Tax disclosure in offering circulars came under scrutiny in a case in federal district court in California

Tax disclosures in offering circular | Norton Rose Fulbright

December 01, 1999 | By Keith Martin in Washington, DC

Heliotrope General purchased preferred shares in a subsidiary that Ford Motor Company set up to hold its insurance and financial services assets. Ford changed its tax strategy soon afterward and cashed out the preferred shareholders before they got the returns they were expecting. Heliotrope sued for its losses, alleging, among other things, that Ford had not made a full enough disclosure of its tax strategy in the offering circular.

Ford won. It was able to show, through contemporaneous news articles and financial analyst reports, that its tax strategy was well known even if it was not fully disclosed in the prospectus.

TAX DEPRECIATION for power plants should be shortened, the Edison Electric Institute urged the US Treasury.

Most coal- and gas-fired power plants are depreciated over 15 or 20 years. The trade association said in a letter to the Treasury in early November that the disparity between these lives and the 5-, 7- or 10-year tax depreciation allowed to most other industries has the effect of directing capital investment away from the utility sector. It pointed to a number of anomalies in the depreciation tables, including that a computer used to run a nuclear power plant must be depreciated over 20 years while the same computer used to run a cigarette factory or a textile mill can be depreciated over seven years. EEI did not recommend any particular lives. The Treasury Department is under orders from Congress to do a study of depreciable lives to determine whether they require changing.

The Treasury Department went through a similar exercise in the late 1980’s, but Congress never acted on its report.


Keith Martin