ELA and Alleged Fed Lease Tax Loop Hole

Arlington, VA——Michael Fleming, president of the Equipment Leasing Association (ELA) declared the assertions made by members of Congress and the Treasury Department “strange” and “inaccurate” about lease transactions used by tax-exempt entities. An audio file of the call can be found at http://www.elaonline.com/GovtRelations/Federal/.

On the call, Fleming shared how tax-exempt entities currently use lease financing and its benefits, the tax exposure in the transactions, various scenarios in which tax-exempt entities may find themselves without lease financing available to them, and the consequences of continued incorrect characterization of lease financing.

“The mischaracterization of leasing transactions— widely used by tax exempt entities with major financial institutions — has been extreme,” said Michael Fleming. “Labeling these transactions as ‘tax avoidance' is just plain wrong. In fact, these transactions and the parties involved do have tax exposure.”

Tax exempt entity lease transactions are based upon well-recognized legal principles, followed closely for decades, he noted. By oversimplifying and unfairly maligning these transactions, with little serious consideration for the consequences of their being disallowed in the future, the future of public-private partnership is in danger, warned Fleming.

Lease transactions provide much needed capital to entities as diverse as hospitals, charities, educational institutions, municipal services, such as sewer systems, mass transportation and other projects, and other organizations.

The proposed changes to existing U.S. law under Section 476 of the Senate Finance Committee's JOBS bill (S.B. 1637) — recently proposed by Senator Grassley to take effect, retroactively, as of November 18, 2003 — would impose broad and far reaching limitations on deductions allowable to property leased to or used in connection with the provision of services to state and local governments and other tax exempt entities. The elimination of the critical financial support these leasing transactions provide has not been replaced in either Sen. Grassley's or the President's budget with a plan for alternative financial support. 

“Has anyone talked to these organizations to see how they are going to finance their projects? That side of the story that isn't being told,” said Fleming.

The Equipment Leasing Association is encouraging the very groups that stand to lose essential financial support that these leasing transactions provide, to object to the bill and budget proposals. 

“Declarations in Congress have brought many pending agreements to a standstill without consideration of alternative sources of financing for hospitals, cities, schools and fire departments. They are the ones that are really going to be the losers in this,” said Fleming.

About the Equipment Leasing Association

Organized in 1961, the Equipment Leasing Association (ELA) is the premier non-profit association representing companies involved in the dynamic equipment leasing and finance industry to the business community, government and media. As the voice of the leasing industry, ELA promotes the estimated $208 billion industry as a major source of funds for capital investment in the United States and abroad.

ELA provides its members with comprehensive services, assists in the resolution of industry issues, educates financial decision-makers on the benefits of leasing and promotes high standards of business practices within the industry. ELA maintains an informational portal for financial decision-makers to learn more about leasing and find a leasing company at http://www.LeaseAssistant.org. Headquartered in Arlington, Va., ELA has more than 800 member companies and a staff of 25 professionals. For more information on ELA, please visit ELA Online at http://www.ELAOnline.com.

Please visit http://www.elaonline.com/GovtRelations/Federal/Issues.htm to access related ELA Reports released this week including:

o        Cities Access to Important Financing Threatened by Senate Finance Committee Action and Treasury Stance, January 13, 2004

o        Congress' Historical Support for Leasing to Cities, January 13, 2004

o        Leasing Provides an Important Source of Financing for Cities, January 13, 2004

·                FTA Agencies Benefit from Leasing, January 13, 2004