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Tax Experts Discuss Abusive Tax Schemes

State and national tax experts today debated the raging problem of abusive tax schemes and how much it drains the national and state treasuries, according to the Franchise Tax Board.

“Hundreds of millions of California tax dollars are not collected each year because of these illegal tax schemes,” stated State Controller and Franchise Tax Board Chair Steve Westly. “California needs these tax dollars to pay for schools, help our elderly, and fund emergency and transportation services,” added Westly.

“Abusive tax schemes are criminal and strong measures should be pursued so that corporate and individual tax cheats do not escape their tax obligations,” said State Board of Equalization Chairwoman Carole Migden.

Hosted by the Franchise Tax Board, UC Davis, and the California Research Bureau California State Library, this symposium was aimed at educating California officials about abusive tax schemes and what the Franchise Tax Board, the IRS, and other states are doing about them. Also discussed were the collaborative efforts that are underway to eliminate them. Experts from the private sector weighed in on the real world perspective. Speakers included:

  • Steve Westly, State Controller and Chair of the Franchise Tax Board
  • Carole Migden, Chairwoman of the State Board of Equalization
  • Dale Hart, Commissioner Small Business/Self Employed Division, IRS
  • Professor Joseph Bankman, Stanford Law School
  • Professor Daniel Simmons, UC Davis Law School
  • Dan Bucks, Executive Director, Multistate Tax Commission
  • Jack A. Blum, Attorney, Lobel, Novins, and Lamont
  • Charles Rettig, Attorney, Hochman, Salkin, Rettig, Toscher, and Perez
  • Joseph H. Ainley, Attorney, Popelka Allard

The IRS defines abusive tax schemes as transactions promoted for the promise of tax benefits with no meaningful change in the taxpayer's control over or benefit from their income or assets. These transactions typically have no economic purpose other than reducing taxes, and most involve the use of multiple layers of domestic and foreign pass-through entities such as partnerships, S corporations, and limited liability companies. Another common abusive tax scheme is where money is sent to offshore banks that in turn issue debit/credit cards thereby allowing the account owners easy access to the cash here at home.