RELATED ARTICLE: Abusive
Tax Shelter Disclosure and Control
In a decision released shortly after the Tax Court's decision in the Countryside case, the Seventh Circuit in Valero upheld the district court's order, rejecting Valero's claim that the
tax shelter exception to the tax practitioner/client privilege did not apply to the documents in question.
Any person who organizes and sells potentially abusive
tax shelters is required to maintain a list identifying each person who purchases an interest in any such
tax shelter, along with any additional information required by the IRS.
Schallheim and Wells (2006) measure nondebt tax shields based on the difference between taxes paid and financial statement tax expense in an attempt to capture the effect of "off financial statement" deductions such as accelerated depreciation, stock option deductions,
tax shelters, and the like.
At the time, the IRS was investigating more than 100
tax shelter promoters, including accounting firms, law firms, and financial institutions.
In addition, the Senate bill includes provisions addressing Enron-related
tax shelter transactions.
Although perhaps not usually thought of as a
tax shelter, contributing to an RRSP is, in fact, the best known and most popular
tax shelter.
The new regulations also apply to providers of
tax shelter plans.
The Canadian financial community became aware of the industry and sensitive to the possibilities of
tax shelter as an attractive vehicle for wealthy individuals and corporations.
* Legislation in 2004 created significant new penalties for the failure to disclose a reportable
tax shelter transaction and for an understatement of tax related to a
tax shelter transaction.
The Franchise Tax Board will follow the IRS
tax shelter settlement initiative as outlined in IRS Announcement 2005-80, effectively creating the California
Tax Shelter Resolution Initiative to run alongside the federal initiative.