Transit authorities seek aid in avoiding AIG fees

Transit authorities, which are now facing about $4 billion in fees for AIG-backed tax shelters, are reaching out to the government for help, according to The New York Times.
The affected transit authorities, which include agencies in New York, Los Angeles and Chicago, used lease-in/lease-out or sale-in/lease-out tax shelters to sell infrastructure items to banks, which then lease them back to the authorities, according to the Times.
In the deal, the corporations receive a tax break, and the authorities get cash flow.
These transactions were backed by American International Group Inc. of New York, which was saved by the government in September, the Times said.
But now the American Public Transportation Association, a Washington lobbying group for the transit authorities, is asking the Department of Transportation to encourage Henry Paulson, secretary of the Treasury, and Ben Bernanke, Federal Reserve Board chairman, to have the government back the transactions in AIG’s stead.
With the government’s backing, the authorities can avoid paying $4 billion in early-termination fees to AIG and other banks and insurers in the deals.
Banks in the deals want the money because the insurer’s credit ratings were lowered, the Times said.
The shelters — which have cost the Treasury an estimated $34 billion in otherwise-levied taxes — have been under scrutiny by the Internal Revenue Service and have even been banned by the tax agency, which said it never considered them valid for deductions, according to the Times.

Related Topics: American International Group (AIG)