US Treasury Releases New Tax Shelter Rules

by Mike Godfrey, Tax-News.com, Washington

18 October 2002

The US Treasury Wednesday announced the launch of a new set of rules designed to simplify and clarify tax shelter disclosure rules for individuals and corporations. The new regulations - set to come into force in January 2003 - require taxpayers to report involvement in, and tax shelter promoters to maintain client lists for, six categories of transactions. These are:

- Transactions which have been specifically listed by the IRS as tax avoidance schemes

- Transactions marketed under conditions of confidentiality

- Transactions with a built-in indemnity in the event that the claimed tax benefits are not sustained

- Transactions which generate a tax loss exceeding a specified amount

- Transactions which result in a difference of more than $10 million between income reported to shareholders and income reported to the tax authority

- Transactions which generate a tax credit when the underlying asset is held for a brief period of time

Treasury has proposed a $200,000 penalty for tax shelter promoters or investors who fail to comply with the new reporting requirements when they come into effect. However, depending on the situation, other penalties for use of an 'abusive' tax shelter can reach as high as 40% of the tax avoided.

Speaking on Wednesday, newly appointed Treasury Assistant Secretary for Tax Policy, Pam Olson explained that: 'The regulations we released today will improve the system by helping us get the information we need to identify questionable transactions.'

'Getting the information is the first step in speeding up thr process of getting out guidance to let taxpayers know that transactions may not work as advertised.'

She concluded: 'The changes will provide greater clarity making it easier for taxpayers and promoters to understand and comply with their obligations.'

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