Last week the Internal Revenue Service filed suit against accounting firms KPMG and BDO Seidman claiming the firms withheld documents, including the names of participants, relating to tax shelters that the IRS is investigating.
Referring to the documents already submitted by KPMG, the IRS proceeded to make public a list of prominent investors who are or were participants in some of the tax shelters that are under examination. Included among those investors are California gubernatorial nominee Bill Simon; his father, the late William E. Simon, former Treasury Secretary; the late race car driver Dale Earnhardt, Gary Winnick, chairman of the troubled Global Crossing Ltd.; Bob Shaye, chairman of New Line Cinema; Wayne Garrison, CEO of trucking concern J.B. Hunt Transport Services Inc.; Earl Phillips Jr., U.S. Ambassador to Barbados; and Robert Wood Johnson IV, heir to the family that founded Johnson & Johnson. KPMG submitted the tax shelter information as part of its court disclosure, not expecting the names to be made public.
"It is disappointing that the IRS has deemed it appropriate to disclose the identity and embarrass individual taxpayers without having expressed any deficiencies in their transactions," responded KPMG in a published statement. "Individual taxpayers have a right to expect privacy in the tax system, which has been violated as part of the IRS's public filing."
The disclosure by the IRS is not a common practice. While the agency has in the past made public the names of tax offenders, none of the named tax shelter participants have been accused of any wrongdoing. IRS spokesman Frank Keith said that publicizing the names of tax shelter participants helped substantiate the IRS's case against the accounting firms. "Names were included to establish for the judge the basis of our allegation," Mr. Keith said.
The IRS has been channeling more of its efforts into ending tax evasion and examining tax shelters. Congress is supporting these efforts. Just last week, the House Ways and Means Committee proposed giving the IRS more power to fight tax shelters including allowing the agency to assess a $100,000 fine for individuals who fail to report tax shelter transactions to the IRS.