Accounting Firms Face Penalties Under Tax-Shelter Bill

Senators Max Baucus and Charles Grassley, senior members of the Senate Finance Committee, have introduced tough new tax legislation known as the "Tax Shelter Transparency Act" that would impose penalties on promoters of tax shelters, mainly law and accounting firms.

Types of Tax Shelters

The legislation separates transactions into three types: reportable listed transactions, reportable avoidance transactions and a catch-all category for other transactions.

  • Reportable listed transactions. The bill imposes a flat penalty of up to $200,000 on taxpayers who fail to report transactions identified as "tax avoidance transactions" by the Treasury Department. An incremental 30 percent accuracy-related penalty for underpayment of taxes could also be imposed. In addition, many of these taxpayers would have to report the penalties to the Securities and Exchange Commission, which would make the transgressions public and could affect the company’s stock price.

  • Reportable avoidance transactions. Failure to disclose these transactions would result in a penalty of up to $100,000. Sen. Baucus explains these transactions include significant loss transactions, transactions with brief asset holding periods, transactions marketed under conditions of confidentiality, transactions subject to indemnification agreements, and transactions with a certain amount of book-tax difference.

Accounting firms that promote tax shelters would be liable for penalties of up to $10,000 per day if they fail to provide the IRS with a list of investors in tax avoidance schemes. The Treasury Department could also censure tax advisors or impose monetary penalties on tax advisors or firms that provide opinions "endorsing" tax-engineered arrangements and practice before the IRS.

"Following Enron's bankruptcy," said Sen. Baucus, "I think all Americans have a greater appreciation of the need for greater transparency in complex tax transactions. . . . The proliferation of tax shelters has been called ‘the most significant compliance problem confronting our system of self-assessment.’"

Download the technical explanation of the "Tax Shelter Transparency Act."

-Rosemary Schlank

You may like these other stories...

Bank Leumi said to face $300 million demand in tax caseDavid Voreacos and Greg Farrell of Bloomberg reported on Wednesday that New York’s banking regulator will ask for more than $300 million to settle an investigation...
Mike "the Situation" Sorrentino, one of the stars on the former TV show "Jersey Shore," is in the middle of…well, a tax situation.On October 23, the erstwhile reality show attraction was arraigned...
Deal to lock in US tax cuts is bubbling up on the HillSome US lawmakers are exploring a post-election deal that would lock in permanent tax cuts for major corporations and low-income families, Richard Rubin of Bloomberg...

Already a member? log in here.

Upcoming CPE Webinars

Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.
Nov 19How do you minimize redundant work and unnecessary steps to maximize the amount of work moving through your firm?
Nov 20Kristen Rampe will share how to uncover new opportunities with your clients by asking powerful questions.