Tax Shelter Crackdown Nets $30 Million
Second Wave of Outreach Launched
The Franchise Tax Board (FTB) announced today that California's crackdown on abusive tax shelters has already generated more than $30 million through the Voluntary Compliance Initiative. This new program allows taxpayers who have used abusive tax shelters to come forward before penalties are applied.
As part of a continuing effort, the FTB is sending 6,000 letters to taxpayers who may have used the shelters, on top of 7,500 letters sent last month. Taxpayers have until April 15, 2004, to amend their returns and fully pay the tax and interest due.
"Some Californians have fallen victim to bad or even dishonest tax advice," State Controller and FTB Chair Steve Westly said. "We're giving taxpayers the opportunity to correct their returns now to avoid consequences later."
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.
"The Voluntary Compliance Initiative and tougher tax fraud penalties in AB 1601 and SB 614 will ensure that millionaire tax cheats will pay their fair share of taxes or be punished," Assemblyman Dario Frommer (D-Glendale) said.
Westly also highlighted the impact of the new enforcement laws on those who peddle abusive tax shelters to willing and unwitting taxpayers. "Promoters will feel the sting of the new laws through some of the harshest penalties in the nation," Westly said.
Estimates show California loses $600 million to $1 billion in tax money annually through abusive tax sheltering. 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.