CPA Firms Targeted in Abusive Tax Shelter Crackdown
FTB Sends Letters to 3,000 Partners Who May Have Used Their Own Products
The Franchise Tax Board (FTB) announced today that it is urging partners and some other high-level employees of major accounting and law firms who may have used abusive tax shelters to correct their tax filings. These employees may have used the same abusive transaction they sold to their clients to improperly reduce their personal tax liabilities.
"People who sold abusive shelters may have fallen victim to their own poor tax advice. They need to step up and do the right thing or face tough penalties," State Controller and FTB Chair Steve Westly said.
California has obtained thousands of tax shelter leads from the IRS, other states, and other sources of information. These leads help to identify taxpayers, promoters, and the tax schemes involved in improperly sheltering income. The FTB has contacted more than 31,000 potential clients and promoters of abusive tax shelters to amend their tax returns and reverse the abusive transactions.
California is offering abusive tax shelters investors a chance to correct their returns and pay the tax and interest owed before the FTB steps up enforcement action. The program, known as the Voluntary Compliance Initiative, runs through April 15. To date, this program has collected more than $131million.
After the Voluntary Compliance Initiative ends, the FTB will start to assess stiff penalties authorized by new legislation signed in October 2003 (SB 614-Cedillo/Burton; AB 1601-Frommer). The new anti-shelter laws provide the FTB with more enforcement tools to crack down on abusive tax shelters. The new provisions greatly increase penalties for investing in illegal tax shelters, increase the time period to conduct audits, and add greater 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 www.ftb.ca.gov.