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The Tax Prophet Newsletter   Issue # 28 October, 2005

REDUCE TAXES!
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In This Issue:
Introduction
Settlement
Ineligible Taxpayers
Penalty Waiver


IRS Announces Tax Shelter Initiative

Introduction

In Announcement 2005-80, IRS describes a new settlement initiative involving certain tax shelters considered abusive. Taxpayer will have until January 23, 2006 to enlist in the settlement process.

The Announcement identifies 21 transactions eligible for the program. Consisting of both "listed" transactions - tax shelters IRS has publicly identified as suspect - and non-listed transactions, the initiative lists a variety of schemes involving funds used for employee benefits, charitable remainder trusts, offsetting foreign currency option contracts, debt straddles, lease strips and certain abusive conservation easements.


Settlement

Under the settlement initiative, IRS will require full payment of all back taxes and interest, plus a percentage of the accuracy-related penalty, typically 5% instead of the full 20% penalty. The initiative applies to transactions that have not been the subject of prior settlement initiatives; thus, the infamous Son of BOSS transaction, schemes involving off-shore bank accounts and companies, and abusive trust transactions (the "pure-trust" scam) are not covered by the initiative. Under the initiative, transaction costs paid by taxpayers, including professional and promoter fees, will be allowed.

According to IRS Commissioner Mark W. Everson, "People entered into these deals often at the behest of lawyers and accountants peddling flaky tax products. ... We're offering taxpayers a quick, quiet and cost effective way to put these deals behind them."


Ineligible Taxpayers

The following groups of taxpayers are not eligible for the initiative: (i) promoters of the tax shelters; (ii) related parties to a promoter, which includes a partner in a partnership, a 5% or greater shareholder or individuals related by family to the promoter (under the family attribution rules of IRC Section 267); (iii) any taxpayer against whom IRS has asserted a fraud penalty; and (iv) any taxpayer under criminal investigation.


Penalty Waiver

Penalties are waived under the following circumstances: where a taxpayer -- (i) properly disclosed the transaction; or (ii) received and relied upon a tax written tax opinion by an independent third party who, after considering the relevant facts, concluded there was a greater than 50% change that the transaction would be respected.



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All contents copyright © 1995-2005 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.