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IR-2004-64, May 5, 2004
IRS OFFERS SETTLEMENT FOR SON OF BOSS TAX SHELTER
WASHINGTON -The Internal Revenue Service announced today that
taxpayers
who invested in an abusive tax shelter commonly known as "Son of
Boss"
will have until June 21 to accept an IRS settlement offer to
resolve their
tax issues.
"These transactions were developed and marketed by an
interlocking network
of commercial interests, including leading law firms, accounting
firms and
investment banks," said IRS Commissioner Mark W. Everson. "Son of
Boss
deals had only one purpose the elimination of tax. We encourage
investors in these transactions to settle these disputes now to
avoid more
severe consequences later."
The IRS is already aware of several thousand transactions
involving an
understatement of tax in excess of $6 billion, not including
interest and
penalties. Many of these transactions generated tax losses of
between $10
million and $50 million.
Under the terms of the agreement, eligible taxpayers must concede
100
percent of the claimed tax losses, must pay all applicable
interest and
must accept the imposition of a penalty unless they had
previously
disclosed their participation in the transaction. Participating
taxpayers
will be allowed to deduct as a loss their out of pocket
transaction costs,
typically promoter and professional fees.
Taxpayers not participating in the settlement will receive a
statutory
notice of deficiency (90 day letter) disallowing all losses and
out of
pocket costs and will be assessed maximum applicable penalties.
To achieve
uniformity and enhance overall compliance with the tax laws,
taxpayers
will not be afforded the traditional administrative Appeals
process.
"We are taking this unusual step because of the severity of the
abuse,"
Everson said. "Anyone who doesn't come forward can still take the
IRS to
court. In such an instance, the government will vigorously pursue
the full
tax due, applicable interest and the maximum penalty."
"Taxpayers should not expect to settle court cases on terms more
favorable
than those offered in the IRS settlement initiative," added IRS
Chief
Counsel Donald Korb. "The IRS will work closely with the Justice
Department on Son of Boss cases."
Son of Boss was aggressively marketed in the late 1990s and 2000
to
companies and high net-worth individuals. In August 2000, the IRS
issued
Notice 2000-44 declaring the transactions abusive and requiring
promoters
to maintain a list of investors.
The IRS continues to become aware of many Son of Boss
transactions through
investor lists obtained in IRS promoter investigations and
successful
summons enforcement actions by the Department of Justice. The IRS
has
learned of at least 500 previously undisclosed transactions in
the last 90
days alone.
IRS Announcement 2004-46 outlines the details of the settlement
offer. It
is on IRS.gov and will be published in Internal Revenue Bulletin
2004-21,
dated May 24, 2004.
===================
the NY times article below was added by david ingram
Plaintiffs In Tax Shelter Case Were Financial
Executives
The two taxpayers who sued unsuccessfully to keep
the accounting firm KPMG from revealing their names to the IRS in
connection with an abusive tax shelter are the top executive of a
mutual fund company and a retired colleague, according to court
documents.
The two plaintiffs - Keith A. Tucker, chairman and
chief executive of Waddell & Reed Financial of Overland Park,
Kan., and Robert Hechler, a retired executive vice president and
former company director - had sued KPMG in a federal court in
Dal-las last September. They were originally identified only as
“John Doe 1” and “John Doe 2.”
The suit sought to prevent KPMG from turning over
their names in response to a 2002 summons from the IRS seeking
information about customers who had bought a tax shelter known as
“Son of Boss.” In a series of rulings from late 1999 through
August 2002, the IRS held the shelter and variations on it to be
questionable and, ultimately, illegal because they had no purpose
other than to generate a paper loss for use as a deduction. The
documents show Tucker paid KPMG $500,000 in 2000 for his tax
shelter, while Hechler, who at the time had not yet retired, paid
$150,000.
It is not clear from the court papers how much income
the two men hoped to shield from taxes. For 2000, Tucker
receiv-ed a base salary of $800,016 and bonuses and other
incentives worth $1.38 million. Hechler was paid $500,000 in
salary and $950,000 in bonuses and other incentives, according to
regulatory filings. Both men also received stock options and
other compensation worth millions of dollars.
On Monday, the court rejected the suit’s arguments
that the men’s dealings with KPMG were confidential and
privileged and unsealed the documents, which became widely
available on Thursday.
Under the tax code, investors claiming a deduction
arising from the tax shelter should have reported it to the IRS,
which probably would have denied the deduction. The agency has
said that taxpayers who bought the shelter from KPMG and took
deductions would owe back taxes, interest and penalties.
Tucker said Thursday that he would not comment, as
did Robert H. Albaral, a lawyer for Tucker and Hechler. Calls to
Hechler’s home in Mission Hills, Kan., were not returned. KPMG,
which is Waddell & Reed’s current auditor and which formerly
advised Tucker on his personal taxes, also declined to comment.
In an affidavit unsealed by the court, Tucker said
that Timothy Speiss, a tax partner at KPMG, told him that his tax
shelter was legal. Tucker then received a favorable legal opinion
on the shelter by what was then Brown & Wood before he bought it
in December 2000. Tucker said that KPMG first told him he did not
have to report the shelter to the IRS, but then changed its mind
in August 2003 and said it would disclose his name to the agency.
Hechler made similar statements in another affidavit.
— LYNNLEY BROWNING / NY TIMES
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