homesheltersuncovering schemesprospects for reform
links & readings
Tax Shelters
 Abusive Tax Shelters and Listed Transactions

This Web site, maintained by the IRS Office of Tax Shelter Analysis, outlines the agency's four-part strategy to root out abusive corporate tax shelters: identifying and deterring tax shelter promoters through audits, summons enforcement and targeted litigation; keeping the public informed on abusive transactions; promoting disclosure by promoters and investors; and developing and implementing alternative methods to resolve the problem of abusive shelters. The site also contains the list of "listed transactions," or tax shelters that have been determined to be abusive.

 The Problem of Corporate Tax Shelters: Discussion, Analysis and Legislative Proposals

This white paper was published by the Treasury Department in July 1999 to draw attention to the problem of abusive tax shelters. It describes the goals, methodologies and characteristics of corporate tax shelters, and outlines evidence to show the problem was worsening. It also outlines the Clinton administration's position that the "a generic solution to curb the growth of corporate tax shelters must be fashioned, as opposed to the current, after-the-fact ad hoc approach." [Note: This is a pdf file; Adobe Acrobat is required]

 Tax Shelters Under Attack

This article, published in the August 2003 edition of The CPA Journal examines whether tax shelters have corrupted the entire tax practice. The authors look at recent tax shelter litigation and how that has affected relationships between CPAs and clients and argue that accountants should take advantage of the IRS's disclosure policy and work with the agency.

Government Hearings
 U. S. Tax Shelter Industry: The Role of Accountants, Lawyers and Financial Professionals - Day One

This two-day hearing was held by the Senate Permanent Subcommittee on Investigations on Nov. 18 and Nov. 20. Day one featured the testimony of executives from major accounting firms including KPMG, PricewaterhouseCoopers and Ernst & Young. Day two featured testimony from executives and legal and financial services firms. All of the witnesses were called before the committee to account for their role in the development and marketing of tax shelters. In conjunction with these hearings, the committee's minority staff published a report examining four case studies of KPMG shelters to provide "an in-depth portrait of how a professional organization like KPMG, and the professional organizations it allies itself with, end up developing, marketing, and implementing highly questionable or illegal tax products."

 Tax Shelters: Who's Buying, Who's Selling, and What's the Government Doing About It?

This Web site has the testimony of various accountants, investors, lawyers and government officials at this Senate Finance Committee hearing on Oct. 21, 2003. The witnesses detail abuses within the tax shelter industry and offer their viewpoints on how the U.S. government should deal with the problem.

 Corporate Tax Shelters: Looking Under the Roof

This hearing on tax shelters was held by the Senate Finance Committee on March 21, 2002 featured testimony from three Treasury and IRS officials. Of note is the chart prepared by Treasury official Mark Weinberger that shows the existing penalties for listed and unlisted reportable transactions. The Web site for the hearing contains a background report prepared by the Joint Committee on Taxation on "Background and Present Law Relating to Tax Shelters."

Corporate Taxation
 Corporate Income Taxes in the 1990s

Released in October 2000, this survey by the Institute on Taxation and Economic Policy examines the tax rates of 250 of the largest U.S. companies in the U.S. between 1996 and 1998. The report concludes that these companies paid only 20.1 percent of their profits in taxes in 1998 -- far less than the 35 percent corporate tax rate -- and that many companies pay little or no taxes at all. Note: This study does not draw out how much of the corporate tax avoidance is due to the problem of abusive tax shelters

 "The Divergence Between Book and Tax Income"

This October 2002 study, by Harvard Business School Professor Mihir A. Desai looks at the difference between what's known as book income -- what companies report to their shareholders -- and tax income -- what they report to the IRS. Traditionally there has been a small gap between book and tax income that comes from legitimate sheltering and other corporate tax deductions but that gap widened considerably during the 1990s. Desai demonstrates that "the breakdown in the relationship between tax and book income is consistent with increasing levels of sheltering during the late 1990s." [Note: This is a pdf file; Adobe Acrobat is required]

 Decline of Corporate Income Tax Revenues

According to economist Joel Friedman of the Center on Budget and Policy Priorities, corporate tax receipts are at historically low levels. In this October 2003 study, he uses historical figures to compare corporate tax rates to federal tax revenue, and ultimately GDP, in order to estimate the effect of abusive tax sheltering.

 Corporate Income Tax in Post-War Era

This March 2003 analysis from Adam Carasso of the Tax Policy Center looks at corporate income taxes as a share of federal revenues and GDP. Carasso writes, "The secular decline in corporate income tax revenues as a share of the total is due largely to the lowering of corporate income tax rates every few years since the 1970s and the concurrent increase in social insurance (and to a lesser extent) individual income tax revenues."

Tax Fairness
 "Perfectly Legal"

This is the first chapter of Pulitzer prize-winning reporter David Cay Johnston's book that explores the U.S. tax system from the perspective of the individuals involved: the working-class parents, the IRS employees, the corporate taxpayers. This excerpt examines how the tax system contributes to the widening gap between rich and poor in the U.S. (New York Times, Free registration required)

 Flat Tax

Many believe that a flat tax would be a fairer system than the current progressive U.S. tax system. Here is an excerpt from The Encyclopedia of Taxation and Tax Policy that explains the flat tax and how it might simplify the tax code.

 Taxpayers for Common Sense

Taxpayers for Common Sense is a non-partisan advocacy group designed to "bridge the gap between liberals and conservatives in Congress on fiscal issues to realize common sense goals that achieve fiscal conservatism and benefit society." It issues a weekly bulletin, called "The Waste Basket" to draw attention to wasteful government spending. [Note, the Oct. 17, 2003 bulletin titled "Freeloaders, Inc." that addresses the decline in corporate income tax revenues.]

 Citizens for Tax Justice

Citizens for Tax Justice is a public interest organization that advocates fair taxation for middle and low-income families, closing corporate tax loopholes, adequately funding government services and reducing the federal debt. The group also operates the Institute on Taxation and Economic Policy (ITEP), a non-profit research and education group that works on government taxation and spending issues.

 Corporate Tax Dodgers

This Web site, published by Citizen Works, a group founded by Ralph Nader, is intended to be "guide to how corporations get away without paying their fair share of taxes and what to do about it."

 Americans for Tax Reform

Founded by Grover Norquist, Americans for Tax Reform opposes all tax increases "as a matter of principle." According to the group's mission statement, " We believe in a system in which taxes are simpler, fairer, flatter, more visible, and lower than they are today. The governments power to control one's life derives from its power to tax. We believe that power should be minimized."


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posted february 19, 2004

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