Latest Tax Shelter Crackdown Targets Promoters

Letters Sent to 28,000 Potential Shelter Participants

The Franchise Tax Board (FTB) announced today that it is sending another 10,000 notification letters to both the taxpayers who may have used illegal tax shelters and to the businesses that sell them. This latest effort is on top of the 18,000 letters already sent as part of a continuing effort to crackdown on this costly problem.

California has obtained thousands of abusive tax shelter leads from the IRS, states, and other sources of information. These leads identify taxpayers, promoters, and tax schemes involved in sheltering income. This round of mass mailing includes 125 notification letters to the promoters of these schemes informing them of their responsibilities under legislation signed last year, including the requirement to turn over their client lists to the FTB by April 30, 2004.

To date, California's program to combat abusive tax shelters has collected more than $113 million through the Voluntary Compliance Initiative. This limited time program allows taxpayers who have used abusive tax shelters to come forward before the state assesses stiff penalties. Taxpayers have until April 15, 2004, to amend their returns and fully pay the tax and interest due.

"In order to stop people from using illegal tax shelters, we have to get to the businesses that peddle them," State Controller and FTB Chair Steve Westly said. "California's new anti-shelter laws levy the harshest penalties in the nation against promoters."

Legislation signed last October (SB 614-Cedillo/Burton; AB 1601-Frommer) provides the FTB with more enforcement tools to crack down on abusive tax shelters. The new laws greatly increase penalties for investing in illegal tax shelters, increase the time period to conduct audits, and add registration requirements for shelters.

Estimates show California loses $600 million to $1 billion in tax money each year through abusive tax sheltering. Abusive tax shelters typically have no economic purpose other than reducing taxes. To learn more about the FTB's Voluntary Compliance Initiative, visit our Website at:

Promoter Penalties

Failure to Register Tax Shelter $15,000
Failure to Register Listed Transaction $100,000 or 50% of gross income (greater of)
Intentional Disregard to Register Listed Transaction $100,000 or 75% of gross income (greater of)
Failure to Maintain/Provide Investor List for Reportable Transactions $10,000 per day
Failure to Provide Investor List for Listed Transactions $100,000 or 50% of gross income (greater of)
Promoter penalty 50% of gross income
Preparer penalty $1,000 per return
Preparer penalty - Willful or Reckless Conduct $5,000 per return

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