June 7, 2004 - admin

The future for tax shelter investors

Tax Notes Today for 6/7/04, at 2004 TNT 109-2, contains a summary of remarks by IRS Commissioner Mark Everson on tax shelter enforcement. While there is a good deal of bravado in the comments, the reality is probably not far behind. The tax shelter business as currently operated is probably doomed. It is too easy for the IRS to find a promoter, then find the investors. The slow regulatory changes put in place by the IRS to combat tax shelters are working. Political pressure to beat up evil tax dodgers is relentless. And the IRS officials and attorneys show clear signs of Elliot Ness Syndrome.

Companies and individuals looking to reduce their taxes? Here’s my recommendation. Bespoke tax shelter might work: it’s tailored to your situation, and there is no trail for the IRS (from the promoter) to find you. Off-the-rack tax shelter will probably fail.

Here’s an excerpt from Tax Notes Today’s story:

IRS Commissioner Mark Everson on June 4 told the Virginia Conference on Federal Taxation that the IRS son-of-BOSS settlement initiative is just the first part of a planned effort to stem abusive tax shelters and increase the accountability of tax practitioners.

Everson said once the son-of-BOSS settlement offer ends June 21, the IRS expects to have enough data to help gather the roughly 5,000 participants involved in the high-profile shelter, which is projected to have generated about $ 6 billion in tax benefits. “Now that we’re getting the names of all these folks — and we will get them all — we’ll come after you,” he said. “We’re confident of our position here. We’ll devote the audit resources we need to follow up on these transactions if people don’t come in.”

Everson said taxpayers targeted as part of the post-settlement dragnet will face a 100 percent tax concession and interest fees and will be penalized up to 40 percent for not coming forward.

“We think this is a watershed moment . . . because the IRS has typically settled these things for less than 100 cents on the dollar and has often traded away the penalties. And we’re not going to do that anymore,” Everson said. “We are taking, clearly, a tougher stance . . . because this problem has gotten out of line.”

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