Controller Westly Sends Tax Shelter Expert to Testify at Congressional Hearing
Westly Calls for Tougher Laws to Combat the Abuse
Debra Petersen, staff attorney with the Franchise Tax Board (FTB) specializing in tax shelters, will testify at a Congressional hearing on abusive tax shelters on behalf of the FTB and State Controller and FTB Chair Steve Westly.
“Abusive and illegal tax shelters are costing California hundreds of millions of dollars in uncollected tax revenue,” Westly said. “We have passed legislation to combat this problem, and we’re already working with the IRS. We’re making an impact, but we need to do more.”
California legislation enacted in October gives the FTB more time to conduct audits, enhances penalties, and creates new reporting requirements for abusive tax shelters. In September, California joined forces with the IRS to share leads, audit results, and databases to track and prosecute offenders.
Petersen will testify today before the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs in Washington, D.C. The hearing will focus on how professional firms and financial institutions develop abusive tax shelters and market them to their clients
“The transactions we are seeing are so complicated that a typical taxpayer wouldn’t dream them up,” Westly said. “Financial experts are going to great lengths to devise complex deals and push them on taxpayers through their partners and even through seminars.”
The FTB has seen an increase in abusive tax sheltering in the past few years. Estimates show California loses from $600 million to more than $1 billion in tax money annually through these schemes.
Abusive tax shelters typically have no economic purpose other than reducing
taxes. Most involve the use of multiple layers of domestic and foreign pass-through
entities such as partnerships, S corporations, and limited liability companies.