The new accounting regulatory board plans to take a hard look at abusive tax shelters and a “very heavy-handed” approach with the firms that sell them.
William McDonough, head of the Public Company Accounting Oversight Board (PCAOB), said in Senate testimony last week that policing tax shelters was not Congress' motive in establishing the PCAOB in the 2002 Sarbanes-Oxley Act.
However, he said PCAOB staffers will look for evidence that firms have marketed abusive tax shelters during their annual inspections of major accounting firms. McDonough called the practice of marketing abusive tax shelters to audit clients "completely inappropriate."
The investigations panel of the Senate Governmental Affairs Committee recently released a report that said tax shelters have been aggressively marketed — complete with telemarketing operations to find customers — in the last five years.
Representatives of KPMG, Ernst & Young and PricewaterhouseCoopers told the Senate panel earlier last week that they no longer market the kinds of aggressive tax avoidance plans highlighted in the report.
Lawyers, investment advisers and bankers testified on their roles in helping the big accounting firms market their tax plans. A former Deutsche Bank executive, for example, said his company made 56 short-term loans totaling $7.8 billion that were essential to one of the shelters.
"Otherwise smart people just turned a blind eye," Sen. Norm Coleman, R-Minn., said of those who enabled the accounting firms to market their shelters.
The IRS has made abusive tax shelters a top priority, but IRS Commissioner Mark Everson said Congress needs to beef up the penalties against promoters, who can make huge gains through the schemes. He called current penalties "chump change." Officials estimate the shelters have cost the U.S. Treasury $85 billion.