The Internal Revenue Service reported that it has seen a strong response to its settlement offer for two types of tax shelters, with companies agreeing to pay back taxes totaling billions of dollars.

The settlement offers involve lease-in/lease-out (LILO) and sale-in/sale-out (SILO) transactions. More than two-thirds of corporations that received a LILO or SILO settlement offer from the IRS have decided to accept the offer. Those accepting the offer had more than 80 percent of the total number of LILO and SILO leases, according to the IRS.

These leases involve about 80 percent of the dollars in dispute and will require the corporations to concede billions of dollars in tax deferrals. Participation in the settlement remains preliminary until final closing agreements are reached between the individual corporate taxpayers and the IRS.

"This broad response from some of the nation's largest corporations reflects the success of the IRS campaign against aggressive tax shelters," said IRS Commissioner Doug Shulman (pictured) in a statement. "Corporations that have chosen to settle have done the right thing by putting this behind them. For those who failed to take us up on this offer, we will vigorously pursue their cases."

In August, the IRS gave companies 30 days to agree to a settlement (see IRS Presents Ultimatum on Tax Shelters).

LILOs and SILOs involve complex arrangements in which some of the nation's largest corporations purportedly leased or purchased large assets, such as foreign rail systems or sewer systems, and immediately leased them back to their original owners. Under these arrangements, corporate taxpayers put off recognition of current income for tax purposes for many years.

The IRS designated LILOs as listed transactions in 2000. SILOs were designated in 2005. Since then, the government has gone to court and successfully challenged these transactions as having no purpose other than creating tax benefits. The IRS has won several recent cases involving the transactions, including cases against BBT Corp. and Fifth Third Bancorp (see Government Wins Another Tax Shelter Case).

Prior to the settlement initiatives, there were hundreds of these transactions that had yet to be fully examined or adjudicated fully. The large percentage of eligible corporations electing to participate in the settlement offer substantially lessens the examination inventory.

More than 30 companies have agreed to the settlements so far. Among the companies that have said they agreed to settlements are Key Corp., which took a $1.01 billion charge, Bank of New York Mellon, and Wachovia, which took a $975 million charge, according to Reuters.

Under the terms of the settlement offer, corporations that elected to participate have a number of conditions to satisfy to reach a final closing agreement with the IRS.  The IRS expects to finalize most of the closing agreements within several months.

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