Reverse Morris Tax Scheme: ‘Corporate Greed at it’s Worst’

As Verizon pushes to dump its customers in Northern New England in a sale to tiny FairPoint Communica-tions, the company is playing a shell game on customers, workers and U.S. taxpayers, using a tax-dodge scheme that would net billions for Verizon while leaving the area a communications backwater for years to come.

In picking FairPoint, Verizon wasn't looking to achieve the kind of "synergy" corporations often gush about in promoting big deals. Verizon picked FairPoint because the company in small enough to enable Verizon to sell the lines tax free and escape $700 million in taxes. Verizon would get $1 billion from FairPoint, and shift $1.7 billion of newly acquired debt over to the company. Verizon shareholders would get $1 billion in FairPoint shares and would own and control 60 percent of the "new" company.

The complex tax scheme is known as the "reverse Morris Trust," a loophole corporations are using more frequently to unload unwanted assets without having to pay taxes: Heinz in its 2002 deal with Del Monte, Proctor & Gamble the same year with J.M. Smucker, Comcast in its 2001 purchase of AT&T Broadband, and General Motors' 2001 deal with Echo Star.

Many are crying foul because the deal is unlikely to benefit New England's telephone customers. Recently, the investment house Morgan Stanley said FairPoint would be financially "vulnerable" without the deal, and FairPoint admitted in an FCC filing that it would initially be spending less than Verizon to maintain and upgrade the access lines or existing Internet service.

"This is corporate greed at its worst," said CWA President Larry Cohen. "It's obscene when a corporation is permitted to pocket billions of dollars tax free in a deal that will erode essential telephone and Internet service to millions of customers and stifle investment and job creation."