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Tax Shelters > Crackdown
on Abusive Tax Shelters
IR-2003-51, April 15, 2003
WASHINGTON — As part of a comprehensive strategy to ensure
all taxpayers pay their fair share, the Treasury Department and
the Internal Revenue Service are moving aggressively to combat abusive
tax avoidance transactions.
“The IRS is building an enforcement web to catch and eliminate
tax shelters. Taxpayers should come forward now, before they get
tangled in the web. The IRS is collecting information about taxpayers
and promoters who don’t come forward so it can act on that
information,” stated Treasury Assistant Secretary for Tax
Policy Pam Olson. “It’s time to come in from the cold.”
The number and complexity of questionable tax avoidance devices
has expanded in recent years. To address them, the IRS is pursuing
a multi-pronged approach on abusive transactions, led by the Large
and Mid-Size Business Division (LMSB) and IRS Chief Counsel and
supported by IRS Appeals, other Operating Divisions and Treasury.
This level of coordination is vital to the effort’s success.
“We are committed to using the tools at our disposal to identify
questionable transactions early, analyze those transactions quickly
and take appropriate action promptly to stop those transactions
we determine to be abusive,” said IRS Chief Counsel B. John
Williams. “We will continue to pursue promoters and taxpayers
to ensure they are complying with their legal obligations, and will
take them to court if necessary.”
“Our enforcement strategy to combat abusive transactions
is working,” said Larry Langdon, LMSB Commissioner. “Early
disclosure is important, and our efforts to encourage promoters
and investors to step forward on these abusive transactions have
been extremely successful.”
Among the key steps taken:
The IRS is actively pursuing promoters of abusive transactions.
The IRS conducts promoter examinations in instances where a promoter
has not complied with regulations requiring identification of potentially
abusive tax avoidance transactions by registering such transactions,
and maintaining or making investor lists available to the IRS upon
LMSB currently has 78 promoters under investigation.
239 summonses have been issued to secure investor lists, of
which 77 have been referred to the Justice Department for enforcement.
IRS has obtained investor lists from 25 promoters covering
The IRS and Treasury Department are publishing legal guidance
when a transaction is determined to be abusive. When a
transaction is determined to be abusive, IRS and Treasury publish
guidance as early as possible. This process is designed to deter
subsequent promotion and investment in abusive transactions and
to facilitate identification of investors and promoters. It also
ensures consistent treatment of such transactions by IRS agents
in the field.
- The IRS and Treasury have identified 25 abusive transactions
through formal guidance.
The IRS Disclosure Initiative brought many taxpayers into
compliance and providing leads on promoters and emerging abusive
The disclosure initiative conducted from December 2001 to April
2002 resulted in 1,664 disclosures from 1,206 taxpayers.
Taxpayers have disclosed transactions in which they claimed
deductions or losses amounting to billions of dollars.
The IRS is analyzing the new transactions to determine whether
they are abusive and warrant published guidance or other administrative
The IRS is auditing taxpayers to determine whether they
invested in abusive transactions, using information derived from
promoter audits, the Disclosure Initiative, public information and
A special Settlement Initiative offered equitable alternatives
to protracted enforcement and litigation.
In October 2002, Treasury and IRS announced limited time resolution
options for taxpayers engaged in the Contingent Liability, Basis
Shifting and COLI tax shelters.
The IRS is taking cases to court where it is necessary to enforce
The IRS has placed a special emphasis on abusive shelters
The Office of Tax Shelter Analysis (OTSA) provides centralized
data collection and analysis on all aspects of the tax shelter
program, including information required to be disclosed by regulation,
developed by field agents and obtained during the course of
our disclosure and settlement initiatives.
Internal Revenue Service officials announced Feb. 12 the creation
of a new senior executive position within the Office of Chief
Counsel to focus on potentially abusive tax avoidance transactions.
Washington attorney Nicholas J. DeNovio was selected to fill
IRS teams are assembled to implement a comprehensive strategy
to deal with questionable transactions. Teams are headed by
an LMSB executive and include representatives from Chief Counsel,
technical advisors and field specialists, including members
of the Small Business/Self-Employed Division.
The President’s budget proposes an additional $100
million to support this effort to pursue high-income individuals
and businesses. This request is awaiting action by Congress.
Tax Shelters and Transactions for more information on IRS actions.