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CNN Live Saturday

Senate Looks Into "Lease Schemes"

Aired October 25, 2003 - 18:44   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CAROL LIN, CNN ANCHOR: Well we wouldn't be surprised to see this story become a plot on "K Street". The Senate is looking into lease schemes that give cities quick cash, and corporations fat federal tax breaks. Let's get down on the low down on these controversial tax shelters from Janet Novak, Washington Bureau Chief for "Forbes" magazine. Hi there Janet.
JANET NOVAK, FORBES MAGAZINE: Hi.

LIN: All right, I'm going to sum it up, and tell me if this is the situation, as I understand it. A city owns a property like a bus or a bus terminal, leases it to a fat cat company, the fat cat company gets federal tax breaks because they're renters, and the city still gets paid by the company. So the city wins, the company wins, and the taxpayer is footing the bill? Is that what it sounds like?

NOVAK: Essentially that is what's happening. Of course in between the company and the city are some investment bankers, or a big bank. So lots of folks are making money off this. But the taxpayer is the loser here.

LIN: So how is it that these schemes are allowed to go on?

NOVAK: Well they're not in this sense. The IRS is always running one-step behind the engineers of these abusive corporate tax shelters. So the IRS says no you can't do it that way, that's illegal. So the engineers come up with a slightly different variation. So if the IRS says you can't do something called Lilo's (ph), they come up with something called Silos (ph). And in essence, what they're doing is shuffling paper, and claiming a great deal of tax breaks for it. They are not creating any jobs; they're not creating any (UNINTELLIBLE) activity. They are just moving paper around, and the only new jobs are for accountants and lawyers.

LIN: So what's being done about it?

NOVAK: Well, the reason that the senate finance committee had this hearing last week is because they feel not enough is being done about it. Congress has known for four or five years now that there's an extensive problem here. Perhaps 15 to 18 billion a year by the latest IRS estimate is being lost to these corporate tax shelters. And even the treasury has asked for some new laws to deal with it. And so far congress has not seen it's way clear to pass them. The senate has passed them twice. The house has not signed on. The finance committee is getting quite frustrated. They feel like this is a continuing problem, and let's get moving.

LIN: What's the controversy?

NOVAK: There are a lot of lobbyists, as you alluded to who don't want to see this happen. And they say no, no, no, you don't need any more laws. The IRS has enough laws. You see the IRS is enforcing the law now. The problem is the IRS is always two or three steps behind. It doesn't know what it doesn't know. And some of these new laws that are being sought would for example, force the promoters to tell the IRS earlier what they're up to. And if they didn't tell, then they would face very stiff penalties.

LIN: Well let me ask you this. How is it any different than say a private property owner, a homeowner who decides he wants to rent out his house to get the tax breaks? I mean wouldn't corporations or shouldn't corporations benefit from a similar sort of break in the sense that maybe that act itself does not create jobs, but it allows the company to make money, get deductions, and create jobs elsewhere?

NOVAK: Well the difference is that you are going to be taxed on the income you get from the renter, and then you're going to take your depreciation and your deductions against that. So that you're going to end up being taxed on some income, because you're really doing something. Your renting it out.

LIN: Got you.

NOVAK? So what we have here is no real economic activities and just tax breaks.

LIN: OK. Thanks so much Janet Novak, the beat goes on. Let's hope congress can do something about it. Appreciate the time.

NOVAK: Let's hope so, thanks.

LIN: Janet Novak, "Forbes" magazine.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired October 25, 2003 - 18:44   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: Well we wouldn't be surprised to see this story become a plot on "K Street". The Senate is looking into lease schemes that give cities quick cash, and corporations fat federal tax breaks. Let's get down on the low down on these controversial tax shelters from Janet Novak, Washington Bureau Chief for "Forbes" magazine. Hi there Janet.
JANET NOVAK, FORBES MAGAZINE: Hi.

LIN: All right, I'm going to sum it up, and tell me if this is the situation, as I understand it. A city owns a property like a bus or a bus terminal, leases it to a fat cat company, the fat cat company gets federal tax breaks because they're renters, and the city still gets paid by the company. So the city wins, the company wins, and the taxpayer is footing the bill? Is that what it sounds like?

NOVAK: Essentially that is what's happening. Of course in between the company and the city are some investment bankers, or a big bank. So lots of folks are making money off this. But the taxpayer is the loser here.

LIN: So how is it that these schemes are allowed to go on?

NOVAK: Well they're not in this sense. The IRS is always running one-step behind the engineers of these abusive corporate tax shelters. So the IRS says no you can't do it that way, that's illegal. So the engineers come up with a slightly different variation. So if the IRS says you can't do something called Lilo's (ph), they come up with something called Silos (ph). And in essence, what they're doing is shuffling paper, and claiming a great deal of tax breaks for it. They are not creating any jobs; they're not creating any (UNINTELLIBLE) activity. They are just moving paper around, and the only new jobs are for accountants and lawyers.

LIN: So what's being done about it?

NOVAK: Well, the reason that the senate finance committee had this hearing last week is because they feel not enough is being done about it. Congress has known for four or five years now that there's an extensive problem here. Perhaps 15 to 18 billion a year by the latest IRS estimate is being lost to these corporate tax shelters. And even the treasury has asked for some new laws to deal with it. And so far congress has not seen it's way clear to pass them. The senate has passed them twice. The house has not signed on. The finance committee is getting quite frustrated. They feel like this is a continuing problem, and let's get moving.

LIN: What's the controversy?

NOVAK: There are a lot of lobbyists, as you alluded to who don't want to see this happen. And they say no, no, no, you don't need any more laws. The IRS has enough laws. You see the IRS is enforcing the law now. The problem is the IRS is always two or three steps behind. It doesn't know what it doesn't know. And some of these new laws that are being sought would for example, force the promoters to tell the IRS earlier what they're up to. And if they didn't tell, then they would face very stiff penalties.

LIN: Well let me ask you this. How is it any different than say a private property owner, a homeowner who decides he wants to rent out his house to get the tax breaks? I mean wouldn't corporations or shouldn't corporations benefit from a similar sort of break in the sense that maybe that act itself does not create jobs, but it allows the company to make money, get deductions, and create jobs elsewhere?

NOVAK: Well the difference is that you are going to be taxed on the income you get from the renter, and then you're going to take your depreciation and your deductions against that. So that you're going to end up being taxed on some income, because you're really doing something. Your renting it out.

LIN: Got you.

NOVAK? So what we have here is no real economic activities and just tax breaks.

LIN: OK. Thanks so much Janet Novak, the beat goes on. Let's hope congress can do something about it. Appreciate the time.

NOVAK: Let's hope so, thanks.

LIN: Janet Novak, "Forbes" magazine.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com