IRS Collects $3 Billion From ‘Son of Boss’ Settlement Scheme

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

29 March 2005

The Internal Revenue Service announced last week that more than $3.2 billion has been collected from over 1,000 taxpayers who have participated in the Son of Boss tax shelter settlement scheme, a total that is expected to rise as the initiative draws to a close in the coming months.

The figure includes back taxes, fines and interest paid by the 1,165 taxpayers who have participated in the scheme thus far, and according to the IRS, the typical taxpayer payment was almost $1 million, with 18 taxpayers paying more than $20 million each. One taxpayer alone was said to have paid over $100 million.

Son of Boss evolved from an earlier scheme known as ‘Boss’ (bond and option sales strategy). The scheme utilised a complex set of derivative transactions to reduce tax liability and was commonly used in the late 1990s to offset large one-off gains such as the sale of a business.

Under the stringent terms of the settlement initiative, taxpayers were required to concede 100% of the claimed tax losses and pay a penalty of either 10% or 20% of the total, unless they had previously disclosed the transactions to the IRS.

“This was a particularly bad shelter, and we’re glad so many chose to get right with the government,” commented IRS Commissioner Mark W. Everson.

“Despite the tough terms we offered, two-thirds of Son of Boss participants have come forward and paid up,” he added.

Based on disclosures the IRS has received from promoter investigations and from investor lists from Justice Department litigation, the agency believes that more than 1,800 people participated in Son of Boss. It is predicted that the total revenue yield from the settlement scheme will exceed $3.5 billion.

The Son of Boss ‘amnesty’ has also benefited the coffers of various state governments, with Arizona, Illinois, Maine, Maryland, Michigan, New York, Ohio, Utah and Virginia having collected more than $23.5 million from voluntary state tax return amendments.

Furthermore, under an information sharing initiative between the IRS and state tax authorities, an additional $161 million in disallowed losses, and assessments of nearly $16 million in taxes, interest and penalties, were uncovered by the states of Colorado, Connecticut, Maine, Maryland, Missouri, North Dakota, Pennsylvania, Utah and Virginia.

Ever keen to emphasise the agency’s recent hard line policy on tax shelters, Commissioner Everson issued a stern warning to those yet to participate in the Son of Boss settlement initiative.

“For those who didn’t come forward, we know who they are (and) we are going after them,” he stated.

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