AWG Leasing Trust v. United States of America

The US District Court for the Northern District of Ohio sustained an IRS determination of tax liability related to a sale-in/lease-out (SILO) transaction executed by AWG Leasing Trust, an entity of taxpayers KeyCorp and PNC Bank. At issue was a $423 million transaction in which the taxpayers purportedly purchased a German waste-to-energy facility, contemporaneously leased the plant back to its original owner, and then claimed tax deductions for plant depreciation of the "purchase price" as well as interest on the funds they borrowed from two German banks to finance the transaction. The Court denied the taxpayers' claimed depreciation and interest expense deductions, and upheld the IRS's imposition of accuracy-related penalties for substantial understatement of tax liability. KeyCorp and PNC Bank will owe at least $88 million for the 1999-2003 tax years, and substantially more for subsequent years.

Affiliate Elizabeth A. Eccher and Managing Principal Richard M. Starfield provided consulting assistance to attorneys at the Department of Justice and supported Professor Thomas Z. Lys of the Kellogg School of Management at Northwestern University, in his preparation of expert testimony about the economic substance of the transaction and related financing issues. Mr. Starfield and Dr. Eccher also supported our affiliates Manfred Ernst, Ph.D., and Morris Shinderman in their analyses of complex leasing and valuation issues related to the AWG transaction.

Professor Lys is the Eric L. Kohler Chair in Accounting and professor of accounting information and management at the Kellogg School, and professor of law at Northwestern University. His research investigates the economic consequences of alternate financial reporting standards and financial decisions, such as changes in capital structure and corporate disclosures. Dr. Ernst is executive chairman of Fieldstone investment bank, and an expert in the origination and execution of energy and non-energy project finance transactions, both domestically and internationally. The late Mr. Shinderman was an expert in structuring sophisticated domestic and international capital asset financing deals.

Read the Department of Justice press release