IRS Losing Tax Shelter Battle, Says Senate Committee

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

21 October 2003

The Senate Finance Committee is to hear testimony today on the progress being made in the fight against corporate tax sheltering. According to many reports, the hearing is expected to show that the fight against abusive tax shelters is far from over.

For the senior figures on the Senate committee, Charles Grassley (R - Iowa) and Max Baucus (D - Montana), the main shortcoming in the government's fight against tax sheltering is the lack of resources allocated to agencies such as the IRS by Congress.

According to a consultant's report, prepared for the IRS and recently released into the public domain, corporate tax sheltering activities cost the government in the region of $14 billion to $18 billion in the year 2000.

However, although the IRS has visibly stepped up its campaign against corporate tax shelters in recent years, with high profile legal and accounting firms ordered to throw open their books to scrutiny, figures quoted by the New York Times on Monday show that tax law enforcement received a relatively small increase in funding compared to other agencies, at 6.6%. By contrast, the SEC received a 38% increase in funding for its anti-fraud activities, whilst the federal government's corporate fraud task force had its budget increased by 49%.

IRS Commissioner, Mark Everson claims that the Revenue Service typically receives on average about 1.5% less money than granted by Congress, and the NY Times claims that as a result of under-resourcing, eight out of ten suspected tax evaders are not pursued, and avoid paying penalties and interest. To remedy this, former IRS Commissioner Charles Rossotti suggested recently that the agency needs to take on 29,000 extra auditors and investigators to get a more comprehensive grip on the problem.

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