Wednesday, January 9, 2013

US Debt Reduction Sequester Tax Solution #5: Eliminate Big Financial Corp Tax Advantaged Leasing Tax Loophole

Presently, many Big Financial Corps, including REITs, some large Partnerships, and even some Non-Financial Corps, use very favorable tax-advantaged lease transactions, when they lease out all kinds of property.

This tax-advantaged leasing permits these Big Financial Corps to report taxable income from many leasing transactions substantially slower than the way these transactions are recorded in their audited financial statements under US Generally Accepted Accounting Principles (GAAP).

To show how huge this tax loophole is, from a review of these Big Corps' income tax footnotes, below here are the related Deferred Income Tax Liabilities Related to Leasing at Dec 31, 2011 and at Dec 31, 2010 for a handful of the many Big Corps that use tax-advantaged lease financing.

The Deferred Income Tax Liability is the cumulative tax benefit of the difference between the tax-advantaged leasing that Big Financial Corps are using to reflect these lease transactions in their federal income tax returns and the much more economically logical approach to record these leasing transactions that audited US GAAP requires.

Deferred Income Tax  Liability on Leasing Transactions


12-31-11 12-31-10

mils of $s mils of $s
Big Financial Corps


GE Capital 11,779 10,963
Toyota Motor Credit US 6,379 6,061
Wells Fargo 4,344 3,703
Bank of America 3,048 2,269
US Bancorp 3,042 2,957
JPMorgan Chase 2,569 2,160
Boeing Capital 2,052 1,545
Ally Financial 1,391 1,551
PNC Financial Services 1,361 1,325
Bank of NY Mellon 1,150 1,153
Key Corp 1,064 685
Fifth Third Bancorp 1,040 1,093
SunTrust Banks 985 1,033
CIT Group 925 928
State Street Corp 853 801
Northern Trust 728 701
Regions Financial 701 597
M&T Bank 497 546
Comerica 398 382
BB&T 397 463
UnionBancal 346 340
John Deere Capital 315 303
Caterpillar Financial Services 294 295
Citigroup 267 211
Ford Motor Credit 262 287




Total 25 Big Financial Corps 46,187 42,352




Non-Financial Corps


Verizon Communications 2,149 1,950
IBM 1,569 1,980
Dell 423 481
Pitney Bowes 220 49




Grand Total of all 29 Corps 50,548 46,812 +8%


There are many other large companies, including REITS, that use tax-advantaged lease accounting, but they didn't disclose separately in their income tax footnotes the amount of the related Deferred Income Tax Liability.  Instead, theses amounts were buried in other of their Deferred Income Tax Liability categories, or these tax benefits were passed through to the individual income tax level.

Given that this very quick review resulted in 29 Big Corps taking advantage of this existing tax-advantaged lease accounting tax loophole, which amounted to $50.5 bil at 2011 year end, which was up 8% in just one year, the positive CBO scoring to the US Government over the next ten years from eliminating this egregious tax loophole for all large companies using it will amount to substantially more than $200 bil.

The economic damage to Big Financial Corps from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal taxable income for these leasing transactions will be the same over the long run, it's just that it will be higher in the earlier years than it is presently.  Thus, there will be no income tax charge to the income statements of these Big Corps from my proposal here.

Given the country's massive debt level, this tax-advantaged leasing loophole should clearly be closed.

And all of the money raised here should be used to reduce the US Debt.