California Maintains Pressure On Illegal Tax Sheltering

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

16 March 2004

Cementing California’s tough stance on abusive tax shelters, the state Franchise Tax Board has sent out thousands of letters to both taxpayers and promoters in its latest effort to curb tax evasion.

Acting on information from the IRS and other state authorities, the FTB announced last week that it has mailed out 10,000 notification letters to taxpayers and businesses suspected of having used illegal tax shelters. The board also revealed that 125 letters have been sent to promoters of tax schemes reminding them of their “responsibilities under legislation signed last year.”

“In order to stop people from using illegal tax shelters, we have to get to the businesses that peddle them,” explained State Controller and FTB Chair, Steve Westly. “California’s new anti-shelter laws levy the harshest penalties in the nation against promoters.”

The legislation signed last October provides the FTB with more enforcement tools to crack down on abusive tax shelters. The new laws greatly increase penalties for investing in illegal tax shelters, increase the time period to conduct audits, and add registration requirements for shelters.

California’s program to combat abusive tax shelters has collected more than $113 million through the Voluntary Compliance Initiative, which allows taxpayers who have used tax shelters to come forward before the state imposes stiff penalties. Taxpayers have until April 15, 2004, to amend their returns and fully pay the tax and interest due.

According to estimates, California loses $600 million to $1 billion in tax money each year through abusive tax sheltering.

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