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’s
purchase of tax benefits for a fee from a tax-exempt entity that
cannot 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.

ALSO ON STREETSBLOG

Menendez: Transit Agencies Need Help Escaping Tax-Shelter Trap

|
Lingering questions over the role that tax shelters played in the D.C. Metro crash continue to pique congressional interest in helping local transit agencies break free of lease deals with Wall Street. Sen. Robert Menendez (D-NJ) has just written to House Majority Leader Steny Hoyer (D-MD) — who is working on a new funding package […]

Senate Preserves TIGER Program While House Punts on Long-Term Bill

|
Advocates successfully mobilized to prevent the Senate from eliminating the multi-modal TIGER grant program in its long-term transportation bill, but that bill appears to be on hold for at least another five months after the House passed another short-term extension of the current law. Transportation for America reports that Senate Commerce Committee Chair John Thune […]

Ranking the Sad Parade of Federal Transpo Funding Ideas From Worst to Best

|
The problem seems simple enough: The federal transportation program is going broke because Washington has allowed the gas tax to be eroded by inflation for more than 20 years. As obvious as raising the gas tax may be, America’s political leaders won’t touch it. Yesterday, The Hill reported that Congressman Bill Shuster, chair of the Transportation and Infrastructure Committee, is ruling out […]