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House Nixes Tax Loophole, Sending Warning to Big Business

March 29, 2010

The IBEW is at the forefront of a recent wave of legislation to prevent corporations from eluding risk at the expense of taxpayers and workers.

After three years of lobbying by the IBEW, the U.S. House of Representatives voted March 24 to effectively eliminate a little-known tax law loophole that has allowed Verizon to sell off chunks of its business without paying taxes while heaping large debt on small companies.

IBEW leaders cheered the 246 to 178 vote to eliminate the Reverse Morris Trust. This could affect Verizon’s proposed $8.6 billion sale of nearly 5 million landlines in West Virginia and 13 other states to Frontier Communications – a company a fraction of the size of Verizon that union leaders say will likely face financial hardship if the deal goes through.

The IBEW and Communications Workers of America supported the legislation – originally drafted by Rep. Paul Hodes (D-N.H.) and incorporated into the current jobs bill – citing Verizon’s sale of landlines to now-bankrupt FairPoint Communications as an example of why the tax shelter benefits corporations at the expense of workers and customers.

IBEW International President Edwin D. Hill said:

We’ve been very proactive in our efforts to hold Verizon and similar-sized companies accountable to their employees and customers. This vote puts us closer to much-needed reform that will help keep large corporations honest, and will help ensure that workers in America retain some security with the companies they are helping to build. It’s been a long time coming, and there’s still work to be done.

The bill now moves on to the Senate Finance Committee, chaired by Max Baucus (D-Mont.)

While the closure of the loophole in the jobs bill will not necessarily hamper the Verizon deal – due to the timing of the legislation – union leaders and supporters say passage of the bill will ensure that big businesses pay their fare share in the future.

Vermont Rep. Peter Welch (D) was a strong advocate of eliminating the tax shelter from the jobs bill. Said Welch:

This loophole is bad for taxpayers, bad for consumers and bad for workers. By closing it and investing the savings in job creation, hardworking Americans – not corporations – will benefit.

Two years ago, Verizon sold operations in New England to FairPoint, which ended up absorbing millions of dollars of Verizon’s debt after the $2.4 billion deal that created havoc for workers and consumers. FairPoint filed for bankruptcy last October.

The Reverse Morris Trust has been legal since 1997 and has been used by large companies such as Viacom Inc., Kraft Foods Inc. and the Walt Disney Co. to cut corners while selling off unwanted assets.

For more on the proposed Verizon-Frontier deal, click here.

Photo used under a Creative Commons License from Flickr user Matti Mattila.