The entire five-member House delegation from northern New England recently wrote a letter to Charles B. Rangel (D-NY) Chairman of the House Committee on Ways & Means, urging him to restrict the use of a tax-loophole that Verizon hopes to employ in the proposed sale of its landlines in 14 states, including West Virginia, to Frontier Communications. By using the loophole, Verizon would avoid paying taxes on the $3.3 billion it will receive from Frontier.

The tax-loophole, called the “Reverse Morris Trust” (RMT), ensures Verizon will not pay any taxes on the gains it makes from the sale of its assets. The loophole has been used in several deals by Verizon, most recently in a deal with FairPoint Communications in northern New England. FairPoint is now on the brink of bankruptcy and the northern New England Congressmen are concerned the same results are poised to be repeated in West Virginia.

“Recently, we have learned that other states across the country face similar threats to service and employment as Verizon, once again, seeks to avoid taxes through the use of RMT in its proposed transaction with Frontier Communications” the House members wrote, referring to the current deal which will affect West Virginia.

Under the Reverse Morris Trust, 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 value of the resulting merged company. In northern New England, Verizon was able to avoid hundreds of millions in taxes when it spun-off its landline operations to FairPoint, after which FairPoint was saddled with enormous debt.

The same New England Congressmen raised similar concerns in 2007 before the Fairpoint/Verizon deal was completed, saying the RMT loophole “appears to be a tax avoidance scheme without clear public policy rationale.” Their fears about the FairPoint/Verizon sale proved accurate and now northern New England is faced with the impending bankruptcy of the largest telephone provider in the entire region.

The letter closed by asking the House Ways & Means Committee to restrict the utility and benefits of the RMT to protect the public interest.

“I hope this vital request, now based on past history, isn’t ignored again,” said Elaine Harris, International Representative with the Communications Workers of America. “West Virginia is being given the opportunity to avoid some of the pitfalls of the FairPoint disaster and it would be a real shame if we simply follow the same path and our communications operations end up in bankruptcy.”