IRS Announces Amnesty Plan on Tax Shelters

The Internal Revenue Service has announced an initiative that is aimed at encouraging taxpayers to disclose tax shelters and other questionable items reported on their tax returns.

The disclosure initiative is another in a series of steps the IRS and Treasury have been taking to identify and shut down tax shelter activity. The IRS is taking this step because information obtained through disclosures helps the IRS more readily identify tax shelter promoters who have not registered and find other taxpayers who have not disclosed their participation in a tax shelter.

The IRS hopes to encourage taxpayers to disclose tax shelters and other questionable items that may have resulted in an underpayment of tax by waiving certain accuracy-related penalties that might apply to the transactions. A taxpayer is not required to agree that the disclosed tax shelter or item resulted in an underpayment of taxes in order to avoid penalties.

“The IRS believes some taxpayers entered into questionable transactions based on the representations of promoters who marketed these tax shelters,” said Larry Langdon, Commissioner, Large and Mid-Size Business Division.

“These taxpayers are aware that those transactions may be challenged upon an IRS audit, but they may be reluctant to disclose the transactions because of the potential for the application of penalties,” Mr. Langdon said. “They now have additional incentive to bring any questionable transactions to the IRS’s attention.”

Taxpayers who make disclosures must, among other things, describe the material facts of the transaction, provide the names and addresses of the promoters who solicited the taxpayers’ participation, provide upon request copies of materials and documents related to the transaction or item, and sign a penalties of perjury statement regarding the accuracy of the information provided. The IRS will waive the accuracy-related penalty for underpayment of taxes attributable to one or more of the following:

  1. negligence
  2. substantial understatement of income tax
  3. certain substantial valuation misstatements
  4. substantial overstatement of pension liabilities

The disclosure initiative will not apply to taxpayers involved in fraud, criminal conduct, the concealment of a foreign financial account or foreign trust, or the treatment of personal expenses as deductible business expenses.

Disclosure is critical to the IRS’s ability to use its resources efficiently and judiciously to administer the tax laws. As part of the disclosure initiative, the IRS will waive the accuracy-related penalty for any underpayment of tax if the taxpayer discloses the item before it is raised during an examination or before April 23, 2002, whichever is earlier.

In addition to the disclosure initiative, the IRS is providing additional internal guidelines to employees for the consideration of accuracy-related penalties for potentially abusive tax shelters. “Together with the disclosure initiative, these penalty guidelines create a compliance incentive by making clear the situations where we will consider the assertion of penalties already available to us,” said Mr. Langdon.

The IRS encourages taxpayers who have reported questionable items on their tax returns to come forward. Disclosure creates no inference that the taxpayer’s tax treatment of the item was improper or that the accuracy-related penalty would apply.

To make a disclosure, taxpayers should submit the disclosure information to their assigned IRS team manager or, if not under Examination, submit the information to:

IRS Office of Tax Shelter Analysis
LM:PFTG:OTSA
1111 Constitution Ave, NW
Washington, DC 20224.

The details of this program are contained in Announcement 2002-2. For information, contact the IRS Office of Tax Shelter Analysis at (202) 283-8425 or by email at jozef.chilinski@irs.gov or visit the IRS Web site.

You may like these other stories...

Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...

Upcoming CPE Webinars

Apr 17
In this exciting presentation Excel expert David H. Ringstrom, CPA shares tricks that you can use with pivot tables every day. Remember, either you work Excel, or it works you!
Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.