Grant Thornton Warns of Problems With Tax Shelter Regulations

Grant Thornton, currently the nation's fifth largest accounting firm, has responded to the Internal Revenue Service's request for comments on proposed tax shelter regulations and has raised issues that may be of concern to middle-market companies.

The regulations, which are set to be come effective January 1, 2003, include two provisions that have sparked concern with the accountants at Grant Thornton.

First, the revised regulations include a provision for contractual protection against the risk that tax benefits from tax shelters will be denied. Taxpayers may find that contingent fee arrangements are part of the provisions. "Grant Thornton is of the position that the Contractual Protection provisions are arguably broad enough to include contingent fee arrangements. Contingent fees encourage tax advisors to provide services in an efficient and effective manner and are already permitted under IRS Circular 230, which provides the rules for practice before the IRS. Contingent fee arrangements are particularly valuable to middle-market firms to whom the advisors' fee constitutes a significant expense," said Mark Stutman, managing partner of Grant Thornton's tax practice.

Grant Thornton believes that companies, especially middle-market companies, may find themselves choosing between foregoing such a fee arrangement and disclosing routine transactions. Grant Thornton has recommended that the IRS modify the Contractual Protection provisions of the proposed regulations to specifically exclude fee arrangements "where it is expected that the claimed tax benefit will receive substantive review by the IRS," according to Mr. Stutman.

Another area of concern is that the tax shelter regulations include "Time of Providing Disclosure" provisions that require disclosure of reportable transactions even if the transaction doesn't become reportable until after federal tax returns affected by the transaction have been filed. "We call these types of transactions subsequently reportable transactions," said Mr. Stutman. Grant Thornton notes that no statute of limitation has been applied to this area of the proposed regulations. "This places an undue burden on middle-market companies, with small internal staffs, and may penalize them for a failure of organizational memory. They will be required to be knowledgeable of all past transactions in the event that one of them subsequently becomes a 'listed transaction' and is therefore reportable," said Mr. Stutman.

You may like these other stories...

The IRS cautions freelancers and other self-employed individuals to stay on top of the deadlines for filing federal tax returns and the due dates for making payments. Miss just one, says the IRS, and it might exact a sizable...
Bipartisan Cooperation on Tax Refund FraudAs noted in Politico, Senators Wyden and Hatch have introduced a tax refund fraud bill. According to a summary from Senator Hatch's office, the bill would enhance "the...
Camp Hopes Estate Tax Will Be on Its Way OutAn article in Bloomberg said that Republicans are considering voting this year to repeal the U.S. estate tax, according to House Ways and Means Chairman Dave Camp (R.-Mich.). He...

Upcoming CPE Webinars

Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.