Californian Lawmaker Proposes Tougher Laws Against Tax Shelters

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

14 April 2003

A member of the Californian legislature has proposed tough new penalties for firms who market and advise the use of tax shelters and tax avoidance schemes.

Under the new legislation, tabled by Assembly member Dario Frommer, companies who advise taxpayers to use illegal tax shelters could be liable for up to 25% of the value of the transaction. The current system levies a flat rate fine of $1,000.

Meanwhile, taxpayers themselves would be forced to pay up to 50% of the transaction's value, contrasting with the present level of 20%. Frommer is also suggesting the extension of the statutory limitation period for pursuing offenders to eight years as opposed to the four year period in the existing legislation.

The Internal Revenue Service has estimated that the federal government forfeits around $10 billion per annum in revenue from abusive tax shelters, whilst the state of California alone forgoes anything from $250 million to $500 million from these schemes, Frommer maintains.

Frommer's proposal coincides with a growing fiscal crisis in California which is facing a potential budget deficit of $35 billion over the next 15 months. This is prompting lawmakers to think up increasingly imaginative ways to increase the revenue stream from tax income.

The new legislation comes in the wake of recommendations by the Joint Tax Committee on identifying and clamping down on harmful tax shelters.

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