An obscure tax loophole intended for real estate trusts is now being used by private prison companies and other businesses to avoid paying federal taxes.

Real estate investment trusts (REIT) were created during the Eisenhower administration to help companies that concentrate their business in real estate holdings by reducing or even eliminating the payment of corporate taxes. Typical REITs are companies that own shopping centers, malls, office buildings, apartments and mortgages. But now Corrections Corporation of America (CCA) is using REIT status as a “golden ticket” to reduce its tax bill.

CCA, which owns and operates 44 prisons and detention centers, and another private prison operator, the Geo Group, have successfully argued to the Internal Revenue Service that the money they collect from governments for holding prisoners is similar to rent, thus qualifying them as an REIT.

CCA expects to save $70 million in tax payments for this year—at a time when federal agencies are cutting billions from their budgets due to Washington’s fiscal problems. The IRS’s loosening of restrictions on REITs has led to other companies claiming they are real estate trusts, including casinos, owners of cell phone towers and data storage companies.

-Noel Brinkerhoff, David Wallechinsky

To Learn More:

Restyled as Real Estate Trusts, Varied Businesses Avoid Taxes (by Nathaniel Popper, New York Times)

Private Prison Company Muscles into Law Enforcement, Creating Occupants for Its Prisons (by Matt Bewig, AllGov)

Private Prison Company to Demand 90% Occupancy (by Noel Brinkerhoff and David Wallechinsky, AllGov)

Private Prison Industry Helped Create Anti-Immigrant Law in Arizona (by Noel Brinkerhoff and David Wallechinsky, AllGov)