Attorney at Law         

Expert Witness in LILO Tax Litigation

In Rev. Ruls. 99-14 and 2002-69, the U.S. Internal Revenue Service (IRS) announced that it would challenge lease-in, lease-out ("LILO") transactions, which were used in the 1990s to finance billions of dollars of long-lived property owned by foreign and U.S. tax-exempt entities.  Although many of the banks and other investors in these transactions have settled with the IRS, several cases have been scheduled for trial.  In the rulings and litigation, the government asserts, among other arguments, that various components of these transactions should be collapsed on the ground that they create mutually offsetting and/or circular obligations.

Mr. Cozart has served as an expert witness for the taxpayer in one of the litigated cases. He submitted an expert report that explains the factual basis for recognition of the various allegedly offsetting and circular components of the transaction.  He has also assisted the taxpayer in evaluating the government's arguments.

Mr. Cozart discussed the issues involving LILO transactions in detail in his leasing treatise and an article published in 1999.  See Publications.  The article was cited prominently in the litigation hazards section of a Field Service Advice identifying the weaknesses of Rev. Rul. 99-14.  See “IRS Memo to Kies on LILO Ruling Now Available,” 2004 TNT 155-6 (Aug. 11, 2004) (Tax Analysts Tax Notes Today Lexis database).

The LILO cases are of great importance to the IRS's attack against economically defeased "sale-in, lease-out" ("SILO") transactions that were closed prior to the 2004 effective date of IRC §470, which the IRS challenged in Notice 2005-13.

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