Federal And State Co-operation On Tax Shelters Begins To Pay Dividends

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

22 April 2004

A program designed to facilitate the sharing of information on suspected users of tax shelters between federal and state governments appears to have yielded some good results for the tax authorities in its early stages.

As part of a data sharing agreement between the Internal Revenue Service and state tax collectors signed last September, the IRS has supplied 48 state tax authorities with 28,000 names of those suspected of using abusive tax shelters.

One state that has been a major beneficiary of the program is California, and of the 3,500 names turned over to the state authorities by the IRS, 2,000 have been notified that they may have taken part in illegal tax sheltering activities.

The program has also helped to boost the returns from California’s voluntary compliance initiative, whereby individuals suspected of tax shelter use could amend their tax returns and pay back taxes without facing penalties or interest charges.

The initiative, which closed on April 15, collected $310 million according to the state Franchise Tax Board, far in excess of the projected $90 million take from the scheme.

Reports have also indicated that the IRS has supplied to the relevant authorities the names of 820 people suspected of taking part in offshore credit card schemes to avoid taxes in the state of New York.

Here, tax collectors have closed 230 cases and received millions of dollars in back taxes.

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