Rep. Slaughter leads bipartisan charge against tax loophole in Verizon-Frontier deal

Congresswoman Louise Slaughter (D-NY) is leading the effort to close a tax loophole driving anti-consumer corporate deals such as the proposed Verizon-Frontier transaction.

In a letter to Ways and Means Committee Chairman Charles Rangel (D-NY), Slaughter and a bipartisan coalition have requested that provisions allowing Reverse Morris Trust (RMT) transactions be stricken from the tax code.

RMT provisions allow parent companies to spin off a subsidiary that can merge with an unrelated company - tax-free -- but only if that company is smaller than the merger partner. As Slaughter writes, the new entity is often loaded with debt and doesnt provide the capital needed to maintain services and create new jobs.

The New York congresswoman demonstrates in her letter how an RMT provision could let Verizon avoid $3.3 billion in taxes:

Verizon proposes to create a subsidiary for the sole purpose of merging it into Frontier Communications. Verizon shareholders will end up with nearly 70 percent of Frontiers stock while Frontier will be loaded up with more than $ 3.4 billion in new debt. The motivation behind this transaction is tax avoidance, not consumer benefit.

Verizon took advantage of the RMT provision in its previous deals to sell landlines to Hawaiian Telecom in Hawaii and FairPoint in New England. Both cases resulted in disaster for the workers and shareholders involved.

The signers of the letter, who cut across the political spectrum, include representatives from the 14 states in which Verizon intends to sell its land lines.

Congresswoman Louise Slaughter, D-NY (U.S. Congress)

Slaughter seeks to block big phone companies from using tax loophole (U.S. Congress)

Proposed Verizon-Frontier merger bad for consumers (Speed Matters)