IRS Maintains Aggressive Stance On Tax Sheltering

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

09 November 2004

The Internal Revenue Service is attempting to shut down a group of Californian firms suspected of selling millions of dollars' worth of insurance and tax-favoured investment products to wealthy professionals, in what IRS Commissioner Mark Everson has described as one of the largest tax shelter cases of recent times.

The case centres on the firm Xelan Inc and several related companies, including the charitable Xelan Foundation and an insurance firm based in Barbados. A federal court in California has frozen some $500 million in assets belonging to the group at the request of the IRS.

According to the tax authority, Xelan sold illegal tax reduction schemes to around 4,000 doctors, who now face bills for back taxes, penalties and interest approaching the $420 million mark.

Under one of the complex schemes sold by Xelan, clients were invited to invest in a charitable organisation run by the firm and were told that they could deduct the contributions from their taxes. Another scheme encouraged users to buy certain insurance products to achieve a reduction in tax.

"This is one of the biggest cases we have seen in years,” observed Everson.

“One of our top enforcement priorities is to go after high-income professionals who ignore that law. This is a scheme involving literally thousands of doctors and dentists who let their greed get the better of them," he added.

The IRS is requesting that the court appoint an official receiver for assets held in various US and foreign banks, funds and other accounts, and a hearing date has been set for November 18.

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