Sen. Charles Grassley, R-Iowa, has written to congressional leaders criticizing a provision in the automobile industry bailout bill that provides government guarantees to mass transit agencies that have taken advantage of an outlawed tax shelter.

Grassley, the ranking member of the Senate Finance Committee, claimed the proposed legislation would assist participants in controversial tax shelters that have been shut down by both the IRS and Congress. Grassley said the tax shelter bailout is related to abusive sale in/lease out transactions in which transit agencies have sold public transportation assets such as rail lines, only to lease them back from purchasers, with the result of providing tax depreciation deductions to the purchasers. While he chaired the Senate Finance Committee in 2004 and 2006, Grassley won passage of reform legislation to shut down both SILO and LILO (lease in/lease out) tax shelters.

Grassley voiced his opposition to the tax shelter bailout in a letter he sent to Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif. In the letter, he noted that the IRS had been cracking down on the SILO and LILO transactions by adding them to its list of abusive tax dodges, although he acknowledged that the transit agencies could suffer financial losses without the provision.

"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," he wrote. "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. Because I have fought so hard to eliminate the benefits of LILO/SILO transactions, allowing parties to these transactions to reap these benefits with taxpayer dollars would be a perverse result."

Grassley was especially outraged that the provision could help foreign companies that had participated in the SILO and LILO transactions.

"It is even more offensive that many of the corporations that would benefit from the guarantee proposed in [the Auto Industry Financing and Restructuring Act] are foreign corporations," said Grassley. "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."

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