The Internal Revenue Service announced on Wednesday a new amnesty scheme for taxpayers who may have employed a tax minimisation technique commonly referred to as ‘Son of Boss,’ which the agency claims has deprived the government of some $6 billion in tax revenues.
The so-called Son of Boss scheme is derived from an earlier scheme known as ‘Boss’ (bond and option sales strategy), and was commonly used in the late 1990s to offset large one-off gains such as the sale of a business.
However, according to IRS Chief Mark W. Everson: “Son of Boss deals had only one purpose – the elimination of tax.”
“These transactions were developed and marketed by an interlocking network of commercial interests, including leading law firms, accounting firms and investment banks,” he added.
The IRS claims that many transactions undertaken through Son of Boss schemes generated tax losses of between $10 million and $50 million leading to a total understatement of tax in excess of $6 billion
Under the terms of the amnesty, which are a lot less generous than previous amnesty programs, eligible taxpayers must concede 100% of the claimed tax losses, must pay all applicable interest and must accept the imposition of a penalty unless they had previously disclosed their participation in the transaction.
However, participating taxpayers will be allowed to deduct as a loss their out of pocket transaction costs, typically promoter and professional fees.
Everson points out that taxpayers will remain able to contest the IRS in court over such issues, although he warned that the government will “vigorously pursue the full tax due”, plus full interest and penalty payments owing.
However, IRS officials revealed to the Washington Post that taxpayers will be barred from using the agency's normal appeals process to contest such cases.
Confirming the agency's tough stance on the subject, IRS Chief Counsel Donald Korb added that taxpayers "should not expect to settle court cases on terms more favorable than those offered in the IRS settlement initiative.”
The full text of the 'Son Of Boss' Settlement Initiative can be found in the Tax-News Resources section.
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