The Treasury Department has announced that Internal Revenue Service officials will begin challenging transactions that generate losses with the use of certain loan assumption agreements.

The agreements at issue typically involve an offshore partner who borrows money to purchase assets, then sells a portion of the assets of a value just enough to cover the future value of the loan principal, to a corporate partner. The corporate partner assumes 100% of the loan, then resells its portion of the assets and records a loss equal to the difference between the total loan liability and the value of the acquired assets.

"These tax-engineered transactions breed disrespect for our tax laws and waste valuable private and public sector resources," stated Senate Finance Committee Chairman Max Baucus, D-MT, and Senator Charles Grassley, R-IA, in a letter to Treasury Secretary Paul O'Neill. "We continue to believe that a more vigorous approach is needed to curb these abusive transactions and to ensure that taxpayers cannot escape taxes that they properly owe."

The move by the Treasury Department is part of an ongoing program by the Bush administration to shut down tax shelters.