Washington, D.C., is at it again. First it was the U.S. Treasury with its changes in regulations to allow banks to benefit from net operating losses.
Now Congress is getting in on the bailout special tax break act.
According to the New York Times, "A little-noticed provision in the proposed bailout plan for Detroit's automakers blesses an aggressive tax shelter sold by large banks and insurers to municipal transit agencies across the country."
The provision asks the government to help the agencies by guaranteeing the economics of the complex shelter known as Silo for sale-in, lease-out.
Unlike the tax code Section 382 change championed by Treasury, this time the bailout bonus goes against that department's efforts.
The Times says that Treasury and the IRS have for years tried to shut down Silo and collect billions of dollars of unpaid taxes, interest and penalties owed by the banks and insurers.
But wait, there's more.
An earlier bailout recipient is also connected to Silo. The scheme, reports the paper, "was one of the costliest corporate tax dodges in recent years and allowed participants, including the American International Group, to avoid paying tens of billions of dollars in taxes by buying and then leasing back depreciation rights and assets at the agencies."
Previous questions about AIG and bailout money were blogged about here, here and here.
Same old, same old: Even if you ignore whether Silo or Section 382 or any other bailout-connected tax break or shelter are good or bad tax policy, you can't overlook how incestuous all this is getting.
The process of ostensibly shoring up our economy is becoming, or at least sure looks to be, a special, very beneficial, tax system for a select few.
At least this time the move is getting noticed before any additional bailout money is approved.
Sen. Charles Grassley (R-Iowa) and ranking member of the Senate Finance Committee, has called the Silo provision "a dark-of-night move that unravels an important tax reform and benefits tax shelter participants, including transit agencies, corporations and foreign banks, on the U.S. taxpayers’ dime."
I hope Grassley sustains his indignation and that he and some of his Senate colleagues will raise questions about the Silo provision as that legislative body debates the U.S. auto industry bailout measure.
Photo of silo by Plano Light courtesy of Creative Commons license
Jeff T
I simply cannot understand all of this bailout mess. I work in the tax resolution field and I am amazed to speak with taxpayer after taxpayer who has experienced some extreme hardship and owes the IRS money and to hear from these taxpayers how ruthless the IRS pursues them for full payment. It seems like there are many individuals in our society who have pocketed millions and millions of dollars mis-managing companies that incur massive debts and ultimately fail. These individuals are handsomely rewarded and the little guys are squeezed like a rat trapped by a boa constrictor. I simply don’t understand what has happened to our society!