Skip to Content
Streetsblog USA home
Streetsblog USA home
Log In
Streetsblog Capitol Hill

Bailout Beneficiary Wells Fargo Loses Transit Tax-Shelter Lawsuit

The tax tricks known as SILOs -- in which major banks snapped up rail cars and other pieces of public infrastructure from cash-strapped localities, only to lease them back and claim a tax write-off -- has prompted an outcry from the Hill as Wall Street's biggest players invoked obscure claims to wring money from local transit agencies.

TR1_100509.jpg(Photo: NJBIZ)

Congress formally banned SILOs (short for "sale in, lease outs") in 2004, but some banks are so intent protecting their deals that a court battle is needed to settle the cases.

And in one such dispute, Wells Fargo has lost a $115 million SILO lawsuit against the same federal government that gave the bank a $25 billion bailout last year. From the opinion released by federal claims court Judge Thomas Wheeler:

Although well disguised in a sea of paper and complexity,the SILO transactions essentially amount to Wells Fargo’spurchase of tax benefits for a fee from a tax-exempt entity thatcannot use the deductions.

Wells Fargo had taken on the government over a passel of 26 SILOs, including several signed with transit agencies in New Jersey, Washington D.C., California, and Harris County, Texas. A Belgian telecom company was also party to one of the tax shelters at issue in the suit.

In some of the deals, beleaguered insurance company AIG had agreed to underwrite the SILOs. The precipitous fall of AIG's credit rating last year as it headed for an $80 billion bailout triggered some of the major banks' claims to SILO payments from transit agencies.

As lawmakers continue to weigh legislation that would slap a 100 percent excise tax on banks' SILO proceeds, however, it's important to note that local transit agencies weren't necessarily innocent victims in some of the deals. When Congress moved to outlaw SILOs four years ago, transit officials were seen lobbying alongside banks to preserve the shelters.

One former lawyer for Caltrans, California's state DOT, even bragged last fall that he had put one over on Wells Fargo by structuring the deal to shield his employers from liability. "I sold [the bank] the Brooklyn Bridge," he told BusinessWeek.

A Wells Fargo spokeswoman told Bloomberg today that the bank is weighing whether to pursue an appeal.

Stay in touch

Sign up for our free newsletter

More from Streetsblog USA

Tuesday’s Headlines Are Running Hard

More political news: Today's top stories delve into Kamala Harris' record on climate change and Republicans' plans for the Trump administration if he returns to power.

July 23, 2024

State DOTs Could Fuel a Resurgence in Intercity Bus Travel

Private equity firms are killing off intercity bus companies. Will public agencies fill in the gaps?

July 23, 2024

GOP’s ‘Project 2025’ is ‘Based on a Lot of ignorance’

What does Transportation for America's Beth Osborne think of the transportation portion of the Heritage Foundation's playbook for a Trump presidency?

July 23, 2024

What a Surprise! Hochul’s Congestion Pricing Pause Helps Rich Suburban Drivers

Gov. Hochul's "little guys" certainly have big wallets. Meanwhile, the rest of us suffer with declining subway service and buses that are slower than walking. Thanks, Kathy.

July 22, 2024

Philadelphia Demands More Than ‘Flex-Post’ Protected Bike Lanes After Motorist Kills Cyclist

Pediatric oncologist Barbara Friedes was struck while biking on a "protected" path. Now, advocates are arguing that flex posts should be replaced with something far better.

July 22, 2024
See all posts