Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Con Ed Reversal Ends LILO/SILO Saga ' And Then Some
In January, the U.S. Court of Appeals for the Federal Circuit handed down its decision in Consolidated Edison Company of New York, Inc. v. United States, No. 2012-5040 (Fed. Cir. 2013), rev'g 90 Fed. Cl. 228 (2009). See LJN's Equipment Leasing Newsletter Sept. 2008, Oct. 2008 and Jan. 2010. The decision reverses the only lower court case that had decided a LILO or SILO transaction in favor of the taxpayer, and likely ends the decade-long litigation of these contentious leveraged lease cases. While the reversal was not unexpected in light of recent appellate cases disallowing LILO/SILO tax benefits, the decision has had the, perhaps, unintended effect of calling into question the use of lessee fixed-price purchase options in sale-leasebacks and other more conventional equipment leasing transactions.
In a typical LILO, the taxpayer, acting through a grantor trust, leases assets from a tax-exempt entity (e.g., a domestic municipal transit agency or a foreign entity not subject to U.S. income taxation) under a primary or ”head” lease. A SILO transaction is similar, except that the head lease term is deliberately structured to extend beyond the remaining useful life of the asset, so that it is treated as a sale for tax purposes. At closing, the taxpayer will make a significant payment to the lessee, either the purchase price for the property (in a SILO) or a partial prepayment of its head lease. The taxpayer then leases the property back to the tax-exempt entity under a net lease, where the lessee retains substantially all rights and responsibilities to use and maintain the property during the lease term.
At the end of the lease, the lessee may exercise an option to acquire the taxpayer/lessor's interest in the property. The exercise price is a fixed amount determined at the inception of the transaction based on an appraisal. The price is equal to or greater than the property's projected fair market value at the lease expiration date. If the lessee does not exercise its option, what happens next varies from LILO to SILO. With a LILO, the taxpayer/lessor typically may compel the lessee to renew the sublease for an additional period (for rent set at 90% to 95% of the projected rental value). In a SILO, different options apply if the lessee elects not to exercise the purchase option. The lessee must locate a third-party operator for the property and obtain nonrecourse refinancing of the lessor's outstanding debt. Payments under the third-party service contract must be sufficient to repay the nonrecourse financing. The principal tax benefits claimed by the taxpayer are deductions for head lease rent (in a LILO) or for depreciation (in a SILO) and interest on the nonrecourse debt.
Yachts, Jets, Horses & Hooch: Specialized Commercial Leasing Models
Defining commercial real estate asset class is essentially a property explaining how it identifies — not necessarily what its original intention was or what others think it ought to be. This article discusses, from a general issue-spot and contextual analysis perspective, how lawyers ought to think about specialized leasing formats and the regulatory backdrops that may inform what the documentation needs to contain for compliance purposes.
Hyperlinked Documents: The Latest e-Discovery Challenge
As courts and discovery experts debate whether hyperlinked content should be treated the same as traditional attachments, legal practitioners are grappling with the technical and legal complexities of collecting, analyzing and reviewing these documents in real-world cases.
Identifying Your Practice's Differentiator
How to Convey Your Merits In a Way That Earns Trust, Clients and Distinctions Just as no two individuals have the exact same face, no two lawyers practice in their respective fields or serve clients in the exact same way. Think of this as a "Unique Value Proposition." Internal consideration about what you uniquely bring to your clients, colleagues, firm and industry can provide untold benefits for your law practice.
Risks and Ad Fraud Protection In Digital Advertising
The ever-evolving digital marketing landscape, coupled with the industry-wide adoption of programmatic advertising, poses a significant threat to the effectiveness and integrity of digital advertising campaigns. This article explores various risks to digital advertising from pixel stuffing and ad stacking to domain spoofing and bots. It will also explore what should be done to ensure ad fraud protection and improve effectiveness.
Turning Business Development Plans Into Reality
This article offers practical insights and best practices to navigate the path from roadmap to rainmaking, ensuring your business development efforts are not just sporadic bursts of activity, but an integrated part of your daily success.