Son of Boss Settlement Causes Firms to Refocus Priorities
With the nation's largest accounting firms returning to their core business of auditing publicly held companies, they seem to be moving away from the tax-shelter business that landed the firms-and their clients-in the hot seat with the Internal Revenue Service.
The tax-shelter boom of the 1990s, complete with a marketing machine operating at full speed, seems to be phasing out as the IRS cracks down on abusive shelters, such as Son of Boss.
Last Thursday, the IRS announced it had collected a record $3.2 billion in taxes and penalties from participants in an abusive tax shelter known as Son of Boss, the Washington Post reported. Nearly 1200 shelter customers were forced to come clean with the IRS as part of the crack down on settlement.
However, Sheldon S. Cohen, a former IRS commissioner, told the Post that the shelter was so egregiously indefensible that it took little effort to convince its users that they had little choice but to give up their gains.
The government is clearly having an effect in deterring the firms from pushing abusive tax-shelters.
Big Four accounting firms Ernst & Young International and PricewaterhouseCoopers International Ltd. were forced to give up their tax-shelter client list as part of a settlement with the IRS, giving the tax agency plenty of ammunition against the participants.
While no one expects the government to succeed in getting rid of all shelters, only the largest firms have the resources to effectively market them and the legal departments to later fend off IRS challenges. With the Sarbanes-Oxley Act fueling an unprecedented need for auditing services, none of the firms want the negative attention attached to an IRS investigation, the Post reported, adding that the new regulation is proving so lucrative for the firms, they don't need the tax shelter business.
"They're walking the straight and narrow right now," Douglas A. Shackelford, an accounting professor at the University of North Carolina's Kenan-Flagler Business School, told the Post.