Abusive tax shelters
are marketing schemes involving artificial transactions with little or no economic reality.
The Tax Court held that the tax shelter
exception to the tax practitioner/client privilege did not apply to documents in the form of the minutes of meetings between a partnership and a federally authorized tax practitioner because the tax advice in the documents was not given in connection with the promotion of a tax shelter
In other words, the statue of limitations for tax shelters
may possibly be extended from three to as long as four years.
Further discussion of tax shelters
is beyond the scope of this chapter.
Now with its admission of "unlawful conduct," KPMG--along with law firms and banks with which it jointly sold tax shelters
--will be more vulnerable to lawsuits from tax shelter
clients who had to pay the IRS back taxes and penalties.
The final disclosure and listing regulations are significantly tighter than earlier versions, which applied only to corporate taxpayers, required the existence of at least two tax shelter
characteristics and provided subjective-type exceptions that taxpayers and their advisers were prone to rely upon.
The most common tax shelters
in recent years include investments in films, computer software, mutual fund fees, resource activities (oil and gas, mining and renewable energy), and e-commerce.
However, the factor of most concern to the Treasury Department is the rapid increase in the use of illegitimate tax shelters
by large companies.
Estimates show that abusive tax shelters
cost California $500 million in lost tax revenue each year.
The IRS first used transaction pattern evidence successfully to challenge individual tax shelters
in which different individuals invested in the same shelter.
Arecent federal appellate court decision addresses whether accounting and law firms may protect the names of clients that participate in tax shelters
Concluding that there was a need for a comprehensive interpretation of member responsibilities that would apply across the spectrum of tax planning and include tax shelters
(regardless of how that term is defined), the AICPA tax executive committee issued Interpretation no.