Senate Budget Committee

     Now Escalates Alleged Leasing Tax Abuse Crusade

In last Friday's session, the chairman of the Senate Budget Committee asked the Treasury Department on Friday for a list of known tax loopholes, pledging to halt abuses and plug one transaction he called ``a shell game.''  He asked Treasury Secretary John Snow, who already has announced his opposition to large "sale/leasebacks" between "indifferent parties," was asked to expand the list.

The statement from Oklahoma Republican Don Nickles adds tax avoidance to the items under scrutiny as lawmakers work to reduce the federal deficit. He again mentioned a lease transaction used by corporations to increase their tax deductions made his target list.

In those arrangements, municipalities sell or lease public works - such as subways, bridges or water systems - to a corporation in exchange for a payment. The corporation deducts from its taxes the depreciated value of the infrastructure. The local government retains control of the public works.

Critics say taxpayers lose more through the corporate deductions than they gain in benefits to their cities and towns. Snow said the federal government loses $10 for every $1 brought into local governments.

``It's a shell game,'' Nickles said. ``It may be legal, but it's abuse of the tax system.''

In seeking to defend the Treasury's leasing tax-increase proposals, Treasury Assistant Secretary Pam Olson testified before the House Ways and Means Committee that as much as $750 billion of “SILO” transactions have been done in the past four years.  This information was submitted to the Senate Budget Committee, which estimates that U.S. corporations have entered lease arrangements for $750 billion worth of U.S. and foreign infrastructure in the last four years. It calculated the government could recoup $33 billion over the next decade by shutting down the practice.

``It could be much larger than that because it's a growing phenomenon,'' Snow told Nickles.

The Equipment Leasing Association has given written testimony before the committee, contesting the committee's figures and defends the arrangements as common financing tools for state and local governments. In the testimony, ELA estimated the value of assets involved in the transactions under investigation at the Treasury Department to be closer to $60 billion to $80 billion over the past four years.

``Treasury is clearly overstating the size of these types of transactions,'' said ELA President Michael Fleming.

Sen. Pete Domenici, R-N.M., said it might also be time to review older tax benefits to see if they're worth continuing. And he warned lawmakers it might not be easy to close perceived loopholes.

``One man's loophole is another man's necessity,'' he said.

Here is an excellent legal summary in plain English on “Tax-Exempt Entities” by David G. Mayer, author of "Leasing for Dummies," also written with the collaboration of George Schutzer, Patton-Boggs partner who specializes in tax matter