Altria # 1 - Frank Lyon and tax shelters (3/20/10)

I write today about a decision in a refund suit because it involves a jury verdict in a highly structured tax shelter. I have spent some words in this blog discussing concerns about the task a criminal jury faces in determining criminal liability for structured tax shelters, so I think this case is notable for this blog. In Altria Group, Inc. v. United States, 2010 U.S. Dist. LEXIS 25160 (S.D.N.Y. 2010), the jury was tasked to determine whether the substance over form or the economic substance doctrines (or both) applied to deny the taxpayer the tax benefits of ownership.

As introduction to the case and today's topic, I quote Judge Holwell's introductory summary of the case:

This case concerns federal income tax deductions plaintiff Altria Group Inc. and its subsidiary Phillip Morris Capital Corp. ("PMCC" or "Altria, " collectively with plaintiff) generated by leasing big pieces of infrastructure from tax-indifferent counterparties. These tax shelter transactions are known in the leasing industry as SILOs ("Sale-In-Lease-Out") and LILOs ("Lease-In-Lease-Out"). Following a two-week trial, the jury concluded on the facts presented to it that plaintiff's SILOs and LILOs lacked economic substance and failed to transfer tax ownership of the properties to Altria, thereby justifying disallowance by the IRS of certain deductions claimed by Altria. Several courts and another jury have reached similar conclusions in other jurisdictions. See BB&T Corp. v. United States, 523 F.3d 461 (4th Cir. 2008); AWG Leasing Trust v. United States, 592 F. Supp. 2d 953 (N.D. Ohio 2008); Fifth Third Bancorp & Subs. v. United States, 05 Civ. 350 (S.D. Ohio, April 18, 2008) (jury verdict); Wells Fargo & Co. v. United States, 91 Fed. Cl. 35 (Fed. Cl. 2010). But see Consolidated Edison Co. v. United States, 90 Fed. Cl. 228 (Fed. Cl. 2009).

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