Verizon disagrees with Slaughter on tax law

Verizon disagrees with Rep. Louise Slaughter (D-NY), who is trying to change a tax law known as the Reverse Morris Trust that allows two companies to merge tax free. Changing the law would make it more difficult for Verizon to sell its phone lines in 14 states to Frontier. Some lawmakers are concerned the transaction will hurt consumers.

Yesterday, Hillicon Valley reported Slaughter and others sent a letter to House Ways and Means Committee Chairman Charles Rangel (D-NY), asking him to look into changing the tax provision. (Verizon used the tax provision when it spun off phone lines to FairPoint, which has since filed for bankruptcy.)

Today, I received this response from Harry Mitchell, director of communications for Verizon:

Harry Mitchell from Verizon here, injecting some reality into this.  The Reverse Morris Trust has absolutely nothing to do with the protection of phone service and poses no threat to phone customers.  It’s a tax provision signed into law by President Clinton in 1997 that is not obscure and that has been used by many companies other than telecom providers, including Viacom, Disney, Weyerhaeuser, Proctor & Gamble and others.
 
It’s a perfectly legitimate provision of the tax law that permits a spun-off company to acquire or merge with a smaller company without affecting the tax-free status of the spin-off.  There is no public policy reason to change this law, and in any event, it would be extraordinarily bad policy for Congress to change a law to apply retroactively to a transaction that is subject to a binding contract.
 
The concerns raised by the representatives echo the ongoing message track from the Communications Workers of America, which inexplicably opposes a deal that will bring more broadband to unserved or underserved areas in America and protect good-paying, union jobs.
 
Frontier Communications is a 70-year-old company that is finely attuned to the communications and broadband needs of rural and small- to medium-sized areas.  It will bring that expertise and attention to the states whose landline operations it’s acquiring from Verizon.  Frontier also will honor all existing labor contracts and has committed not to lay off any technician or installer in the acquired areas for at least 18 months after the transaction closes.
 

State regulatory commissions in California, Nevada and South Carolina must agree, as they – along with the Federal Trade Commission and the U.S. Department of Justice – have signed off on the transaction.  And we feel confident the remaining six states and the Federal Communications Commission will recognize the public benefits of this transaction and approve it following their respective reviews.

---