The Internal Revenue Service is taking steps to combat abusive tax shelters and transactions. A comprehensive strategy is in place to:
- Identify and deter promoters of abusive tax transactions through audits, summons enforcement and targeted litigation.
- Keep the public advised by publishing guidance on transactions and shelters that are determined to be abusive.
- Promote disclosure by those who market and participate in abusive transactions.
- Develop and implement alternative methods for resolving abusive transactions claimed by taxpayers.
Recent Tax Shelter Developments and Additions to This Site
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Notice 2004-65 De-lists Producer Owned Reinsurance Companies (PORC) as a listed transaction
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Notice 2004-64 Modification of exemption from tax for small property and casualty insurance companies.
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IRS, the Office of Chief Counsel and Treasury issue formal guidance on certain tax avoidance transactions that are referred to as "listed transactions". Taxpayers are required to disclose their participation in listed transactions. To date, 30 listed transactions have been identified and addressed in formal guidance. Listed Transactions
Regulations on Abusive Tax Shelters and Transactions
Treasury regulations require that certain tax shelters and transactions be registered and that lists of investors be maintained by parties who organize or sell interests in the shelter(s). Investors in certain shelters and transactions are required to disclose their participation on their tax returns.
Lead Executives and Technical Contacts
Designated lead IRS executives provide oversight and direction in developing strategies to combat abusive tax avoidance transactions.
Mandatory Information Document Request (IDR)
An information document request is required in all LMSB corporate examinations started after April 23, 2002, or in process on April 24, 2002. The purpose of the IDR is to assist agents in identifying and developing tax shelter issues relating to listed transactions. More information is available in the Mandatory IDR FAQs
Tax Accrual Workpapers
IRS policy is to request tax accrual and other financial audit workpapers relating to the tax reserve for deferred tax liabilities, and to footnotes disclosing contingent tax liabilties appearing in audited financial statements.
Penalty Policy Relating to Abusive Transactions
An LMSB Commissioner Memorandum issued to LMSB executives, managers, and examiners provides guidance on consideration and application of penalties in an impartial, consistent and fair manner. A separate LMSB Commissioner Memorandum covers Penalty Policy in Disclosure Initiative Cases.
IRS Initiatives to Resolve and Identify Abusive Tax Shelters and Transactions
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Taxpayers were afforded the opportunity to participate in a "Son-of-Boss" settlement initiative announced in May, 2004. Taxpayers who qualified for the offer paid outstanding tax, interest and applicable penalty.
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IRS conducted a settlement initiative from October 2002 through March 2003 to allow taxpayers engaged in certain abusive transactions to resolve the tax consequences arising from their participation in the transactions. The transactions covered by the initiative were §302 / 318 Basis Shifting, §351 Contingent Liabilities, and Corporate Owned Life Insurance (COLI).
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A prior Tax Shelter Disclosure Initiativeconducted from December 2001 to April 2002 resulted in 1,690 transaction disclosures from 1,212 taxpayers. The transactions disclosed involved $30 billion in claimed losses and deductions.
Examination Guide -- Abusive Tax Shelters and Transactions
This guide was developed to support IRS field personnel in the identification and the consistent development of abusive tax shelter and transaction issues. The guide covers transactions engaged in by all types of taxpayers, including "listed transactions" (known abusive), identified transactions that have not been listed, and emerging transactions. The guide is published here in separate sections in pdf format.
Office of Tax Shelter Analysis
The Office of Tax Shelter Analysis (OTSA) in the LMSB Division collects and analyzes information about abusive tax shelters and transactions, and coordinates LMSB’s tax shelter planning and operations.
IRS maintains a hotline that people can use to share information (anonymously if preferred) about abusive tax shelters.
Office of Tax Shelter AnalysisLM:PFT:OTSA
1111 Constitution Ave. NW
Washington, DC 20224
Other Abusive Tax Schemes
In addition to the highly complex abusive technical transactions covered on this page, IRS is combating other types of abusive tax schemes, such as offshore tax avoidance schemes. Click here for information on steps IRS is taking to combat these other schemes:
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