The Fading Pickle Lease

December 12, 2014
In 1995 legislation was proposed to end certain tax advantages of Pickle leases after IRS saw tax abuse.  
This week’s Cromnibus bill and its impact on the use of certain structures had us thinking of other such government intervention. The Cromnibus spending bill will get rid of Section 716 of Dodd-Frank, which would have banned certain derivatives transaction that involved federally insured (i.e., FDIC) institutions. The idea was that US tax dollars would be backing risky transactions. Section 716 required banks to “push out” these swaps to uninsured subsidiaries and the like.
And just about 20 years ago the US Treasury was taking a hard look at a provision that they felt was depriving it of tax revenue: international leasing. International leases and more specifically lease accelerators were used by some companies as a tax saver and were very popular in the early 1990s. Companies could realize investment tax credits in addition to reduced tax depreciation for property leased to a non-US taxpayer. But by 1996, the US finally cracked down on some of the provision of the Pickle lease, reducing the tax benefits. Lease transactions took a hit after the rules went into effect, nonetheless, as International Treasurer wrote in August 1995, “Market forces will determine whether new evolutions or alternative lease structures put US-initiated, cross-border equipment leasing back on its growth trend.”

 

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