TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, October 27, 2005

IRS Launches Tax Shelter Settlement Initiative

Irs_logo_139 The IRS announced today (IR-2005-129) that it has launched a tax shelter settlement initiative:

IRS officials today announced a broad-based, limited-in-time opportunity for taxpayers to come forward and settle an array of transactions the IRS considers abusive. Taxpayers who undertook these deals will have until January 23, 2006 to submit their settlement papers to the IRS. The initiative, described in Announcement 2005-80, identifies 21 transactions eligible for the program. Consisting of both listed and non-listed transactions, they include a wide cluster of schemes involving funds used for employee benefits, charitable remainder trusts, offsetting foreign currency option contracts, debt straddles, lease strips and certain abusive conservation easements. All eligible transactions carry the same settlement terms except the applicable penalty level. Further details on the 21 covered transactions are available in FS-2005-17....

Under the settlement terms, participants, both individuals and companies, will be required to pay 100% of the taxes owed, interest and, depending on the transaction, either a quarter or a half of the penalty the IRS will otherwise seek. There is penalty relief for transactions disclosed to the IRS or where the taxpayer got a tax opinion from an independent tax advisor. Transaction costs paid by the taxpayer to do the deal, including professional and promoter fees, will be allowed.

This program follows the fundamental terms of prior settlement initiatives including Son of Boss transactions and schemes involving transfers by executives of stock options to family controlled entities.

This initiative reflects the outcome of a 30-month strategy to restore enforcement and deter abusive tax shelter deals. Intensified civil and criminal promoter investigations, targeted summons enforcement actions and litigation and a more robust oversight program of tax professionals have all played a key role in the effort to combat these transactions.

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