Penalty-Free Program for Tax Shelters Ends Today
Illegal Tax Shelter Crackdown Collects $310 Million
The Franchise Tax Board today urged taxpayers who used illegal tax shelters to correct their filings now or face harsh penalties tomorrow.
Through Wednesday, the Voluntary Compliance Initiative, the program that allows abusive tax shelter investors to repay the tax and interest owed penalty free, has collected $310 million--$220 million more than the program's projected $90 million.
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 new law requires promoters of these shelters to provide the FTB with their list of investors by April 30, 2004.
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. To participate, taxpayers must send an amended return and full payment of the tax and interest due postmarked no later than April 15, 2004.
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 www.ftb.ca.gov.