Tuesday, February 03, 2009

Treasury Faults IRS in Handling Tax Evaders

From The New York Times:

An Internal Revenue Service (IRS) effort to flush out wealthy investors in abusive tax shelters has fallen short, according to a government watchdog report released on Monday.

The report, by the Treasury inspector general for tax administration, concerned investors in what was known as Son of Boss, one of the most sophisticated and widely used abusive tax shelters of the late 1990s through recent years.

It said that for the shelter, more than one in four, or 27 percent, of investors who enrolled in an IRS program intended to root them out had later failed to pay their taxes on time, filed their returns late or failed to file them at all.

While the IRS did not dispute the data in the report, it called unfounded its comparison of the Son of Boss settlement program with a broader initiative, known as offer in compromise, which allows ordinary taxpayers to settle their tax bills for a percentage of the amount owed.

The report said that 96 percent of its survey of a tiny sample of taxpayers who had made offers in compromise for 2004 ended up paying their taxes on time — far more than the 73 percent of Son of Boss investors.

“The comparison presented in the report is flawed as it compares offers in compromise, which involve a much simpler administrative process for taxpayers that do not dispute that they owe taxes to the government, with the Son of Boss initiative, where numerous taxpayers were involved in complex disputes over the tax due,” the IRS said in a statement.

It added that the 27 percent of investors who had agreed to the settlement but were still behind schedule in paying faced about $30 million in fines.

The IRS announced its settlement for Son of Boss investors in 2004 and said Monday that it had prompted more than 1,100 wealthy taxpayers to come out of the shadows and pay more than $3.8 billion in federal income taxes that they had been evading illegally.

The agency said previously that it had known the names of about 2,000 investors who bought the shelter to evade a total of $6 billion in federal taxes, out of a total estimated 5,000 users.

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