They were unusual tax shelters that went by incomprehensible names like BLIPS, OPIS, BOSS and FLIP -- and they boomeranged on the companies that sold them.
In February, German bank HVB Group agreed to pay $29.6 million in fines to avoid indictment for defrauding the Internal Revenue Service with abusive tax shelters that gave rich clients phony losses to reduce taxes.
The settlement was part of a broadening investigation into exotic shelters that wealthy individuals used to escape about $2.5 billion in taxes from the mid-1990s through 2003, according to the government. Indeed, the IRS recently announced that a string of law firms, banks and accounting firms will be fined billions of dollars for failing to admit their role in promoting these improper investments.
Last fall, KPMG LLP, the accounting firm that created and marketed many of the shelters, agreed to pay $465 million to avoid indictment. In addition, 17 former KPMG employees and two other individuals have been charged with criminal offenses for plotting to defraud the IRS and are scheduled for trial in September. KPMG has been sued for hundreds of millions by clients who got into trouble for using the shelters.
Yet despite government efforts, there is no silver bullet that can stop promoters from cooking up new shelters, says William C. Tyson, professor of legal studies and business ethics at Wharton. Whenever a new regulation is imposed, "people just start looking for new ways to get around the tax law. Before 1986, these shelters were rampant. There are not nearly as many of them now because the law has closed up so many of the loopholes. It's just that there is still some room to squeak through.... People are really creative."
If it's difficult for regulators and tax experts to tell what constitutes an abusive shelter, it's virtually impossible for a taxpayer to know if he's buying into a strategy that could come back to haunt him later.
[continue]
Page 1 of 6
> >>