accuracy-related penalty applies to the
understatement unless the reasonable cause and good faith exception applies.
Section 6662A imposes an accuracy-related penalty in an amount equal to 20 percent
of a reportable transaction understatement and applies to tax years ending after
October 22, 2004. In addition, a higher 30-percent penalty applies to a reportable
transaction understatement if a taxpayer does not adequately disclose, in accordance
with regulations prescribed under § 6011, the relevant facts affecting the tax treatment
of the item giving rise to the reportable transaction understatement.

The Reasonable Cause and Good Faith Exception

The accuracy-related penalty under § 6662 does not apply with respect to any portion of an underpayment with respect to which it is shown that there was reasonable cause and that X acted in good faith. I.R.C. § 6664(c)(1). The determination of whether X acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. Treas. Reg. § 1.6664-4(f)(1). Generally, the most important factor is the extent of X's effort to assess its proper tax liability. Treas. Reg. § 1.6664-4(b)(1). A corporation's legal justification may be taken into account in establishing that the corporation acted with reasonable cause and in good faith in its treatment of a tax shelter item, but only if there is substantial authority within the meaning of Treas. Reg. § 1.6662-4(d) for the treatment of the item and the corporation reasonably believed, when the return was filed, that such treatment was
more likely than not the proper treatment. Treas. Reg. § 1.6664-4(f)(2)(i)(B).

The reasonable belief standard is met if:

*
the corporation analyzed pertinent facts and relevant authorities to conclude in
good faith that there would be a greater than 50 percent likelihood (“more likely
than not”) that the tax treatment of the item would be upheld if challenged by the
IRS; or
*
the corporation reasonably relied in good faith on the opinion of a professional
tax advisor who analyzed all the pertinent facts and authorities, and who
unambiguously states that there is a greater than 50 percent likelihood that the
tax treatment of the item will be upheld if challenged by IRS. (See Treas. Reg. § 1.6664-4(c) for requirements with respect to the opinion of a professional tax
advisor upon which the foregoing discussion elaborates).

Satisfaction of the minimum requirements for legal justification is an important factor in
determining whether a corporation acted with reasonable cause and in good faith, but
not necessarily dispositive. See Treas. Reg. § 1.6664-4(f)(3). For example, the
taxpayer’s participation in a tax shelter lacking a significant business purpose or
whether the taxpayer claimed benefits that are unreasonable in comparison to the
taxpayer’s investment should be considered in your determination. Failure to satisfy the minimum standards will, however, preclude a finding of reasonable cause and good
faith based (in whole or in part) on a corporation’s legal justification. See Treas. Reg. § 1.6664-4(f)(2)(i).

Other facts and circumstances may also be taken into account regardless of whether
the minimum requirements for legal justification are met. See Treas. Reg. § 1.6664-
4(f)(4).

For X to be considered to have reasonably relied in good faith on advice to establish
legal justification as reasonable cause, all the requirements of Treas. Reg. § 1.6664-
4(c) must be satisfied. The advice must be based upon all pertinent facts and circumstances and must not be based on unreasonable factual or legal assumptions
(including assumptions as to future events) and must not unreasonably rely on the
representations, statements, findings, or agreements of X or any other person. Treas.
Reg. § 1.6664-4(c)(1)(ii). Further, where a tax benefit depends on nontax factors, X
also has a duty to investigate such underlying factors. The Taxpayer cannot simply rely
on statements by another person, such as a promoter. See Novinger v. Commissioner, T.C. Memo. 1991-289; Goldman v. Commissioner, 39 F.3d 402 (2d Cir. 1994) (taxpayers cannot reasonably rely for professional advice on someone they know to be burdened with an inherent conflict of interest). Further, if the tax advisor is not versed in these nontax matters, mere reliance on the tax advisor does not suffice. See Addington v. United States, 205 F.3d 54 (2d Cir. 2000); Collins v. Commissioner, 857 F.2d 1383 (9th Cir. 1988).

Although a professional tax advisor’s lack of independence is not alone a basis for
rejecting a taxpayer's claim of reasonable cause and good faith, the fact that a taxpayer knew or should have known of the advisor's lack of independence is strong evidence that the taxpayer may not have relied in good faith upon the advisor's opinion. Goldman v. Commissioner, 39 F.3d 402 (2nd Cir. 1994); Pasternak v. Commissioner, 990 F.2d 893, 903 (6th Cir. 1993)(finding reliance on promoters or their agents unreasonable, as “advice of such persons can hardly be described as that of ‘independent professionals’”); Roberson v. Commissioner, 98-1 U.S.T.C. 50,269 (6th Cir. 1998) (court dismissed taxpayer’s purported reliance on advice of tax professional because professional’s status as “promoter with a financial interest” in the investment); Rybak v. Commissioner, 91 T.C. 524, 565 (1988) (negligence penalty sustained where taxpayers relied only upon advice of persons who were not independent of promoters); Illes v. Commissioner, 982 F.2d 163 (6th Cir. 1992) (taxpayer found negligent; reliance upon professional with personal stake in venture not reasonable); Gilmore & Wilson Construction Co. v. Commissioner, 99-1 U.S.T.C. 50,186 (10th Cir. 1999) (taxpayer liable for negligence since reliance on representations of the promoters and offering materials unreasonable); Neonatology Associates, P.A. v. Commissioner, 299 F.3d 221 (3rd Cir. 2002)(reliance may be unreasonable when placed upon insiders, promoters, or their offering materials, or when the person relied upon has an inherent conflict of interest that the taxpayer knew or should have known about).

Similarly, the fact that a taxpayer consulted an independent tax advisor is not, standing
alone, conclusive evidence of reasonable cause and good faith if additional facts
suggest that the advice is not dependable. Edwards v. Commissioner, T.C. Memo.
2002-169; Spears v. Commissioner, T.C. Memo. 1996-341, aff’d, 98-1 U.S.T.C.
¶ 50,108 (2d Cir. 1997). For example, a taxpayer may not rely on an independent tax
advisor if the taxpayer knew or should have known that the tax advisor lacked sufficient expertise, the taxpayer did not provide the advisor with all necessary information, the information the advisor was provided was not accurate, or the taxpayer knew or had reason to know that the transaction was “too good to be true.” Baldwin v.Commissioner, T.C. Memo. 2002-162; Spears v. Commissioner, T.C. Memo. 1996-341, aff’d. 98-1 U.S.T.C. ¶ 50,108 (2d Cir. 1997).

[Note: The American Jobs Creation Act of 2004 (the "AJCA") added new sections
6662A and 6707A to the Code. These provisions respectively (i) increase the amount
of accuracy-related penalties with respect to undisclosed Listed Transactions and (ii)
impose new penalties for failures to make disclosures required under section 6011
(including undisclosed Listed Transactions.) The amendments to the accuracy-related
penalties embodied in section 6662A are applicable to taxable years ending after the
effective date of the AJCA (October 22, 2004). New section 6707A applies to returns or statements the due date for which is after the effective date of the AJCA (again, October 22, 2004). SILOs constitute Listed Transactions. See Notice 2005-13. This Coordinated Issue Paper will be supplemented to describe those changes in the law in greater detail when those provisions will affect returns, statements or taxable years under examination.]

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FOOTNOTES

1.
Use of the term “sale-leaseback transaction” and certain other descriptive terms in the recitation of facts below does not imply that the Internal Revenue Service agrees with the tax characterizations claimed by participants in SILO transactions.
FP either meets the definition of a tax-exempt entity under § 168(h)(2) or possesses attributes, such as net operating losses, that render FP tax-indifferent.
2.
Earlier transactions might provide for a “replacement lease” rather than a Service Contract. In these transactions, FP can be obligated to secure a replacement lessee for a renewal lease term.
3.
Transaction documents may direct FP to make rent payments directly to the lending institutions so long as the purported loans have unpaid balances.
4.
The arrangement by which FP sets aside the funds necessary to meet its obligations under the Lease may take a variety of forms other than a deposit arrangement involving BK3 and BK4. These arrangements include a loan by FP to X, BK1 or BK2; a letter of credit collateralized with cash or cash equivalents; a payment undertaking agreement; a sinking fund arrangement; a guaranteed investment contract; or financial guaranty insurance.
In some SILOs FP prepays all or nearly all of its lease rent to the taxpayer, but the taxpayer defers inclusion of the amount as income, using present-value concepts, under § 467. This prepayment could be made on the Closing Date, removing the need for third-party financing and traditional debt defeasance accounts, or it could be made later on during the lease term.
5.
The arrangement by which the return of X’s equity investment plus a predetermined after-tax return on such investment is provided may take a variety of forms other than an investment by FP in highly-rated debt securities. For example, FP may be required to obtain a payment undertaking agreement from an entity having a specified minimum credit rating.
6.
In some instances, the ETO amount is sufficient to repay FP rent that FP overpaid or prepaid during the initial lease term. In transaction documents, this amount may be referred to as the Excess of Basic Rent Payments over Basic Rent Allocations or Basic Rent Payments in Excess of Basic Rent Allocations. It is combined with the equity and loan balances to fund the ETO.
7.
In the event FP has not exercised its Early Termination Option, the Equity Collateral will be available to fund this end-of-lease term option price, to the extent the funds have not been used to satisfy other Lease obligations, including rent. In general, following the ETO Exercise Date, FP will not have access to the Equity Collateral until the end of the Lease term, and there will be either unpaid balances on the original third-party loans or new loans refinancing those balances.
8.
Some taxpayers apparently have entered into transactions designed to defer or exclude this gain. For example, one type of transaction involves a foreign corporation that acquires an option to purchase X’s residual interest and a subsequent payment by X to the foreign corporation that is not considered subpart F income subject to current U.S. income taxation.
9.
As discussed further in the analysis of X's interest deduction, the purported borrowings from BK-1 and BK-2 should be considered without substance. In certain cases, however, the Government may make an alternative argument that the Series B loan is in substance a loan between the Series B Lender and FP that in substance involves neither X nor the property. Further, where BK-1 and BK-3 and/or BK-2 and BK-4 are unrelated, the Government may argue in the alternative that in substance any loan is a loan between BK-1 and BK-3, and/or between BK-2 and BK-4, which in substance involves neither X, FP nor the property.
10.
In certain cases, taxpayer should not be considered as having even a contingent future interest in property. For example, circumstances such as the nature of the property might indicate that FP is compelled to exercise a purchase option. In other cases, circumstances including the narrowness of the “collar” might indicate that taxpayer’s return is substantially fixed. In either instance, taxpayer’s interest might best be described as that of a creditor.
11.
In another variant of the SILO transaction, the treasury of a foreign government acts as lender, and FP is an instrumentality of the foreign government. These transactions, therefore, could entail not only a relationship or identity between the lender and the deposit taker, but lessee financing.
12.

Leases or purported leases of Qualified Transportation Property described in §§ 849(b)(1) and (2) of the Act are not subject to new Code § 470. Moreover, the federal tax benefits relating to Qualified Transportation Property are to be sustained. See Notice 2005-13, 2005-9 I.R.B 630 (Feb. 28, 2005). This view is in accord with the position taken by the Department of the Treasury Acting Deputy Assistant Secretary (Tax Policy) in his letter to the Department of Transportation Secretary, dated February 15, 2005. By contrast, leases or purported leases subject to the general
effective date set forth in § 849(a) of the Act are subject to common law requirements for a valid lease regardless of when such transactions have been or are entered into. Sections 849(b)(1) and (2) of the Act provide:

(b) EXCEPTION.--
(1) IN GENERAL.-- The amendments made by this part shall not apply to qualified transportation property.
(2) QUALIFIED TRANSPORTATION PROPERTY. -- For purposes of paragraph (1), the term "qualified transportation property" means domestic property subject to a lease with respect to which a formal application --
(A) was submitted for approval to the Federal Transit Administration (an agency of the Department of Transportation)after June 30, 2003 and before March 13, 2004,
(B) is approved by the Federal Transit Administration before January 1, 2006, and
(C) includes a description of such property and the value of such property.
13.
On January 14, 2002, in Announcement 2002-2, 2002-1 C.B. 562, the Service announced a disclosure initiative to encourage taxpayers to disclose their tax treatment of tax shelters and other items for which the imposition of the accuracy-related penalty may be appropriate if there is an underpayment of tax. In return for a taxpayer disclosing any item in accordance with the provisions of this announcement before April 23, 2002, the Service agreed to waive the accuracy-related penalty under § 6662(b)(1), (2), (3), and (4) for any underpayment of tax attributable to that item.
14.
See Notice 2005-11, 2005-7 I.R.B. 493 (Feb. 14, 2005), for further interim guidance relating to § 6707A.
15.
The Act amended § 6662(d)(1)(B) for tax years beginning after October 22, 2004. Under § 6662(d)(1)(B), as amended, a corporation has a substantial understatement of income tax for the taxable year if the amount of the understatement exceeds the lessor of 10 percent of the tax required to be shown on the return (or, if greater, $10,000), or $10,000,000.
16.
Section 6662A applies only to tax years ending after October 22, 2004.

Schweizer Gerichtsentscheidung zur Behandlung des Barwertvorteils

2P.292/2004 /grl

Urteil vom 22. Juni 2005
II. Öffentlichrechtliche Abteilung

Bundesrichter Merkli, Präsident,
Bundesrichter Wurzburger, Bundesrichter Müller,
Bundesrichterin Yersin, Ersatzrichter Locher,
Gerichtsschreiber Fux.

Stadt Zürich, Elektrizitätswerk (EWZ),
Beschwerdeführerin, vertreten durch Ernst & Young AG, Steuerberatung,

gegen

Steuerverwaltung des Kantons Graubünden, Steinbruchstrasse 18/20, 7001 Chur,
Kantonales Steueramt Zürich, Dienstabteilung Recht, Sumatrastrasse 10, 8090
Zürich,
Verwaltungsgericht des Kantons Graubünden,
3. Kammer, Obere Plessurstrasse 1, 7001 Chur.

Art. 127 Abs. 3 BV (Doppelbesteuerung betreffend Kantonssteuern),

Staatsrechtliche Beschwerde gegen das Urteil des Verwaltungsgerichts des
Kantons Graubünden vom

3. September 2004.

Sachverhalt:

A.
Das Elektrizitätswerk der Stadt Zürich (EWZ) ist eine Dienstabteilung der
Industriellen Betriebe der Stadt Zürich und besitzt Anlagen in den Kantonen
Aargau, Bern, Glarus, Graubünden, Luzern, Obwalden, Schwyz, St. Gallen,
Tessin und Wallis. Im Kanton Graubünden verfügt es über
Wasserkraftkonzessionen, aufgrund derer es verschiedene ihm gehörende
Kraftwerkanlagen betreibt. Gestützt darauf ist das EWZ im Kanton Graubünden
beschränkt steuerpflichtig (§ 75 des Steuergesetzes vom 8. Juni 1986 für den
Kanton Graubünden), wogegen es im Sitzkanton Zürich gemäss § 61 lit. c des
Zürcher Steuergesetzes vom 8. Juni 1997 subjektiv steuerfrei ist (wie auch im
Betriebsstättenkanton St. Gallen).

Das EWZ hat im April 1998 mit einer amerikanischen Bank als Investorin und
einem US-Trust als Leasinggeber ein sog. "Lease-and-lease-back"-Geschäft über
die sich in Graubünden befindenden Kraftwerkanlagen Mittelbünden 1,
Mittelbünden 2 sowie Bergell abgeschlossen. Mit dieser Vereinbarung wird der
Nutzungswert der erwähnten Kraftwerkanlagen während 48 Jahren gegen eine
Einmalzahlung an den US-Trust verleast (Hauptleasingvertrag) und gleichzeitig
von diesem für eine kürzere Zeitdauer zurückgeleast (Unterleasingvertrag).
Mit Ablauf der sog. Basislaufzeit des Unterleasingvertrags hat das EWZ das
Recht, alle vertraglichen Ansprüche zu einem fest vereinbarten Preis
zurückzuerwerben (Kaufoption). Die Differenz zwischen der gemäss
Hauptleasingvertrag an das EWZ geleisteten Einmalzahlung einerseits und den
gemäss Unterleasingvertrag vom EWZ (den erfüllungsübernehmenden Banken)
geschuldeten Leasingraten sowie dem Kaufoptionspreis anderseits bildet den
finanziellen Vorteil für das EWZ. Dieser sog. Barwertvorteil wurde dem EWZ
beim Abschluss des Geschäfts überwiesen; er macht umgerechnet Fr.
127'256'265.-- aus und setzt sich wie folgt zusammen:

Zahlungen
Mittelbünden 1
Mittelbünden 2
Bergell
Total
1. Leasingrate Hauptleasing (abdiskontiert)
USD 112'738'734
USD 412'913'556
USD 387'122'415

2. Leasingrate Unterleasing + Optionspreis abdiskontiert
USD 77'065'327
USD 294'560'486
USD 274'863'904

3. Kaufpreis WP (Abdeckung Unterleasing + Option abdisk.)
USD 27'697'668
USD 72'640'166
USD 75'748'251

4. Barwertvorteil (nach Abzug Zinsen) grosso modo 1 - (2+3)
USD 7'514'561
USD 42'950'317
USD 34'372'937

5. Barwertvorteil in CHF
CHF 11'271'382
CHF 64'425'477
CHF 51'559'406
CHF 127'256'265
Den ab 29. April 1998 gültigen Verträgen liegen folgende Laufzeiten zugrunde:
Vertragslaufzeiten
Mittelbünden 1
Mittelbünden 2
Bergell
Maximum Hauptleasing
48 Jahre
Maximum Unterleasing
31,4 Jahre
40,8 Jahre
35,4 Jahre
Basis Unterleasing
11,7 Jahre
18,7 Jahre
15,7 Jahre
Kaufoption per
2.1.2010
2.1.2017
2.1.2014

B.
Das EWZ deklarierte in der Steuererklärung 1998 für den Kanton Graubünden
einen steuerbaren Gewinn von Fr. 5'476'300.-- (Quote GR: 13,214% von Fr.
41'442'800.--) und ein steuerbares Kapital von Fr. 517'595'800.--. Der Ertrag
aus dem zugeflossenen Barwertvorteil wurde durch Bildung einer Rückstellung
in gleicher Höhe neutralisiert.

Mit Verfügung vom 7. März 2001 veranlagte die Steuerverwaltung des Kantons
Graubünden das EWZ für das Steuerjahr 1998 auf einen steuerbaren Gewinn von
Fr. 101'536'900.-- sowie ein steuerbares Kapital entsprechend der
Selbstschatzung. Bei der Gewinnermittlung wurde die Rückstellung zur
Neutralisierung des Barwertvorteils als geschäftsmässig nicht begründet
angesehen und zum steuerbaren Gewinn hinzugerechnet, unter gleichzeitiger
Berücksichtigung der auf der Aufrechnung anfallenden Gewinnsteuern. In der
interkantonalen Steuerausscheidung wurde der Barwertvorteil aus der
Leasingtransaktion als Ertrag aus unbeweglichem Vermögen qualifiziert und dem
Kanton Graubünden zur ausschliesslichen Besteuerung zugewiesen.

In seiner Einsprache vom 5. April 2001 beantragte das EWZ, der Barwertvorteil
aus der Leasingtransaktion sei nicht objektmässig, sondern nach denselben
Quoten auszuscheiden, wie sie für die Ausscheidung des übrigen
Betriebsgewinns angewandt werden. Die Aufrechnung der Rückstellung wurde erst
in einem Schreiben gerügt, das nach Ablauf der Einsprachefrist eingereicht
wurde. Mit Entscheid vom 24. Oktober 2003 wies die Steuerverwaltung des
Kantons Graubünden die Einsprache ab, wobei sie auf die Frage, ob die
Rückstellung zu Recht aufgerechnet wurde, nicht eintrat.

Ein Rekurs gegen die Einspracheverfügung wurde vom Verwaltungsgericht des
Kantons Graubünden mit Urteil vom 3. September 2004 abgewiesen.

C.

Die Stadt Zürich, Elektrizitätswerk der Stadt Zürich, hat gegen das Urteil
des Verwaltungsgerichts am 17. November 2004 staatsrechtliche Beschwerde
wegen Verletzung des Verbots der interkantonalen Doppelbesteuerung erhoben
(Art. 127 Abs. 3 BV). Die Beschwerdeführerin beantragt, das angefochtene
Urteil sei betreffend die Kantonssteuern aufzuheben und es sei festzustellen,
dass für die Zwecke der Gewinnsteuer die interkantonale Ausscheidung des
steuerbaren Gewinns bundesrechtskonform vorzunehmen sei, insbesondere sei der
Barwertvorteil aus dem "Lease-and-lease-back"-Geschäft nach jenen Quoten
auszuscheiden, wie sie auch für die Ausscheidung des übrigen Betriebsgewinns
angewendet werden.

D.

Das Kantonale Steueramt Zürich beantragt, die Beschwerde gutzuheissen,
wogegen die Steuerverwaltung des Kantons Graubünden sowie das
Verwaltungsgericht des Kantons Graubünden auf Abweisung schliessen. Die
ebenfalls zur Vernehmlassung eingeladenen Kantone Luzern, Obwalden, Schwyz,
St. Gallen und Wallis verzichten ausdrücklich auf eine Stellungnahme, während
sich die Steuerverwaltungen der Kantone Bern, Aargau, Glarus und Tessin nicht
haben vernehmen lassen.

Das Bundesgericht zieht in Erwägung:

1.

1.1 Zur Anfechtung von kantonalen Hoheitsakten wegen Doppelbesteuerung steht
die staatsrechtliche Beschwerde zur Verfügung (Art. 86 Abs. 2 OG). Die
fristgerechte Doppelbesteuerungsbeschwerde gegen den Entscheid des
Verwaltungsgerichts des Kantons Graubünden vom 3. September 2004 ist daher
zulässig. Mit ihr können gleichzeitig auch bereits rechtskräftige Verfügungen
anderer Kantone angefochten werden (Art. 89 Abs. 3 OG; statt vieler: Urteil
2P.323/2004 vom 2. März 2005, E. 1.2).

1.2 Die staatsrechtliche Beschwerde ist grundsätzlich rein kassatorischer
Natur, das heisst, es kann mit ihr in der Regel nur die Aufhebung des
angefochtenen Entscheids verlangt werden (BGE 124 I 327 E. 4 S. 332 ff.).
Eine Ausnahme gilt für Beschwerden wegen Verletzung des
Doppelbesteuerungsverbots (Art. 127 Abs. 3 BV): Hier kann das Bundesgericht
zusammen mit der Aufhebung des kantonalen Hoheitsaktes auch Feststellungen
treffen, den beteiligten Kantonen verbindliche Anweisungen für die
verfassungskonforme Steuerausscheidung erteilen oder die Rückerstattung
ungerechtfertigt erhobener Steuern anordnen (ASA 73 S. 247 E. 1.2 S. 249, mit
Hinweisen). Die Rechtsbegehren der gemäss Art. 88 OG legitimierten
Beschwerdeführerin sind daher zulässig.

1.3 Bei staatsrechtlichen Beschwerden wegen Verletzung des
Doppelbesteuerungsverbots prüft das Bundesgericht Rechts- und Tatfragen frei,
und es können auch neue Tatsachen und Beweismittel vorgebracht werden (ASA 73
S. 247 E. 1.3 S. 249, mit Hinweisen).

2.

2.1Nach konstanter Rechtsprechung liegt eine gegen Art. 127 Abs. 3 BV
verstossende Doppelbesteuerung vor, wenn eine steuerpflichtige Person von
zwei oder mehreren Kantonen für das gleiche Steuerobjekt und für die gleiche
Zeit zu Steuern herangezogen wird (aktuelle Doppelbesteuerung) oder wenn ein
Kanton in Verletzung der geltenden Kollisionsnormen seine Steuerhoheit
überschreitet und eine Steuer erhebt, die einem anderen Kanton zusteht
(virtuelle Doppelbesteuerung). Ausserdem darf ein Kanton eine
steuerpflichtige Person grundsätzlich nicht deshalb stärker belasten, weil
sie nicht in vollem Umfang seiner Steuerhoheit untersteht, sondern zufolge
ihrer territorialen Beziehungen auch noch in einem anderen Kanton
steuerpflichtig ist (Schlechterstellungsverbot; statt vieler: BGE 130 I 205
E. 4.1 S. 210, mit Hinweisen).

2.2 Die Beschwerdeführerin rügt gegenüber den Kantonen Aargau, Bern, Glarus,
Luzern Obwalden, Schwyz, Wallis und Tessin eine aktuelle (effektive)
Doppelbesteuerung, während sie gegenüber den Kantonen St. Gallen und Zürich
(wo sie Steuerfreiheit geniesst) bloss eine virtuelle Doppelbesteuerung
annimmt. Da der Barwertvorteil in der Buchhaltung der Beschwerdeführerin
durch Bildung einer Rückstellung neutralisiert und damit von den übrigen
Betriebsstättenkantonen offenbar gar nicht besteuert wurde, liegt noch keine
aktuelle Doppelbesteuerung vor. In Frage steht aber eine virtuelle
Doppelbesteuerung, falls sich die vom Kanton Graubünden vertretene
objektmässige Ausscheidung des Barwertvorteils als nicht bundesrechtskonform
erweist.

3.

Umstritten ist einzig die Behandlung des Barwertvorteils bei der
Gewinnsteuerausscheidung der Beschwerdeführerin. Die Frage der
Gewinnermittlung als solcher (einschliesslich der Rückstellungsproblematik)
ist nicht Gegenstand des vorliegenden Verfahrens. Das Verwaltungsgericht
qualifiziert den Barwertvorteil im angefochtenen Entscheid als
Immobilienertrag (auf einer Kapitalanlageliegenschaft). Es befürwortet damit
eine objektmässige Ausscheidung zugunsten des Belegenheitsortes, d.h. die
ausschliessliche Besteuerung durch den Kanton Graubünden. Demgegenüber
vertreten die Beschwerdeführerin und der Kanton Zürich die Auffassung, die
Ausscheidung sei nach denselben Quoten vorzunehmen, wie sie für die
Repartition des übrigen Betriebsgewinns gelten; sie verneinen wegen des
fehlenden engen Zusammenhangs mit dem Grundeigentum das Vorliegen von
Immobilienertrag und bestreiten auch, dass es sich bei den fraglichen
Kraftwerksbetrieben im Kanton Graubünden um Kapitalanlageliegenschaften
handle. Wie es sich damit verhält, ist im Folgenden zu untersuchen.

4.

Die Beschwerdeführerin hat am 29. April 1998 mit diversen ausländischen
Partnern ein sog. "Lease-and-lease-back"-Geschäft abgeschlossen.

4.1 Ein "Lease-and-lease-back"-Geschäft (auch als
"Lease-in/Lease-out"-Geschäft oder "US-Cross Border Lease-Transaktion"
bezeichnet) ist eine internationale Finanzierungstransaktion, die in
zunehmendem Mass von Erbringern von öffentlichen Dienstleistungen angewendet
wird, um ihre Anlagen zu finanzieren (vgl. dazu: Joachim Frick,
Finanzleasinggeschäfte am Beispiel von Aircraft Finance-Transaktionen -
Strukturen, Vorteile und Risiken, in: Schweizerische Zeitschrift für
Wirtschaftsrecht [SZW] 72/2000, S. 242 ff.; Michael Pfeiffer, Lohnende
Leasinggeschäfte - keine Zechprellerei «ohne Gegenleistung», sondern
ernsthaftes Finanzierungsgeschäft, in: Solothurner Festgabe zum
Schweizerischen Juristentag 1998, Solothurn 1998, S. 413 ff.; vgl. auch
Thomas Günther/Mirko Niepel, Aufbau und Risiken des kommunalen
US-Lease-in/Lease-out in Deutschland, in: Deutsches Steuerrecht [DStR]
14/2002, S. 601 ff.); Patrick Biagosch/ Klaus Weinand-Härer, US-Cross Border
Lease-Transaktionen, in: Michael Kroll [Hrsg.], Leasing-Handbuch für die
öffentliche Hand, 9. Aufl., Lichtenfels 2003, S. 104 ff.; Peter Sester,
US-Cross-Border-Leasing: Eine Risikoanalyse - unter besonderer
Berücksichtigung der Risiken aus einer Insolvenz des US-Trusts und aus
deliktischen Klagen in den USA, in: Zeitschrift für Wirtschafts- und
Bankrecht 57/2003, Wertpapiermitteilungen [WM] 38/2003, S. 1833 ff.;
derselbe, Tatbestand und rechtliche Struktur des Cross-Border-Leasing, in:
Zeitschrift für Bankrecht und Bankwirtschaft [ZBB] 15/2003, S. 94 ff.).

4.2 Wie im Sachverhalt dargestellt (oben lit. A), liegt einer derartigen
Finanztransaktion ein komplexes Vertragswerk zugrunde, das in seinen
wesentlichen Elementen wie folgt skizziert werden kann: Durch einen
Hauptmietvertrag ("Head lease") wird das betreffende Wirtschaftsgut vom
Eigentümer an einen US-Trust vermietet (Laufzeit in der Regel 45 bis 99
Jahre). Die Mietrate wird in der Regel zu Beginn der Transaktion fällig und
an den Eigentümer bezahlt. Der US-Trust wiederum vermietet das Wirtschaftsgut
aufgrund eines Untermietvertrags ("Sub lease") zurück an den Eigentümer
(Mietdauer in der Regel 20 bis 29 Jahre); dieser erhält zudem eine
Kaufoption, um die beim US-Trust am Ende der Mietzeit noch bestehenden
Nutzungsrechte unter dem Hauptmietvertrag zu einem festen Preis zu erwerben.
Der Untermietvertrag sieht in der Regel eine halbjährliche oder jährlich
wiederkehrende Zahlung der Mietraten vor. Der Eigentümer kommt seinen
Zahlungsverpflichtungen (Mietraten, Optionspreis) häufig dadurch nach, dass
er mit zwei oder mehreren Banken entsprechende Erfüllungsübernahmeverträge
abschliesst (sog. "Payment Undertaking Agreements"). Die einzelnen
bilateralen Verträge sind durch einen Rahmenvertrag ("Participation
Agreement") miteinander verknüpft.

Für den Eigenkapitalinvestor des US-Trusts liegt der wirtschaftliche Vorteil
einer solchen "US-Cross Border Lease-Transaktion" in den steuerlichen
Abschreibungsmöglichkeiten, nach US-Steuerrecht (Joachim M. Fritz, Die
Bedeutung des wirtschaftlichen Beraters ["Arrangeurs"] bei US-Cross Border
Lease-Transaktionen, in: Kroll, Leasing-Handbuch, a.a.O., S. 124 ff.,
insbesondere S. 128 f.; vgl. auch Sester, a.a.O. [WM], S. 1833). Für den
Eigentümer des Wirtschaftsgutes liegt der wirtschaftliche Vorteil (sog.
Barwertvorteil) wie bereits erwähnt in der Differenz zwischen der unter dem
Hauptmietvertrag an den Eigentümer bezahlten Mietrate und den unter dem
Untermietvertrag geschuldeten Mietraten zuzüglich des Kaufoptionspreises. Die
Höhe des Barwertvorteils hängt von der Art und dem Alter des Wirtschaftsguts,
vom Wert der vermieteten Wirtschaftsgüter, von den langfristigen
US-Zinssätzen, dem US-Dollar-Kurs und den Anforderungen (hinsichtlich Rendite
und Sicherheit der Anlagen etc.) des US-Eigenkapitalinvestors ab (vgl.
Biagosch/Weinand-Härer, a.a.O., S. 107; Günther/Niepel, a.a.O., S. 604);
jedenfalls teilweise ist der Barwertvorteil auch auf die von den Beteiligten
vorgenommene "Aufteilung" der Zinsvorteile zurückzuführen.

4.3 Was die rechtliche Einordnung dieser "Lease-and-lease-back"-Geschäfte
(bzw. "US-Cross Border Lease-Transaktion") betrifft, handelt es sich nach der
spärlichen schweizerischen Literatur um ein einheitliches Geschäft, das nicht
als separate Vermietung mit nachfolgendem Rückerwerb der Nutzung betrachtet
werden könne (Frick, a.a.O., S. 246). Die Gesamttransaktion darf demnach
entgegen der in der Vernehmlassung vom 17. Januar 2005 der Steuerverwaltung
des Kantons Graubünden geäusserten Auffassung nicht in ihre einzelnen
Elemente zerlegt werden - unter Ausblendung wichtiger Teilaspekte (etwa
desjenigen der Refinanzierung). Alles hängt eng zusammen und reduziert sich
auf die Vereinnahmung eines Barwertvorteils, etwa in der Form eines
Kommissionsgeschäfts. Aus Schweizer Sicht kann die vertragliche Konstruktion
als "Finanzierungsgeschäft eigener Art" qualifiziert werden" (Pfeiffer,
a.a.O., S. 424; vgl. auch Sester, a.a.O. [ZBB], S. 94).

5.

5.1 Unter Ertrag i.w.S. aus einer Liegenschaft ist
doppelbesteuerungsrechtlich jegliches Einkommen zu verstehen, das eine Person
aus einem Grundstück erzielt, über das sie aufgrund ihres Eigentums oder
eines andern Rechts verfügen kann (Urteil 2P.185/1994 vom 2. Dezember 1996,
in: StE 1997 A 24.34 Nr. 1). Es ist unbestritten, dass vorliegend - wenn
überhaupt - nicht ein Vermögensgewinn (Wertzuwachsgewinn), sondern ein
Vermögensertrag in Frage steht. In den Fällen, in denen eine Liegenschaft
erst dank dem Arbeitsaufwand des Eigentümers einen Ertrag abwirft, lässt sich
das Ertragseinkommen nur dadurch von andern Einkünften abgrenzen, dass
untersucht wird, in welchem Mass das erzielte Einkommen auf die persönlichen
Bemühungen des Eigentümers zurückgeht und in welchem Mass es seine Ursache im
Grundstück selber (bzw. in der durch das Eigentum ermöglichten Nutzung) hat
(ASA 29 S. 198 E. 4b S. 203). Im vorliegenden Fall ist offensichtlich, dass
der fragliche Barwertvorteil nur dank dem arbeits- und kostenintensiven
Engagement des Eigentümers der Kraftwerkanlagen realisiert werden kann, nicht
aufgrund des Wirkens der lokalen Kraftwerkbetreiber in Mittelbünden bzw. im
Bergell. Dass diese Kraftwerkanlagen das "Vehikel" bilden, um dem US-Investor
Abschreibungspotential und damit Steuerstundungssubstrat zu verschaffen, ist
nicht entscheidend; ohne eine professionelle Beratung sind solche
"Lease-and-lease-back"-Geschäfte nicht denkbar, zumal sie nicht auf der Basis
von Standardverträgen abgeschlossen, sondern individuell (wenn auch nach
einheitlichem Muster) ausgehandelt werden (Fritz, a.a.O., S. 124 ff.;
Pfeiffer, a.a.O., S. 417 f.; vgl. auch den Untertitel bei Günther/Niepel,
a.a.O.: "Beratungsbedarf durch rechts- und steuerberatende Berufe"; Frick,
a.a.O., S. 242, S. 250). Schon aus diesem Grund erweist sich die Annahme von
Liegenschaftsertrag als nicht sachgerecht.

5.2 Wie dargelegt, hat der Barwertvorteil verschiedene Ursachen (oben E. 4.2
a.E.). Mit Rücksicht auf einige Kriterien (z.B. Art, Alter und Wert der
vermieteten Anlagen) könnte eine gewisse Komponente "Nutzungsentgelt"
(aufgrund des gegenüber dem Unterleasingvertrag bedeutend länger dauernden
Hauptleasingvertrags) bei formaler Betrachtungsweise allenfalls noch
angenommen werden. Daneben haben aber entscheidende andere Komponenten (z.B.
"Aufteilung" des Zinsvorteils, langfristige US-Zinssätze, US-Dollar-Kurs
etc.) mit den Immobilien im Kanton Graubünden nichts zu tun. Wenn überhaupt,
müsste der "Immobilienertrag" vom übrigen Finanzertrag ausgesondert werden.
Dabei bliebe völlig ungewiss, nach welchen Kriterien diese Aussonderung
vorzunehmen wäre. Eine solche Lösung würde zudem mit dem vom Bundesgericht
stets beachteten Prinzip kollidieren, wonach im Interesse der
Rechtssicherheit Regeln entwickelt werden sollen, die leicht und einfach zu
handhaben sind und keine Zersplitterung der Steuerhoheiten bewirken (BGE 125
I 458 E. 2d S. 467 f., mit Hinweisen). Doch selbst wenn eine Aussonderung
möglich wäre, könnte diese nicht darüber hinwegtäuschen, dass der
Barwertvorteil im Grunde nur die Gegenleistung des amerikanischen
Vertragspartners dafür ist, dass ihm eine bestimmte steuerliche Gestaltung
ermöglicht wurde (vgl. oben E. 4.2). So besehen besteht überhaupt kein Konnex
mit den Immobilien mehr. Im Übrigen sind viele der für
"Lease-and-lease-back"-Geschäfte (bzw. "US-Cross Border Lease-Transaktionen")
in Frage kommenden langlebigen Investitionsgüter wie Flugzeuge, Schiffe,
Eisenbahnrollmaterial oder Computergrossanlagen ohnehin bewegliches Vermögen,
wo eine Zuteilung an den Belegenheitsort nicht mehr in Frage käme. Einzig
dort den Ort der gelegenen Sache (allenfalls auch nur partiell) zum Zuge
kommen zu lassen, wo zufälligerweise Grundeigentum als Basiswert herangezogen
wird, erwiese sich als nicht sachgerecht. Auch diese Gründe sprechen somit
dagegen, den umstrittenen Barwertvorteil als Liegenschaftsertrag zu
qualifizieren.

5.3 Die Vorinstanz begründet ihre gegenteilige Auffassung damit, dass die
fraglichen Kraftwerkanlagen hinsichtlich der Stromerzeugung zwar
Betriebsanlageliegenschaften, hinsichtlich des Barwertvorteils aber
Kapitalanlageliegenschaften seien. Das vermag nicht zu überzeugen: Zum einen
hat das Bundesgericht eine solche "Doppelfunktion" von Liegenschaften bislang
nie angenommen. Zum andern ist zweifelhaft, ob die Gegenstand der "US-Cross
Border Lease-Transaktion" bildenden Kraftwerksliegenschaften wirklich eine
Kapitalanlagefunktion übernehmen. Kapitalanlageliegenschaften sind
Immobilien, die nur mittelbar durch ihren Ertrag als Kapitalanlage einem
Unternehmen dienen (Ernst Höhn/Peter Mäusli, Interkantonales Steuerrecht, 4.
Aufl., Bern/Stuttgart/Wien 2000, S. 495; Bernhard F. Schärer,
Verlustverrechnung von Kapitalgesellschaften im interkantonalen
Doppelbesteuerungsrecht, Diss. ZH 1997, S. 175). Vorliegend wird indessen
durch den Einsatz der fraglichen Kraftwerkanlagen für die
Leasing-Transaktion, wie aufgezeigt, viel mehr Substrat generiert als nur
"Immobilienertrag". Es erscheint daher naheliegend, von einer weiteren
Funktion als "Betriebsliegenschaft" zu sprechen; dies erst recht, wenn der
Barwertvorteil als Gegenleistung des amerikanischen Vertragspartners für die
ihm ermöglichte steuerliche Gestaltung aufgefasst wird. Im Rahmen von
Betriebsstättenliegenschaften angefallene Erträge werden aber in die
quotenmässige Ausscheidung einbezogen (Kurt Locher/Peter Locher, Die Praxis
der Bundessteuern, III. Teil, Das interkantonale Doppelbesteuerungsrecht, §
7, IB, Nr. 4, 14, 25, 32 [E. 4c]) und 45 [E. 3b]). Auch aus dieser Optik
erweist sich nur eine quotenmässige Gewinnausscheidung als sachgerecht.

6.

Nach dem Gesagten ist die Beschwerde gegenüber dem Kanton Graubünden
gutzuheissen, und das Urteil des Verwaltungsgerichts des Kantons Graubünden
vom 3. September 2004 ist aufzuheben. Der Barwertvorteil aus dem
"Lease-and-lease-back"-Geschäft ist nach denselben Quoten auszuscheiden, wie
sie auch für die Ausscheidung des übrigen Betriebsgewinns angewendet werden.
Bei diesem Verfahrensausgang wird der Kanton Graubünden kostenpflichtig (Art.
156 Abs. 1 OG in Verbindung mit Art. 153 und 153a OG). Der mit
öffentlichrechtlichen Aufgaben betrauten Beschwerdeführerin ist nach
bundesgerichtlicher Praxis keine Parteientschädigung zuzusprechen (Art. 159
Abs. 2 zweiter Teilsatz OG analog).

Demnach erkennt das Bundesgericht:

1.

Die staatsrechtliche Beschwerde gegen den Kanton Graubünden wird
gutgeheissen, und das Urteil des Verwaltungsgerichts des Kantons Graubünden
vom 3. September 2004 wird aufgehoben; der Barwertvorteil aus dem
"Lease-and-lease-back"-Geschäft ist nach denselben Quoten auszuscheiden, wie
sie auch für die Ausscheidung des übrigen Betriebsgewinnes angewendet werden.

2.

Die Gerichtsgebühr von Fr. 20'000.-- wird dem Kanton Graubünden auferlegt.

3.

Dieses Urteil wird der Beschwerdeführerin, der Steuerverwaltung des Kantons
Graubünden, dem Kantonalen Steueramt Zürich, dem Verwaltungsgericht des
Kantons Graubünden sowie den Kantonalen Steuerämtern der Kantone Aargau,
Bern, Glarus, Luzern, Obwalden, Schwyz, St. Gallen, Tessin und Wallis
schriftlich mitgeteilt.

Lausanne, 22. Juni 2005

Im Namen der II. öffentlichrechtlichen Abteilung
des Schweizerischen Bundesgerichts

Der Präsident: Der Gerichtsschreiber:

Senatsverwaltung für Finanzen Berlin

Senatsverwaltung für Finanzen Berlin
Pressemitteilung vom 21.06.2005 zu "Cross-Border-Leasing"

Der Senat hat auf Vorlage von Finanzsenator Dr. Thilo Sarrazin eine Mitteilung zur Kenntnisnahme an das Abgeordnetenhaus zu sogenannten "Cross-Border-Leasing"-Verträgen beschlossen.

Das Abgeordnetenhaus hatte den Senat in seiner Sitzung am 14.04.2005 aufgefordert, sicherzustellen, dass das Land Berlin und seine Beteiligungsunternehmen zukünftig keine Verträge nach dem Finanzierungsmodell des "Cross-Border-Leasing" mehr abschließen. Dazu berichtet der Senat, dass solche Transaktionen inzwischen aufgrund von gesetzlichen Änderungen in den USA ohnehin keine wirtschaftliche Attraktivität mehr haben und in der bisherigen Struktur nicht mehr abgeschlossen werden.

Hintergrund sind die vom US-Kongress im Oktober 2004 verabschiedeten neuen Regelungen zur steuerlichen Behandlung solcher Transaktionen. Sie gelten für derartige Verträge, die nach dem 12. März 2004 abgeschlossen wurden, für ältere Fälle besteht grundsätzlich Bestandsschutz.

IRS: Federal, State and Local Governments Customer Assistance

SALE IN - LEASE OUT (SILO) TRANSACTIONS BY MARLYCE LUITJENS, FSLG SPECIALIST (MIDWEST)

Your government entity may be approached about entering into a leasing transaction known as a “SILO” arrangement that may offer up-front cash benefits to enter into a long-term lease of your infrastructure. Although the up-front cash benefit is enticing and may help alleviate budget shortfalls, you should know that the Internal Revenue Service disallows depreciation and interest expense deductions claimed by taxpayers entering into SILOs. Lease-in lease-out (LILO) transactions that have many features found in the SILO transactions are “listed transactions,” meaning that they are abusive tax avoidance transactions.

To help you to understand how these transactions work, and why you should carefully evaluate participating in them, we are providing some background information.

What Is a SILO?

A SILO is a “sale-in/lease-out” arrangement between a for-profit corporation and a tax-exempt entity (Domestic or Foreign), such as a municipality or other state or local governmental unit. The objective of the transaction is to provide the for-profit corporation with tax deductions that the governmental unit cannot use because it is tax-exempt and an up-front benefit to the tax-exempt entity for entering the transaction. The SILO transaction generally includes an investor (a U.S. corporation), a tax-exempt entity (e.g. municipality), a grantor trust (an entity set up for the benefit of the investor), one or more foreign lenders, deposit taker(s) and financial advisors/arrangers (promoters) that assist the investor and/or the tax-exempt entity.

In a typical SILO transaction, the tax-exempt entity leases its property, such as a highway, subway, bridge, or water plant, to a U.S. corporation. The U.S. corporation treats the arrangement as a purchase of the property for Federal tax purposes. The U.S. corporation simultaneously leases the property back to the government entity for a shorter period of time. Although the parties structure the transaction in the same form as in a LILO transaction, since the length of the lease exceeds the useful life of the property, the transaction is treated as a sale and leaseback for tax purposes. The SILO employs the same fundamental contractual arrangements as the LILO arrangement, but typically involves a service contract provision instead of the put or renewal option found in LILOs. Please note that the service contract provision serves the same function as the put option, that is, it guarantees a fixed return to the corporation. The property generates tax deductions, mainly depreciation and interest expense, for the U.S. corporation. There are other SILOs that may be referred to as QTE (qualified technological equipment) leases.

Example of a SILO Transaction

A municipality leases its wastewater treatment plant (the “plant”) to a U.S. corporation for a 99year lease period and receives an immediate lease payment of $100 million for the property that will cover the 99-year lease term. This 99-year term is normally longer than the useful life of the plant or a nominal cost to renew the lease is granted to the investor such that the total term will be longer than the life of the asset. The municipality immediately leases the plant back from the corporation for a period of 30 years; this 30-year period usually ends at the first date on which the tax-exempt entity may exercise its buyout option. The transaction results in no change in the municipality's use or operation of, or beneficial interest in, the plant. The municipality retains the legal title to the plant and all ownership responsibilities, continues to operate the plant, delivers services, sets the user fee rates, collects the user fees, makes upgrade and expansion decisions and pays for such changes. The U.S. corporation treats the lease as a purchase for Federal tax purposes and deducts the interest expense and depreciation expense from its gross rental income. Generally, deductions exceed the rental income and offset other income of the investor.

At the onset of the contractual arrangement, the municipality receives the $100 million purported purchase price from the corporation. The funds for the $100 million are provided by an equity investment by the U.S. corporation (approximately 15-20% of the $100 million) and the remainder as a nonrecourse borrowing by the Trust. However, the municipality has an immediate right to an unrestricted use of only $3 million of the $100 million payment received from the corporation. The $3 million is in essence an accommodation fee received by the municipality for entering into the long-term lease transaction with the U.S. corporation that provides the corporation the Federal income tax benefits of the interest expense deduction and the depreciation expense deduction at the corporate tax rate of 35 percent over the term of the lease. A portion of the remaining $97 million is invested in U.S. Federal government-backed securities or other highly rated securities by the municipality. The municipality takes the majority of the $97 million in an amount equal to the nonrecourse loan amount and deposits it into a deposit account held at an affiliate of the foreign lender or by the foreign lender itself. These two accounts are pledged as security for the municipality’s obligations to the U.S. corporation and to the foreign lender, respectively.

The $97 million deposit amount defeases both the municipality’s rent obligations under the leaseback and the buyout option. The deposit account pledged to the foreign lender represents substantially all the funds necessary for the municipality to pay rent due under the leaseback, and the securities pledged to the U.S. corporation allow the municipality to exercise its buyout option at the end of the leaseback term. Thus, without any further cost or expenditure, the municipality may use the plant for the entire leaseback term and reacquire all rights to the plant at the end of the term.

Upon the expiration of the leaseback term, the municipality has the option to purchase the plant back from the U.S. corporation for a predetermined price. Typically, the highly-rated securities pledged to the U.S. corporation by the municipality will mature on the buyout date in the amount needed to fund the buyout price. If the municipality does not exercise the buyout option, the corporation has several alternatives: (1) Take possession of the plant, (2) Require the municipality to locate a third party to enter into a service contract, or (3) Compel the tax-exempt entity to enter into the service contract. Under alternative (2), if the municipality fails to locate a third party, the municipality will be in default unless it enters into the service contract. The result of all of these arrangements for the disposition of the plant, at the end of the leaseback term, is that the municipality will exercise the buyout option because all the funds needed by the taxexempt entity to exercise that option are available to that entity through the purchase of the highly-rated securities (known as the equity defeasance). In addition, given the nature of property such as a wastewater treatment plant, it is unlikely that the municipality will allow the property to be operated by a private corporation because of practical considerations, such as immunity from liability and employment agreements, and other political constraints.

SILO and LILO Transactions- Legal Considerations

The Internal Revenue Service is taking steps to combat abusive tax shelters and transactions. Tax shelters that are determined to be abusive are identified as “listed transactions.” Listed transactions require disclosure by participating corporations, individuals, partnerships, and trusts, in accordance with Treasury Regulations 1.6011-4T. You can view this list at www.irs.gov. Link to Businesses, Corporations, Abusive Tax Shelters and Transactions, and Listed Abusive Tax Shelters and Transactions for the following revenue ruling and coordinated issue paper:

Revenue Ruling 2002-69 -Lease In / Lease Out or LILO Transactions Coordinated Issue Paper -Losses Claimed and Income to be Reported from Lease In / Lease Out Transactions

For a more in-depth analysis of the LILO transaction, the Coordinated Issue Paper, “Losses Claimed and Income to be Reported from Lease In/Lease Out Transactions”, provides citations, regulations, and court cases regarding LILO transactions and can be viewed at the web site indicated above. For your reference and further information on LILOs, the web site also contains Revenue Ruling 2002-69 -Lease In / Lease Out or LILO Transactions.

Pending Administration proposals and Congressional legislation address SILO transactions and contain provisions intended to statutorily restrict these arrangements or the tax benefits available from them. If your government entity is considering an agreement of this type, you should be aware of these legislative developments.

Quellensteuern

Bei der Verhandlung von Cross-Border-Leasing Transaktionen spielt das Quellensteuerrisiko eine wesentliche Rolle. Was sind Quellensteuern? Was sind Quellensteuerrisiken? Wer trägt die Risiken und wie können sie minimiert und sachgerecht verhandelt werden? Der Aufsatz "Quellensteuern bei bei internationaler Geschäftstätigkeit" gibt hierzu einen Überblick.

Link zum Aufsatz