Silo Tax Shelter
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Mr. GRASSLEY. Madam President, I come to the floor to back up the chairman of the committee, Senator Baucus, who has spoken on the very same issue. We have had a close working relationship for 8 years as either chairman and ranking member, and those changed from time to time. Part of our effort of working together has been to close down abusive tax shelters. So I am here to support what he said and to say, in my own words, my reasons for wanting this provision out of the bill. The bottom line of what I am saying is the bottom line of what Senator Baucus has already said. This tax provision has no business being in this bill.
There is a provision in this auto bailout bill that deals with a number of transit agencies that assisted corporations in tax shelters. This provision in the auto bailout bill has nothing to do with automakers. It would prop up a tax shelter that Senator Baucus and I shut down in the year 2004. Shutting down that tax shelter saved American taxpayers $26.56 billion, according to the nonpartisan Joint Committee on Taxation. That is real money. So we should be very protective of making sure money that by subterfuge was not going to come into the Federal Treasury comes back to the Federal Treasury and is not used in the future. This tax shelter is commonly referred to as sale-in, lease-out, or by the acronym SILO, or another program lease-in, lease-out that we refer to by the acronym LILO. This tax shelter bailout within the automaker bailout bill would have the Federal Government guarantee obligations that public transit agencies now face because they entered into shady deals with corporations, including foreign corporations, where they sold things such as the transit agencies' own train cars and then magically leased them back from these corporations to do what they were doing all the time anyway, hauling people.
This was not done to change the way the transit agency operated but, instead, to collect a fee for assisting the tax shelter, where the corporations could take advantage of the tax deduction for depreciation of things such as these train cars.
As chairman of the Senate Finance Committee in 2004, I worked hard to shut down these tax shelters as a matter of tax fairness, and Senator Baucus was there working closely with me to do that. The Internal Revenue Service has been working to recover money from these deals. If this tax shelter bailout were to pass, it would interfere with the working of the IRS in these efforts to collect money that should never have been deducted in the first place.
This tax shelter bailout can change the cost-benefit analysis for those tax shelter corporations that are considering settling their disputes with the IRS over the SILO/LILO tax shelters. It is wrong for the auto bailout bill to bail out transit agencies from participating in these shady tax shelters. The Federal Government should not guarantee the transit agencies' obligations to corporations, including foreign corporations, when doing so allows the tax shelter to continue as it did before 2004, and these corporations, including foreign corporations, to continue taking tax shelter deductions for things such as transit agencies' train cars.
If the Federal Government is called upon to pay the guarantees of the transit agencies' obligations to these tax shelter corporations, including foreign tax shelter corporations, then the hardworking U.S. taxpayer will be sending money directly to these foreign corporations and others. I don't know how many, but we know foreign corporations are very much involved.
These tax shelters were, in fact, set up so corporations were able to take large depreciation deductions. However, the tax shelter needed a nontaxpaying entity that had large amounts of assets that could be depreciated. So that is where the transit agencies come in. The transit agencies were paid millions of dollars to do nothing, simply sign papers and go about business as usual of transiting people within cities or between cities, as they were doing before this tax shelter was ever thought up. The transit agencies are called accommodation parties in tax shelter lingo. They are called this because, in exchange for their fee, they helped make tax shelters work for corporations that were bilking the U.S. taxpayers out of billions of dollars, and those billions of dollars were lost revenue to the Federal Treasury.
This auto bailout bill proposes to bail out the transit agencies from the consequences of their bad judgment of entering into tax shelters. I say ``bad judgment'' because they ought to know this doesn't make sense. Some lawyer might tell you: We can get by with this because we found this loophole in the tax laws. But, in fact, lawyers can find anything. The English language is not so perfect that we write perfect pieces of legislation that somebody who is wise can't find a way around. That is what happened prior to 2004, before Senator Baucus and I shut it down.
As the transit agencies have found out--and that is why they are coming to the bailout bill for some help--when you lie down with dogs, you get fleas. Now that the transit agencies have fleas due to their participation in this tax shelter scheme, they want the Federal Government to be their flea remover. If this provision is enacted and if the Federal Government guarantees the transit agencies' tax shelter obligations, it will actually help these shady tax shelter deals stay alive longer and, who knows, encourage more of this in the future. We are trying to shut down a business I consider illicit, people going through the Tax Code and seeing where they can find a tax loophole and writing a program and go out and sell it. They go out and sell it to somebody else, then flee to the woods, and some corporation or individual has to defend it themselves, and they can't. They get stuck with the tax bill from the IRS. We want to shut down the tax shelter-writing business.
I will not help the transit agencies avoid the consequences of their participation in these tax shelters. I do not want to put U.S. taxpayer money on the line to support tax shelters that have been stealing from these same taxpayers.
I am aware that as early as February 2000, we had a Federal initiative from the executive branch. In the year 2000, the Federal Transit Administration, under the Clinton administration, used to advocate these tax shelter deals to transit agencies as innovative financing. The Federal Transit Administration's promotion of these tax shelters was shameful, and it gave a legitimacy to it. I suppose it even encouraged further tax shelter people to write. But in 2004, Senator Baucus and I said: Enough is enough. That is why the legislation was passed in 2004, shutting down these and saving the taxpayers that $25 billion the Joint Committee on Taxation said could be saved; in other words, paid into the Federal Treasury, instead of some sharp lawyer finding a way to keep it out of the Federal Treasury.
Going back to when these were first being instituted by the Federal agency or encouraged by the Federal agency, we did have the IRS responding to that. So you had one agency promoting something. You had the IRS issue a revenue ruling that came out against these tax shelters. But between that 1999 March 1 date and the time Senator Baucus and I finally concluded this needed to stop in 2004, we still had a bunch of these deals consummated. Even if the transit agencies were not aware of the IRS's position, the transit agencies should have realized that getting money for essentially doing nothing ought to be too good to be true. If it sounds too good to be true, it probably is not the right thing to do. That is common advocacy to any consumer in America met by some snake oil salesman who comes along to sell a product. If it sounds too good to be true, you ought to raise questions about it.
We even have a situation where every court that has considered these transactions has ruled they are abusive tax shelters and has not allowed the tax breaks claimed by the corporation that engaged in the tax shelters. Three of these court cases are BB&T Corporation, the Fifth Third Bancorp, and AWG Leasing Trust. In a recent court opinion involving John Hancock Life Insurance Company, Chief Judge David Hamilton of the U.S. District Court for the Southern District of Indiana wrote that the SILO deal at issue was ``pure, abusive tax shelter,'' was ``rotten to the core'' and was ``a sham without economic substance.''
Additionally, in February 2004, Senator Baucus and this Senator sent letters to Washington, DC, New York City, and Chicago transit agencies asking for their assistance in an investigation of these abusive tax shelters.
I ask unanimous consent that these three letters be printed in the Record.
There being no objection, the material was ordered to be printed in the RECORD
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Mr. GRASSLEY. I have been fighting against SILO/LILO tax shelters for a long time, as has Senator Baucus. In October 2003, the Finance Committee held hearings on the status of abusive tax shelter activities. During that hearing, we received anonymous testimony from a leasing industry executive that used the name Mr. Janet. He described how U.S. corporations were able to take tax deductions for such things as the Paris, France, sewer lines and the New York subway system. Major corporations were claiming tax deductions on taxpayer-funded infrastructure located in the United States and overseas.
Imagine our surprise when we learned that U.S. taxpayers were subsidizing the cost of electric transmission lines in the Australian outback. I find it hard to believe that a corporation was actually taking a tax deduction for the New York City transit car pictured here. However, that is exactly what greedy corporations were doing. Just like the greedy tax shelter promoters who were handing out U.S. taxpayer money to greedy corporations by selling these shady tax shelters to them, the House voted last night to put U.S. taxpayer dollars on the line to bail out tax shelter participants and perpetuate these abusive tax shelters.
If we look at all the key congressional players on this deal, we will find that, perhaps not by coincidence, nearly all of them represent areas where these transit shelter deals were done. These tend to be the biggest cities. They tend to be the areas where the shops that hired the sharpies that manufacture these tax shelters do business. Most of these key congressional players for years, especially when Republicans were in the majority, railed against tax shelters. Now we find that for these key congressional players, the imperatives of the transit lobby decisively outweigh the importance of cracking down on a tax shelter that a Federal judge rightly described as ``rotten to the core.''
This reminds me of the Joker from the 1989 version of ``Batman,'' who says: ``I'm giving out free money.'' You know the Joker, as shown on this chart. You have seen him. ``I'm giving out free money.'' As we all know, money is not free. Unfortunately, the joke here has been--and will again be if we do not do something about it--on the American taxpayer. Literally, the guarantee continues the cruel tax shelter joke on the American taxpayers' dime.
I urge my colleagues in the Senate to not allow this cruel joke to be played on the American taxpayers. I have fought against these tax shelters in the past, and I will continue to fight against them in the future. This provision puts taxpayers' dollars on the line and perpetuates an abusive tax shelter. In fact, it puts the U.S. Government in the position of guaranteeing tax benefits that corporations, including foreign corporations--again, I want to emphasize--hope to reap from engaging in these tax shelters. So as Senator Baucus has just done--and I thank him for his leadership--I urge my colleagues to vote against this bill which contains a bailout for tax shelter participants.
I yield the floor.
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