The Treasury Department and the Internal Revenue Service on Monday issued guidance that designates "sale-in/lease-out" or "SILO" arrangements as abusive tax avoidance transactions.
SILO arrangements are designed to exploit the tax law by shifting tax benefits from a tax‑indifferent party that cannot use them to a taxpayer that can. Taxpayers entering into SILO arrangements cannot claim tax benefits as the purported owners of property subject to the lease because they do not acquire tax ownership of the property.
In the American Jobs Creation Act of 2004, Congress enacted limitations on the deductibility of losses from future SILO transactions.
The Notice informs taxpayers that the IRS will challenge the purported tax benefits claimed by taxpayers entering into earlier SILO transactions on a number of grounds. It further states that SILOs are considered "listed transactions." Taxpayers who enter into SILOs and who are required to file tax returns must disclose their participation to the IRS. In addition, promoters of listed transactions must keep lists of investors and, in certain cases, register those transactions with the IRS.