Two members of the Senate Finance Committee signaled this week that they plan to revise tax shelter laws to ensure that those who took advantage of the "Son of Boss" tax shelter don't slip through the fingers of Internal Revenue Service prosecutors.
The Wall Street Journal reported that Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., said they intend to rewrite tax shelter provisions in a pending corporate tax bill. If they do nothing, the statute of limitations to prosecute taxpayers who made use of the shelter on tax year 2000 returns will expire on Aug. 15.
Son of Boss was aggressively marketed in the late 1990s and 2000 to companies and wealthy individuals by a network of law firms, accounting firms and investment banks. In August 2000, the IRS issued Notice 2000-44 declaring the transactions abusive and requiring promoters to maintain a list of investors.
The majority of the taxpayers who made use of the shelter did so in 2000, so the Senate action is crucial to stopping those who have failed to come forward on their own from escaping prosecution.
The Internal Revenue Service announced earlier this month a strong turnout by taxpayers to settle "Son of Boss" claims.
More than 1,500 taxpayers filed Notices of Election by the June 21 deadline.
"By any measure, this is a strong response from taxpayers entangled in Son of Boss transactions," said IRS Commissioner Mark W. Everson. "Those who elected to settle did the right thing. We have already begun to contact the taxpayers who didn't take us up on the offer and expect to begin enforcement action soon."
The IRS announced the Son of Boss settlement initiative on May 5 to encourage people to settle before IRS enforcement action. The IRS is aware of transactions involving estimated understatements of tax in excess of $6 billion, not including interest and penalties.
"There are a large number of Son of Boss investors who did not enter this self-disclosure program who are hoping, quite frankly, that the clock would run out on the statute of limitations before the IRS would find them," Grassley told the Journal.
Baucus said he agreed. "I don't think we should let these tax cheats off the hook," he said. He proposed to modify the corporate tax bill "to extend the Aug. 15 statute of limitations for the Son of Boss investors who did not participate in the self-disclosure program."
Grassley and Baucus must now convince House tax law writers to get on board with the revision that would extend the statute of limitations past the Aug. 15 date.