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States Huddle to Plan Offensive Against Abusive Tax Shelters

The Franchise Tax Board (FTB) and the New York Department of Revenue jointly held a meeting yesterday with 11 other states, the Federation of Tax Administrators, and the Multistate Tax Commission to discuss how the states can work cooperatively to combat abusive tax shelters, according to the FTB.

"California is joining forces with other states to crack down on abusive tax shelters, and we're putting our collective resources to work," said State Controller and Franchise Tax Board Chair Steve Westly.

"We're going to use the best ideas from every state to find and prosecute tax cheats," Westly added.

The other participating states and city include Colorado, Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, Ohio, Tennessee, and Wisconsin, as well as New York City.

California is offering a Voluntary Compliance Initiative for taxpayers who invested in abusive tax shelters. Taxpayers have until April 15 to correct their tax returns and make full payment of the taxes owed or face new harsh penalties. Estimates show California loses $600 million to $1 billion in tax money annually through abusive tax sheltering.

California, New York, and 40 other states signed a Memorandum of Understanding with the IRS last fall to exchange information and leverage resources to combat this problem. The states are now discussing how they can help each other to bolster this effort.

Abusive tax shelters are transactions marketed with the promise of tax benefits with no correlating economic losses. Most involve the use of multiple layers of domestic and foreign pass-through entities such as partnerships, S corporations, and limited liability companies. To learn more about abusive tax shelters, visit the FTB's Website at www.ftb.ca.gov.