Federal Jury Rejects Altria Group's $24 Million Tax Shelter Claim

WASHINGTON – A federal jury in New York has rejected the $24 million tax refund claim filed by Altria Group Inc. relating to its investment in lease-in, lease-out (LILO), and sale-in, lease-out (SILO) tax shelters, the Justice Department announced today. The verdict follows a three-week trial in the Southern District of New York before U.S. District Judge Richard J. Holwell.

The evidence at trial showed that Altria made purported investments in four properties: a power plant in Georgia, a power plant in Florida, a Dutch wastewater treatment facility and a New York Metropolitan Transportation Authority rail yard in Queens. Altria claimed ownership of the properties, which were owned by tax-indifferent entities (i.e., entities that do not generally pay federal taxes), for the purpose of taking the tax deductions which those entities could notHowever, the jury found that Altria never acquired the benefits and burdens of ownership and that the transactions lacked economic substance. The jury accordingly rejected Altria’s $24 million refund claim.

The Justice Department has reported that hundreds of LILO and SILO transactions were entered into by taxpayers in the late 1990s, and that billions of dollars may be at stake in disputes over these transactions. The government has prevailed in all four cases, including this one, where such tax shelters have been challenged.

"This victory for the United States should serve as another warning to taxpayers not to engage in abusive tax shelter transactions and that the government will continue to shut these transactions down," said John Dicicco, Acting Assistant Attorney General of the Tax Division.

Mr. DiCicco thanked IRS attorneys Abigail Foster Dunnigan, Steven Balahtsis and John Aramburu for their invaluable assistance, and especially noted the contribution that the late David F.P. O’Connor had made to the successful resolution of this matter.

Assistant U.S. Attorneys David J. Kennedy, Robert William Yalen, Lawrence H. Fogelman and Bertrand Madsen, and Special Assistant U.S. Attorney Matthew Von Schuch of the Justice Department’s Tax Division litigated this case.