The Department of the Navy recently acquired eighteen auxiliary ships, five T-5 tankers and thirteen TAKX cargo carriers. The financing of these ships was not carried out via the standard purchase appropriation but rather through a complex transaction, known as a leveraged lease. The tax benefits contained in the Economic Recovery Tax Act (ERTA) of 1981 permit either public or private entities to share tax benefits with the owner of an asset. Leveraged leasing is based on this principle. The tax benefits received by a public tax exempt entity is a loss to the Federal Treasury and Congress has reacted with legislation to control it. This study examines leveraged leasing in the private and public sector with special emphasis on the lease by the Navy of the thirteen Maritime Prepositioning Ships (TAKX). The complex sequence of cash and tax flows are discussed as well as the impact on the federal budgeting process and Congressional efforts to control the effects on the Treasury. (Author)


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