US Government Launches Large Scale Legislative Assault Against Tax Abuse

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

15 January 2004

The United States Treasury Department on Tuesday announced a raft of legislative proposals to be included in President Bush’s 2005 budget aimed at closing tax loopholes, nullifying tax shelters, and simplifying the taxation system.

Commenting on the series of new proposals, which aim to clamp down on tax abuse on a broad front, Treasury Secretary John Snow remarked: “The laws must ensure that those who would shirk their civic responsibilities cannot do so by exploiting unintended loopholes, and the IRS must ensure that taxpayers do not engage in abusive tax avoidance transactions.”

“We are committed to restoring confidence in the tax system by ending the proliferation of abusive tax avoidance transactions and simplifying the tax code,” added Treasury Assistant Secretary for Tax Policy Pam Olson. “Ultimately, there is no “silver bullet” or “one-size-fits-all” solution addressing abusive tax avoidance transactions — other than continuing to simplify the tax code and ensure that the tax results match the economic realities of the transactions,” she observed.

Meanwhile, IRS Commissioner Mark W. Everson hopes that a new policy of tougher penalties will help to drive home the administration’s zero-tolerance message, which it intends to send out with the glut of new proposals. According to the Treasury, they will seek to:

• Impose Penalties on the Failure to Disclose Potentially Abusive Transactions
• Permit Uniform Disclosure Rules for Potentially Abusive Transactions
• Permit Injunction Actions against Promoters who Repeatedly Disregard the Registration and List-Maintenance Requirements
• Impose a Penalty for the Failure to Report an Interest in a Foreign Financial Account
• Curb Abusive Income-Separation Transactions
• Eliminate Obstacles to Disclosure
• Increase Penalties for False or Fraudulent Statements Made to Promote Abusive Tax Avoidance Transactions
• Eliminate Abusive Transactions Involving Foreign Tax Credits
• Stop Abusive Leasing Transactions with Tax-Indifferent Parties
• Require Charitable Deductions to Reflect Accurately the Value of the Donation
• Prevent Misuse of Tax-Exempt Casualty Insurance Companies
• Address the Tax Consequences of Changing Beneficiaries of a Section 529 College Savings Plan
• Tighten the Deduction Limitation for Interest Paid to Related Parties
• Prevent Avoidance of U.S. Tax on Foreign Earnings Invested in U.S. Property
• Modify Tax Rules for Individuals Who Give Up U.S. Citizenship or Green Card Status
• Curb Frivolous Returns and Submissions
• Terminate Instalment Agreements when Taxpayers Fail to File Returns or Make Tax Deposits
• Streamline the Handling of Collection Due Process Cases
• Improve Procedures for Taxpayers Seeking to Resolve Their Tax Liabilities
• Make the Payment of FMS (Financial Management Services) Fees for Levies More Efficient
• Expand the Use of Electronic Filing
• Permit Private Collection Agencies to Support the IRS’ Collection Efforts

The Treasury also outlined a series of tax simplification proposals which aim to:

• Simplify the Earned Income Tax Credit (EITC)
• Consolidate and Simplify Higher Education Tax Benefits
• Make Computing the Child Tax Credit Easier
• Simplify the Taxation of Dependents
• Simplify the Calculation of the Capital Gains Tax
• Make Adoption Easier
• Ease Compliance Burden for Unemployment Insurance
• Make Uniform Various Definitions of a Qualifying Child

“I’m very pleased the administration is continuing its attacks on illicit tax shelters,” noted Sen. Charles Grassley (R – Iowa), Chairman of the influential Senate Finance Committee, reacting to Tuesday’s announcement.

"The administration should receive high marks for its anti-tax shelter efforts. It’s issued numerous shelter regulations over the past year and laid down a solid response to attacking this problem. Congress needs to back up these efforts by passing tax shelter legislation,” he observed.

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