Auto Bail-Out Plan Would Help Tax Evasion, Grassley Warns

by Mike Godfrey, Tax-News.com, Washington

12 December 2008

United States Senator Chuck Grassley believes that proposed legislation to help American automakers "would put tax dollars on the line" to assist participants in controversial tax shelters which have been shut down by both the Internal Revenue Service (IRS) and Congress.

According to Grassley, the ranking member of the Senate Finance Committee, the proposed Auto Industry Financing and Restructuring Act (AIFRA) currently being considered by Congress also contains a "tax shelter bailout" related to abusive leasing transactions called SILOs (sale-in lease-out) and LILOs (lease-in lease-out).

LILOs and SILOs involve complex arrangements in which some of the nation’s largest corporations have leased or purchased large assets, such as rail systems or sewer systems, both domestically and overseas, and immediately leased them back to their original owners. Under these arrangements, corporate taxpayers put off recognition of current income for tax purposes for many years.

While he was Chairman of the Senate Finance Committee in 2004 and 2006, Grassley won passage of reform legislation to shut down these kinds of tax shelters. The Iowa Senator has expressed dismay however, that under the provisions of the AIFRA, certain state departments of transportation and public transportation agencies which took part in SILO transactions will receive bail-out funding.

Grassley voiced his opposition to this prospect in a letter sent Tuesday to congressional leaders.

"As Chairman, and now Ranking Member, of the Finance Committee, I have worked with Senator Baucus to lead the charge in combating abusive tax avoidance transactions," Grassley wrote in the letter to Democratic Majority Leader Harry Reid and House Speaker Nancy Pelosi.

"Since our actions, along with the IRS’s actions, clearly indicate these transactions are tax shelters for all intents and purposes, I do not support the Transit Agencies’ request for a guarantee. I appreciate that denying their request could result in technical defaults by the Transit Agencies and that such defaults may result in the Transit Agencies paying parties to the LILO/SILO transactions the economic equivalent of the tax benefits that were the reason for entering into these transactions in the first place," the letter went on to state.

Grassley argued, however, that allowing parties to these transactions to reap these benefits with taxpayer dollars would be "a perverse result."

"It is even more offensive that many of the corporations that would benefit from the guarantee proposed in AIFRA are foreign corporations. Taxpayer dollars certainly should not be used to bail out foreign corporations who knowingly entered in questionable transactions for the sole purpose of tax evasion," Grassley wrote.

Recommended