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New Tax Law Provisions Enacted to Combat Abusive Tax Shelters

The American Jobs Creation Act of 2004 (P.L. 108-357) was signed into law by the President on October 22, 2004. This new legislation contains many provisions that will affect abusive tax shelter promoters, advisors and investors.

Among the many provisions designed to combat abusive transactions are new stiffer penalties for acts such as:

  • taxpayers' failure to disclose reportable (including listed) transactions;
  • taxpayers' understatement of tax where the understatement is attributable to a reportable tax avoidance transaction;
  • taxpayers' failure to report transactions or accounts maintained with a foreign financial entity;
  • material advisors' failure to comply with new information return requirements or existing regulations requiring that investor lists be maintained and provided to IRS; and
  • tax shelter promoters' making or furnishing false statements in connection with the organization or sale of abusive tax shelters.

The new law also:

  • extends the statute of limitations for taxpayers who fail to disclose listed transactions;
  • expands IRS ability to take civil injunction action against persons promoting tax shelters or aiding and abetting the understatement of tax liability;
  • enables the Treasury Department to use censure and monetary fines as additional sanctions against practitioners who fail to comply with Circular 230 rules governing practice before IRS;
  • provides an exception to confidentiality privileges for all tax shelter transactions; and
  • requires taxpayers subject to SEC filing rules to disclose certain tax shelter related penalties.
     
Page Last Reviewed or Updated: 28-Oct-2014