Representative Sander Levin of Michigan has proposed ending a tax transaction used by companies including Verizon Communications Inc. to spin off some operations tax-free.
Levin, a Democrat who became acting chairman of the House Ways and Means Committee two weeks ago, suggested adding a ban on the transaction -- known as a reverse Morris trust -- to a jobs bill being negotiated by the Senate and House.
If Levin's plan becomes law, "astrategy that, for example, Verizon has utilised on several occasions, will be severely curtailed," said Robert Willens, founder and president of Robert Willens LLC, a consulting firm that advises investors on tax and accounting rules.
New York-based Verizon, which has the largest US mobile-phone business, agreed last May to sell rural phone lines in 14 states to Frontier Communications Corp. in a transaction worth about $US8.6 billion. Stamford, Connecticut-based Frontier is tripling its size in the deal, which Chief Executive Officer Maggie Wilderotter has said is expected to be completed in this year's second quarter.
Peter Thonis, Verizon senior vice president for external communications, said in a telephone interview that "many, many" companies have used the transaction, which has been legal since 1997. He declined to comment further. Brigid Smith, a spokeswoman for Frontier, didn't immediately return a call seeking comment.
Other Companies
Companies that used the strategy while spinning off subsidiaries include Viacom Inc., Kraft Foods Inc. and the Walt Disney Co.
Twenty-one House members, backed by the Communications Workers of America labor union, urged the Ways and Means committee in December to end the tax benefits. Levin became acting chairman March 4 after New York Representative Charles Rangel stepped aside pending an ethics committee investigation into allegations of improper conduct.
Levin's provision would apply to transactions starting March 15, according to the draft text. The jobs bill, among other things, would extend authority to issue Build America Bonds and eliminate capital-gains taxes on the sale of small business stock.
Fifteen of Levin's top 20 campaign donors since 1989 were labor unions. Unions say the tax shelter creates incentives for larger companies to transfer assets to smaller, weaker companies after spinoffs.
Rangel proposed barring the transaction in 2007 as part of a tax overhaul that didn't win approval.
