Washington (Oct. 14, 2002) -- The Internal Revenue Service has reaffirmed its 1999 conclusion that a taxpayer may not deduct rent or interest paid or incurred in connection with a Lease-In/Lease-Out Transaction, also known as a "LILO" transaction."This ruling is part of our larger effort to respond to abusive transactions," said IRS commissioner Charles O. Rossotti. "Abusive tax shelters unfairly place more tax burden on other taxpayers."

"We have refined our analysis of LILOs based on information from actual transactions and have presented a legal position that gives clear guidance to the field and taxpayers alike explaining why we believe these transactions do not work," said IRS chief counsel B. John Williams, Jr. "Our primary position is that LILOs, in substance, confer only a future interest in property to the U.S. taxpayer, rather than a current leasehold interest."

"Our position does not rely on the lack of a pre-tax profit potential or business purpose. There may be situations, however, where those facts exist," Williams said. "In such situations, we may challenge the tax treatment of the transactions on those grounds as well."

-- Electronic Accountant Newswire staff

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