IRS Will Crack Down on Companies Using Abusive Corporate Tax Shelters WASHINGTON -- The Internal Revenue Service plans to sharpen its
attacks on abusive corporate tax shelters.
In the midst of a sweeping reorganization, the IRS is establishing a new
office to better coordinate the network of examiners and specialists
responsible for uncovering and closing down illegal tax schemes, said Larry
Langdon, commissioner of the IRS's new Large and Mid-Size Business
division. When such a shelter comes to light, the IRS hopes to be able to
swiftly end the scheme and spread the word among auditors to look for it
in tax returns.
The IRS also is likely to announce a pilot project within a few weeks to
give corporations more guidance on what constitutes an abusive shelter.
Officials and many practitioners say abusive tax shelters -- marketed by
big accounting or financial-services firms -- have skyrocketed, costing the
government as much as $10 billion a year. In one frequently cited
arrangement, American companies were leasing city halls or other
government facilities in foreign countries and immediately leasing them back
to the governments, generating big tax breaks for the U.S. businesses.
Possible New Rules
In addition to the new office, the Treasury Department is considering
additional administrative steps, including new rules that would force
companies and promoters to disclose shelters they are using. The
department is also considering boosting penalties on tax lawyers and
accountants marketing the schemes.
The Clinton administration also is expected to seek legislative changes to
prune the use of shelters.
The IRS previously had a coordinated approach to regulating shelters
within specific industries, but the new shelters have been marketed across
industry lines. The new IRS division for large businesses, which will house
the shelter office, will make coordination easier, officials believe. It is
expected to be running by June.
The new office will be located at IRS headquarters and will have a staff of
about 15, many of them existing specialists with expertise in such matters
as foreign taxation, officials said. The agency will send in additional troops
as needed, Mr. Langdon said.
Among other things, the office is expected to develop a sort of field guide
to tax shelters for examiners. "With increased tools and capability and
more expert knowledge on the part of examiners and issue specialists, we
believe we can improve response times on the part of the service to the
most abusive situations," Mr. Langdon said. "We've made the decision to
highlight this as a matter of very material concern," he said. "It frankly
undermines our corporate tax system as we know it."
He noted that "there's almost a product of the week or product of the
day."
Many Potential Targets
The effort could hit a large swath of corporate America and some of the
leading accounting, law and financial-services firms that have made shelter
promotion a staple of their practice. Businesses worry that some legitimate
transactions could get caught up in the crackdown.
As a result, the Clinton package is certain to face tough opposition from
businesses.
But a financial-services industry spokesman said the new IRS office could
help, if it results in a more-focused approach by the administration. "I don't
think internally they have spent the time needed to figure out" the shelter
problem, said Mark Weinberger, a Washington lawyer who represents a
coalition of financial-services business. "This could be a good step in that
direction." By JOHN D. MCKINNON
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Internal Revenue Service plans to sharpen its
attacks on abusive corporate tax shelters.
In the midst of a sweeping reorganization, the IRS is establishing a new
office to better coordinate the network of examiners and specialists
responsible for uncovering and closing down illegal tax schemes, said Larry
Langdon, commissioner of the IRS's new Large and Mid-Size Business
division. When such a shelter comes to light, the IRS hopes to be able to
swiftly end the scheme and spread the word among auditors to look for it
in tax returns.
The IRS also is likely to announce a pilot project within a few weeks to
give corporations more guidance on what constitutes an abusive shelter.
Officials and many practitioners say abusive tax shelters -- marketed by
big accounting or financial-services firms -- have skyrocketed, costing the
government as much as $10 billion a year. In one frequently cited
arrangement, American companies were leasing city halls or other
government facilities in foreign countries and immediately leasing them back
to the governments, generating big tax breaks for the U.S. businesses.
Possible New Rules
In addition to the new office, the Treasury Department is considering
additional administrative steps, including new rules that would force
companies and promoters to disclose shelters they are using. The
department is also considering boosting penalties on tax lawyers and
accountants marketing the schemes.
The Clinton administration also is expected to seek legislative changes to
prune the use of shelters.
The IRS previously had a coordinated approach to regulating shelters
within specific industries, but the new shelters have been marketed across
industry lines. The new IRS division for large businesses, which will house
the shelter office, will make coordination easier, officials believe. It is
expected to be running by June.
The new office will be located at IRS headquarters and will have a staff of
about 15, many of them existing specialists with expertise in such matters
as foreign taxation, officials said. The agency will send in additional troops
as needed, Mr. Langdon said.
Among other things, the office is expected to develop a sort of field guide
to tax shelters for examiners. "With increased tools and capability and
more expert knowledge on the part of examiners and issue specialists, we
believe we can improve response times on the part of the service to the
most abusive situations," Mr. Langdon said. "We've made the decision to
highlight this as a matter of very material concern," he said. "It frankly
undermines our corporate tax system as we know it."
He noted that "there's almost a product of the week or product of the
day."
Many Potential Targets
The effort could hit a large swath of corporate America and some of the
leading accounting, law and financial-services firms that have made shelter
promotion a staple of their practice. Businesses worry that some legitimate
transactions could get caught up in the crackdown.
As a result, the Clinton package is certain to face tough opposition from
businesses.
But a financial-services industry spokesman said the new IRS office could
help, if it results in a more-focused approach by the administration. "I don't
think internally they have spent the time needed to figure out" the shelter
problem, said Mark Weinberger, a Washington lawyer who represents a
coalition of financial-services business. "This could be a good step in that
direction." |
