Customers and taxpayers get a bad deal under Verizon’s proposed sale to Frontier Communications of 4.8 million rural landlines in 14 states. Verizon would avoid paying $600 million in taxes under the Reverse Morris Trust, an unfair tax loophole, while limiting quality phone and broadband service to rural areas.

To qualify for a Reverse Morris Trust (RMT) and avoid paying taxes on any gains from a sale, a selling company’s shareholders must own a majority of the post-merger acquiring firm. As is the case with the Verizon-Frontier sale, the acquiring company must be much smaller than the properties to be acquired. Frontier is taking on $3.3 billion in debt under this proposed deal.

Verizon engineered a similar “shell game” in its 2007 sale of rural landlines to FairPoint Communications in New England. Verizon avoided $300 million in taxes while FairPoint assumed massive debt and is now in bankruptcy. Consumers in New England now suffer from deteriorating service, delayed broadband build-out, and workers are fighting to protect their collectively bargained contract and jobs.

Legislation to be introduced by Rep. Paul Hodes (D-NH) will close the RMT tax loophole to prevent companies from engaging in tax avoidance schemes that harm communities, consumers, and workers.

Background on the Reverse Morris Trust

Why the Reverse Morris Trust Loophole Should Be Closed

Statements of Support for Closing the Reverse Morris Trust Loophole

The Real Story Behind Frontier's Promises

Letter from CWA and IBEW to Congress on the Reverse Morris Trust

Congressional Letter to Representative Charles Rangel on the Reverse Morris Trust

Northeast Congressional Delegation Letter to Representative Charles Rangel on the Reverse Morris Trust

Access Line Detail By State: Frontier, Spinco, and Combined Company