Washington (March 9, 2004) -- Federal agencies may have played a role in approving abusive tax shelter leases using federally funded infrastructure assets, according to Sen. Chuck Grassley, Finance Committee chairman, and Sen. Max Baucus, ranking member.

The senators have been investigating how major U.S. companies receive huge tax deductions by pretending to lease the infrastructure of cities and foreign countries, and then pretending to lease them back.

Under this scheme, according to Grassley and Baucus, municipalities are paid an up-front cash fee to enter into a long-term lease of their infrastructure to the tax shelter promoters. The cash received by the municipality, however, pales in comparison to the federal tax benefits received by the corporations, which then are able to depreciate taxpayer-funded bridges, subways, and rail systems as a result of the lease.

The senators wrote to the Federal Aviation Administration and the Environmental Protection Agency asking for details of any such deals those agencies may have approved. The letters follow an earlier letter to the Federal Transportation Department.

Grassley and Baucus estimated that such leasing deals cost the federal treasury $2 for every $1 the cities and their agencies receive in fees from the promoters of such arrangements. They urged the leaders of the Senate budget and appropriations committees to remember the impact of this when approving federal funds for city infrastructure needs.

-- WebCPA staff

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