The IRS has collected more than $3.2 billion, mainly from wealthy people, in its most ambitious effort ever to crack down on improper tax shelters, the agency said Thursday
There’s been “some real pain” among the 1,165 taxpayers who are participating in the “Son of Boss” tax shelter settlement, IRS Commissioner Mark Everson said at a news conference. “Some people have had to sell their villas and yachts” to come up with the money.
Everson said there were still some 400 people who have chosen not to participate and another 200 involved in the tax shelter who didn’t qualify for the settlement plan. The agency should garner some $3.5 billion before the project concludes in the coming months, he said.
A spinoff of an older shelter called “Boss,” the scheme known as “Son of Boss” is a highly complex, no-risk strategy where promoters such as accounting firms and investment banks sold financial products that generated losses to offset large gains, often from selling a business or exercising stock options.
Everson said more than 90 percent of those who participated in the shelter, popular in the 1990s, were wealthy individuals. Others included business owners and corporations.
He said this project dwarfed previous efforts to pursue tax evaders. A program to crack down on improper use of offshore credit cards netted $270 million, equivalent to the amount paid by just three individuals in the “Son of Boss” initiative. One person paid back more than $100 million and the average was nearly $1 million.
“This was not a bargain-basement deal,” he said. Under the terms of the program, people were required to pay back 100 percent of the claimed tax losses and pay a penalty of either 10 percent or 20 percent.
Those who choose to litigate their case instead of participating in the initiative face assessment of the maximum penalty of 40 percent. Everson added that those who go to court will be publicly named, while the IRS does not make public the names of those participating in the settlement.
The shelters flourished in the 1990s at a time when corporate ethics had eroded and the IRS had stepped back from its investigative functions and cut enforcement resources by one-fourth.
The tax shelter initiative is part of a broader, more aggressive stance toward tax evaders. Last month the IRS announced a new settlement program involving an abusive transaction of stock option transfers by executives to family controlled entities. Taxpayers have until May 23 to come forward to participate in that program.
The IRS noted that many participants have also amended their state tax returns. Among states benefiting from this, Arizona, Illinois, Maine, Maryland, Michigan, New York, Ohio, Utah and Virginia have collected $23.5 million from voluntary return amendments.