April 23 was the end date for the 120-day disclosure initiative that allowed taxpayers to voluntarily disclose to the IRS their participation in tax shelters and other questionable transactions. In exchange for this information, the IRS promised to waive certain accuracy-related penalties that might apply to an underpayment of tax.

These disclosures are being assigned to field agents who will continue to contact taxpayers over the next few months to determine appropriate resolution of their various issues.

"Over 1,000 taxpayers voluntarily disclosed questionable tax transactions that they had engaged in and submitted names of the tax shelter promoters who sold them the transactions," said Larry Langdon, IRS Commissioner of Large and Mid-Size Business.  "We are working to audit and resolve the transactions disclosed by taxpayers as quickly and efficiently as possible."

In addition, the IRS is using the disclosures to identify tax shelter promoters. The IRS is aggressively examining the activities of these promoters, who are required by law to keep lists of all investors that bought tax shelters from them.  Upon receipt of the investor lists from promoters, the IRS will be able to identify taxpayers who participated in tax shelters and failed to disclose them.

"Using information from these lists, the IRS will pursue investors who participated in abusive transactions, but did not disclose them,” said  Langdon. "In appropriate cases, penalties will be imposed."

Taxpayers have disclosed transactions in which they claimed deductions or losses amounting to billions of dollars. These transactions will be audited and may result in additional income tax.  Until the IRS completes its compliance actions, it's too early to put a precise figure on the amount of tax collected as a result of the initiative, but in June the IRS said up to $16 billion in claimed losses and deductions had been revealed.

Although many of the types of complicated tax shelter transactions disclosed were known to IRS experts, the disclosure initiative also revealed a number of new tax shelter transactions. These transactions are now being analyzed by the IRS Office of Chief Counsel and the Treasury Department for possible identification as transactions that promoters and investors must disclose.  

For more information on abusive tax shelters, go to the IRS Web site at www.irs.gov.

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