Posted on 07/08/2002 10:59:07 PM PDT by HAL9000
As part of efforts to clamp down on abusive corporate tax shelters, the Internal Revenue Service is expected to file enforcement actions against two accounting firms as early as today or tomorrow, several people familiar with the matter told The Wall Street Journal.The agency has stepped up its focus on firms that provide advice to companies on how to minimize their tax bill. The pressure on so-called tax-shelter promoters is considered an effective means to identify how widespread the practice is.
The enforcement action -- the first of its kind against a promoter -- would be to compel each firm to hand over documents that disclose information about corporations and individuals invested in the tax shelters, how those vehicles are structured as well as whether they are properly registered. Under IRS regulations, accountants, investment banks, law firms and other advisers are required to register tax shelters with the IRS and maintain lists of clients who use them.
The identity of the two firms couldn't be confirmed last night.
The enforcement actions would seek to enforce summonses that were issued but produced disappointing results for the IRS; in general, such a summons is a directive to hand over documents but the IRS needs to go to court to enforce it. In taking enforcement action, the IRS would be deploying a powerful legal weapon against accounting firms and could obtain names of hundreds, and even thousands, of businesses and individuals. One tax-shelter vehicle can have as many as hundreds of individual and corporate investors, and typically total tens of millions of dollars but can reach into the billions.
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This action by the IRS is a scatter-gun approach, that is not based upon probable cause that any particular person or company did anything wrong. But, since the courts are packed with political appointees from both parties, who routinely "go along" with government power grabs, the IRS will probably win this one.
In fact, the big accounting firms that offer such programs have usually researched the legality of each part thoroughly and in many cases, even received IRS rulings in advance of giving advice to the first client. The real reasons that IRS is doing this is 1) to learn how the programs work, so they can write new rulings that will just happen to make key portions of each program illegal and 2) to make headlines meant to scare away any investors who have not yet taken advantage of these legal programs.
Very little positive results will actually come of this. In pouring through the thousands of pages of documents, the IRS will probably find a few cases where documentation was not properly filled out or some other technicality exists and they will make a big issue out of prosecuting them in the media. There is, however, a very severe downside to this. It will drive even more wealthy American taxpayers to take all of their money and leave. In fact, between the abuses of the IRS, frivolous litigation, terrorism and the USA Patriot Act and other such oppressive legislation, it's a wonder that any wealth remains here, at all.
The IRS is actually driving away the few taxpayers who pay over half of the taxes. When that happens, those who remain here will have to make up the difference,... but, with a lot less money.
One can find tax shelters on the Web. The IRS must be desperate.
Yeah, but the shelters that you find on the web are mostly scams that only draw a handful of gullible middle class investors, that all totaled, probably only amounts to a few of million dollars in illegally evaded taxes and it would take years to prosecute each and every case to get that money. The major accounting firms are using well researched, legal methods, that draw very wealthy investors and represent tens of millions or even hundreds of millions in legally avoided taxes. Why should they go after those who are breaking the law, when it is so much easier to attack those with money, whose only crime is being too efficient at using the tax breaks that the IRS has allowed?
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