[Congressional Record Volume 157, Number 109 (Wednesday, July 20, 2011)]
[Extensions of Remarks]
[Page E1371]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


    LEGISLATION TO FAIRLY TAX ``REVERSE MORRIS TRUST'' TRANSACTIONS

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                     HON. LOUISE McINTOSH SLAUGHTER

                              of new york

                    in the house of representatives

                        Wednesday, July 20, 2011

  Ms. SLAUGHTER. Mr. Speaker, I rise today to introduce legislation 
that would eliminate a tax loophole that puts at risk 
telecommunications services and workers in states across the country. 
The bill seeks to limit ``Reverse Morris Trust'' (RMT) transactions, a 
tax avoidance loophole that continues to be utilized by companies, 
including publicly regulated utility companies. RMT transactions 
regularly allow companies to avoid paying millions of dollars in taxes 
while having adverse consequences for consumers, workers and the 
Federal Treasury.
  Under an RMT, a parent company can spin off a subsidiary that merges 
into an unrelated company tax free if the shareholders of the parent 
company control more than 50 percent of the voting rights and economic 
value of the resulting merged company. The result deprives the federal 
treasury of hundreds of millions of dollars. And all too frequently, 
the new entity incurs too much debt and lacks the capital needed to 
maintain services and perform system upgrades that it depends on to 
provide quality services to its customers and create good paying jobs.
  The legislation I am introducing would restrict the benefits of the 
RMT transaction by removing an incentive for companies to sell off 
assets tax free by creating a spinoff company that assumes massive 
amounts of debt. The bill would help protect the interests of consumers 
and workers, while preventing this unintended loophole from resulting 
in the loss of hundreds of millions of dollars of federal revenues at a 
time when our federal deficit is soaring. Based on analysis from the 
Joint Committee on Taxation in the 111th Congress, closing the RMT 
loophole would raise approximately $250 million over 10 years.
  One recent RMT transaction provides a prime example of the dangers of 
this loophole. Despite objections from the public and Congressional 
members, Verizon utilized the RMT to avoid taxes on a similar 
transaction with FairPoint Communications in Maine, New Hampshire and 
Vermont almost four years ago. As predicted, the result was 
unprecedented consumer complaints lodged with state regulators who were 
unable to reverse the negative consequences. On October 26, 2009, 
FairPoint declared bankruptcy, leaving the future of telephone service 
across all three states uncertain, and potentially putting at risk the 
compensation and benefits of thousands of employees.
  Mr. Speaker, I urge my colleagues to join me in this effort to close 
this loophole that cheats the American public and helps large companies 
evade paying taxes by saddling smaller ones with debt.

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