WASHINGTON -- The Internal Revenue Service said Wednesday that taxpayers who used a tax shelter known as "Son of Boss," which was marketed aggressively beginning in the late 1990s, can avoid some penalties if they come forward by June 21.
The IRS said it knew of several thousand instances in which the shelters were used to create a large, artificial loss so as to offset an unusual, one-time gain like the sale of a business. The loss canceled out the gain and taxes owed.
Each transaction allowed investors to evade between $10 million and $50 million in taxes, for a total tax avoidance of more than $6 billion, not including interest and penalties, the IRS said.
The IRS and Justice Department have been pursuing promoters who market and sell abusive tax shelters, in some cases suing the promoters for lists of investors.
"We are taking this unusual step because of the severity of the abuse," said IRS Commissioner Mark Everson. "Son of Boss deals had only one purpose - the elimination of tax. We encourage investors in these transactions to settle these disputes now to avoid more severe consequences later."
Taxpayers who come forward must pay taxes due and interest owed. Taxpayers who used only the Son of Boss transaction have to pay a 10 percent penalty. Those who used additional shelters must disclose those transactions and pay a 20 percent penalty.
The IRS said it will aggressively pursue taxpayers who don't step forward. Those taxpayers can take the IRS to court, but IRS Chief Counsel Donald Korb warned that "taxpayers should not expect to settle court cases on terms more favorable than those offered in the IRS settlement initiative."
"Son of Boss" is a spinoff of another tax shelter known as "BOSS," an acronym for Bond and Option Sales Strategy.
Two senators who examined the shelter last year during an investigation of accounting firm KPMG said the action "sends a clear message that those who use abusive tax shelters will be held accountable."
"The IRS initiative is an essential step in ending the type of egregious tax shelters featured in our subcommittee hearing last year," said Sens. Carl Levin, D-Mich., and Norm Coleman, R-Minn., leaders of the Senate Governmental Affairs Committee.
The leaders of the Senate Finance Committee said the action showed a need for lawmakers to pass legislation being debated in the Senate this week aimed at curbing abusive tax shelters and increasing penalties on those who sell or use them.
Other lawmakers also praised the action.
"The IRS is sending a loud and clear message to millionaire tax cheats and Enron-style corporations," said Rep. Earl Pomeroy, D-N.D.
On the Net:
Internal Revenue Service: www.irs.gov