Tax News

CCH (cch.taxgroup.com) reports:

  The government's campaign against abusive tax shelters has entered a new phase, IRS Commissioner Douglas H. Shulman told practitioners on May 9. "In this new phase, we are pursuing those hold-outs who chose not to settle [with the IRS]," Shulman said at the American Bar Association Section of Taxation 2008 May Meeting in Washington, D.C. Shulman also indicated his support for enhanced information reporting to increase compliance.

  CCH Comment. Shulman did not address the one topic on the mind of many practitioners, the imminent release of proposed Code Sec. 6694 regulations (TAXDAY, 2008/05/01, I.4). CCH has learned from sources that the Service expects to release the proposed regulations on May 12 or 13.

Tax Shelters

  Shulman divided the IRS's anti-tax shelter activity into three phases. "In the first phase, the IRS aggressively rooted out abusive tax shelters and brought some significant cases. In the next phase, a number of taxpayers acknowledged that participating in these shelters was a mistake and settled."

  Now, the IRS is in the third phase of its anti-shelter campaign: bringing to trial taxpayers who refused to settle. "The government has won the overwhelming number of these cases," Shulman said.

  Shulman's promise of victory comes shortly after the government suffered a setback in its tax shelter litigation by recently losing a Son of BOSS transaction case ( C.E. Sala, D.C. Colo.,
2008-1 USTC ¶50,308, TAXDAY, 2008/05/06, J.8). However, the Court of Appeals for the Fourth Circuit handed the IRS a victory in a lease-in, lease-out (LILO) transaction case ( BB&T Corp., CA-4, 2008-1 USTC ¶50,306, TAXDAY, 2008/05/01, J.6) less than a week later.

Information Reporting

  "I am inclined to support information reporting regimes that allow taxpayers and tax administrators to start the process with transparent and consistent information," Shulman said. The Bush administration has proposed enhanced information-reporting requirements for stock basis reporting and merchant credit card payments (TAXDAY, 2008/02/05, T.1). "I would welcome the day that a taxpayer needing to report capital gains would get that information on a year-end form in a consistent format rather than doing it himself and worrying that the data is correct."

  "I see correct information about 40 percent of the time from brokers," Claudia Hill, EA, Cupertino, Calif., told CCH after Shulman's remarks. Hill, who is editor-in-chief of CCH's Journal of Tax Practice & Procedure , questioned if the IRS will have a "fail safe" when information is incorrect. "The IRS assumes information on a Form 1099 is always correct."

Globalization

  Tax administration is global today, Shulman said."Businesses are no longer defined by national borders. The cross border migration of capital and people has made this a more integrated world."

  Shulman, who has an extensive background in international business after serving as vice chair of the Financial Industry Regulatory Authority (FINRA) before being appointed IRS Commissioner earlier this year, indicated that the IRS will be adapting to the globalization of tax administration. "The IRS needs to ensure it has the tax administration capabilities to deal with the fast pace of change."

Transparency

  Shulman reiterated the Service's emphasis on transparency but appeared to indicate that transparency is a two-way street. "IRS personnel must not confuse greater transparency with greater authority over taxpayers," he said. He briefly highlighted some of the Service's recent projects that are intended to enhance transparency, such as the new Form 990, Return of Organization Exempt from Income Tax (TAXDAY, 2008/04/09, I.1).

Guidance

  Finally, Shulman pledged that the Service will issue "clear" guidance but acknowledged that achieving a high degree of clarity is "difficult." When guidance is unclear and is subject to multiple interpretations, the Service is contributing to noncompliance, he said.

  By George L. Yaksick, Jr., CCH News Staff