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Here is a list of bills before the current session of Congress as well as a summary of the recent provisions in President Bush's budget regarding abusive tax shelters.

Senate

+ S. 1937 -- Tax Shelter Transparency and Enforcement Act

Introduced by Sen. Max Baucus (D-Mont.) on Nov. 24, 2003, this bill is virtually identical to H.R. 1555 [below], introduced by Rep. Lloyd Doggett, and seeks to:

  • Clarify the economic substance doctrine to outlaw transactions that are completed solely to generate artificial losses in order to reduce tax liabilities

  • Establish penalties for tax shelter promoters who do not register their products with the IRS

  • Increase penalties for taxpayers who participate in "substance-fee avoidance transactions"

  • Extend the exception to any confidentiality privileges between taxpayers and tax preparers to include any information regarding tax shelters

This bill is pending before the Senate Finance Committee.

+ S.1767 -- Auditor Independence and Tax Shelters Act

Introduced by Sen. Carl Levin (D-Mich.), Sen. John McCain (R-Ariz.) and Sen. Baucus on Oct. 21, 2003, this bill would seek to end auditing conflicts of interests by barring accounting firms from selling tax shelters to their auditing clients. The bill also codifies the following four principles to help an audit committee determine whether there is "a reasonable likelihood" that the auditor's independence would be impaired:

  • If the auditor is auditing his own work

  • If the auditor is performing a management function for the client

  • If the auditor advocates in a public forum for the client; or

  • If the auditor promotes the stock or any other financial interest of the client

This bill is pending before the Senate Committee on Banking, Housing, and Urban Affairs.

+ S. 1436 -- Sales Tax Equity Act

Sponsored by Sen. Tom Daschle (D-S.D.), Sen. Bob Graham (D-Fla.), Sen. Tim Johnson (D-S.D.) and Sen. Bill Nelson (D-Fla.) on July 21, 2003, this bill includes provisions to clarify the economic substance doctrine and impose a 40 percent penalty on transactions that fail the economic substance test. It also contains increased penalties for nondisclosure of transactions in an effort to reinforce the Treasury Department's enforcement regime. Lastly, the bill includes recommendations to shut down specific tax shelters used by Enron and others that were disclosed in the Feb. 13, 2003 Joint Committee on Taxation hearings.

This bill is pending before the Senate Finance Committee.

+ S. 135 -- Dayton Fair Tax Cut Act

This bill was introduced on Jan. 9, 2003 by Sen. Mark Dayton (D-Minn.). It includes provisions that seek to clarify the economic substance requirement so that a transaction would change "in a meaningful way (apart from Federal income tax effects) the taxpayer's economic position," and require that the taxpayer have "a substantial non-tax purpose for entering into such transaction."

The bill is pending before the Senate Finance Committee.

House of Representatives

+ H.R. 1555 -- The Abusive Tax Shelter Shutdown and Taxpayer Accountability Act

This bill was introduced by Rep. Lloyd Doggett (D-Texas) on April 2, 2003 and is virtually identical to S. 1937 introduced by Sen. Baucus.

The legislation seeks to:

  • Clarify the economic substance doctrine to outlaw transactions that are completed solely to generate artificial losses in order to reduce tax liabilities

  • Establish penalties for tax shelter promoters who do not register their products with the IRS

  • Increase penalties for taxpayers who participate in "substance-fee avoidance transactions"

  • Extend the exception to any confidentiality privileges between taxpayers and tax preparers to include any information regarding tax shelters

This bill was referred to the House Ways and Means Committee.

+ H.R. 3599 -- Auditor Independence and Tax Shelters Act

This companion bill to S. 1767 was introduced by Rep. Rahm Emanuel (D-Ill.), Rep. Dave Camp (R-Mich.) and Rep. Mark Foley (R-Fla.) on Nov. 21, 2003. It seeks to prohibit auditors from selling tax shelters to their auditing clients, as well as to the officers and directors of the client company. The bill would also require a publicly-traded company's audit committee to consider whether any proposed tax services would result in a conflict of interest before approving the transactions.

This bill is pending before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

+ H.R. 3655 -- Progressive Tax Act of 2003

On Dec. 8, 2003, Rep. Dennis Kucinich (D-Ohio) introduced the Progressive Tax Act of 2003. The act includes a section on "Abusive Tax Shelter Shutdown and Taxpayer Accountability," which requires all transactions to have economic substance, "including changing the taxpayer's economic position and a substantial non-tax purpose for entering into such transactions." The bill also strengthens penalties for those who fail to report and register tax shelter arrangements and requires financial advisors to keep mandatory lists of all investors to whom they've marketed and sold their tax shelters. Kucinich estimates that all of his tax shelter provisions would bring in $2 billion of revenue to the U.S. Treasury.

This bill was referred to the House Ways and Means Committee.

President Bush's FY 2005 Budget

The president's budget includes several proposals to target abusive tax shelters. It proposes a $300 million increase to the IRS budget to investigate and prosecute tax fraud and to allow the IRS to examine more tax returns for compliance. The budget also proposes legislation that would allow private collection agencies to help collect outstanding tax debts. The government estimates that this will help raise $1.5 billion over the next 10 years.

The Bush administration budget also targets leasing transactions. Treasury Secretary John Snow, while testifying before the Senate Budget Committee, said the leasing deals are unacceptable tax avoidance schemes that "need to be stopped." While testifying on the budget before the House Ways and Means Committee, outgoing Assistant Treasury Secretary for Tax Policy Pamela Olson targeted transactions known as sale-in, lease-out or SILOs as abusive transactions that the administration proposes to limit. Olson said that internal Treasury data showed that as much as $750 billion of SILO transactions -- which involve leasing arrangement with tax-indifferent parties (such as foreign governments, domestic municipalities and tax-exempt organizations) -- have occurred in the past four years. She described the SILO deals as, "a threat to the viability of the corporate tax base" and testified that, "Indeed, the magnitude of SILO transactions is such that the Treasury Department had to re-estimate and reduce its baseline estimate of corporate tax receipts over the ten-year budget window." While calling on Congress to address the SILO transactions, Olson maintained that the administration is supportive of and does not want to interfere with legitimate leasing transactions.

In a December 2003 interview with FRONTLINE, Olson maintained that increased penalties on both shelter promoters and shelter investors are an important part of the administration's efforts to curb abusive shelters. "We're talking about very substantial increases in penalties," she said. "You know, an 'I'm going to take your house' kind of fine."

 

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posted february 19, 2004

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