Treasury Announces New Tax Shelter Regulations

The Treasury Department has released amended regulations for the disclosure of tax shelters. These rules expand the reporting requirements currently expected of corporations to include individuals, trusts, and subchapter S corporations. "The net is wider," said Pam Olson, Treasury assistant secretary for tax policy.

Starting this year, all taxpayers are required to disclose on their tax returns and promoters are required to keep investor lists for the following six types of transactions:

  • Transactions already categorized by the IRS as tax shelters
  • Transactions marketed by accountants as being confidential
  • Transactions in which the accountant promises a particular tax reduction
  • Transactions that generate a loss for tax purposes of more than $10 million in one year or more than $20 million over two years
  • Transactions where a corporation reports a disparity of more than $10 million of profits between financial statements and tax amounts
  • Transactions that produce a tax credit relating to assets owned by the taxpayer for fewer than 45 days

The regulations are part of an ongoing effort to crack down on tax shelters. The IRS estimates that illegal and abusive tax shelters are costing the U.S. Treasury as much as $70 billion per year.

One particular area under scrutiny is that of tax evasion techniques using off-shore accounts. "The Internet has provided average citizens access to the offshore world and credit and debit cares have made it possible to easily access money held offshore," explained Jack Blum, partner in the Washington D.C. firm of Lobel, Novins & Lamont and former special counsel to the Senate Foreign Relations Committee on Terrorism, Narcotics, and International Operations.

The new rules amend regulations for Internal Revenue Code sections 6011 (taxpayer disclosure) and 6112 (promoter list maintenance).

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