'Abusive' Tax Shelter Industry Continues To Evolve, Warns GAO

by Leroy Baker, Tax-News.com, New York

16 November 2005

A report by the US federal government spending watchdog has highlighted the continuing risk to the tax system of complex, so-called 'abusive' tax sheltering schemes, which it noted are now being sold through smaller, less accountable outlets.

"Recent trends indicate that the tax shelter population will continue to expand to small- to mid-sized corporations where issues will be more difficult to identify and examine," the Government Accountability Office observed in a report on its financial audit of the Internal Revenue Service.

The GAO went on to note that tax shelter promoters are migrating from the large accounting firms to businesses that specialize in tax matters.

These so-called 'boutique promoters', the GAO observed, are "less compliant in their business registrations and less stable in the business operations" and are consequently more difficult for the authorities to pursue for information or penalties.

Moreover, the GAO found that promoters of tax shelters are continuing to modify their products to stay one step ahead of the IRS. It also found that the number of fraudulent tax refund claims continues to rise and now stands at a five-year high.

"For the 2005 processing year, the IRS identified approximately $451 million of fraudulent refund claims for individuals," the GAO reported.

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