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State of California Franchise Tax Board

Illegal Tax Shelter Crackdown Tops $200 Million Mark

Compliance Program Ends April 15, but Crackdown Continues

State Controller and Franchise Tax Board (FTB) Chair Steve Westly today announced that the FTB has collected more than $211 million from taxpayers who used illegal tax shelters. The taxpayers voluntarily paid what they owed through the Voluntary Compliance Initiative, a program that had been projected to generate $90 million by April 15.

"The program has exceeded expectations, and taxpayers still have a few more days to come clean and avoid harsher penalties," Westly said.

Legislation signed in October 2003 (SB 614, Cedillo & Burton; AB 1601, Frommer) gives the FTB more enforcement tools and enforces stricter penalties for investing in illegal tax shelters.

The Voluntary Compliance Initiative is a one-time chance for taxpayers who used abusive tax shelters to come forward and amend their state tax returns before the state enforces the harsher penalties. Taxpayers have until April 15, 2004, to amend their returns and fully pay the tax and interest due.

The Voluntary Compliance Initiative is also generating audit leads for the FTB to pursue after the compliance period ends. Those audits will target abusive tax shelter participants and the promoters who aggressively market these tax scams. These audits will include the new, harsher penalties.

Estimates show California loses $600 million to $1 billion in tax money annually through abusive tax sheltering. 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 the FTB's Voluntary Compliance Initiative, visit our Website at

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