IRS offers to settle with firms using leasing tax shelters

The Internal Revenue Service, capitalizing on recent court victories, offered 45 companies -- including banks -- the chance to settle disputes about the use of a leasing tax shelter.

The settlement offer involves a shelter such as one that Wachovia Corp., after an appeals court ruling in April, said would cost the bank $975 million in back taxes.

The offer, under which the IRS agreed to waive penalties, requires the companies to terminate the transactions, known as "lease-in, lease-out" or "sale-in, lease-out" deals. In exchange, they'll be allowed to keep 20 percent of their claimed tax losses. Bank of America Corp. and Wells Fargo & Co. were among other banks to use those kinds of transactions. IRS Commissioner Doug Shulman said billions of dollars in tax liabilities are at stake.

The settlement offer comes after IRS victories in district and appeals courts against BB&T Bank Corp. and Fifth Third Bancorp. Wachovia announced that it was taking its $975 million charge after the BB&T decision April 29. The government also won a case in May involving a company called AWG Leasing Trust.

The settlement offer affects a "broad range of companies," Shulman said. In 2004, Bloomberg News reported that, besides banks, firms such as tobacco company Altria Group Inc. and Textron Inc., maker of Cessna aircraft, engaged in the transactions.

Bank of America spokesman Scott Silvestri declined to comment, as did Julia Tunis Bernard of Wells Fargo. Calls to Altria and Textron for comment weren't immediately returned.

The IRS sent settlement offers to all 45 companies, Shulman said. The companies have 30 days to respond, he said.

In the tax shelters, known by the acronyms LILO and SILO, banks or other firms arranged to buy subway cars or other public assets and lease them back to cities or transit authorities. The banks and firms claimed deductions, such as depreciation on the equipment.

The IRS challenged the arrangements in court, saying the purchase-and-lease transactions were shams designed to produce tax deductions on assets that the banks and companies never truly owned.