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IRS COUNSEL: FEAR PULLS AHEAD OF GREED

October 26, 2005

Nobody wanted to miss the great tax shelter party of the 90's. As prominent firms raced to the bottom with new tax shelter products, no tax director wanted to be the wimp who wouldn't be "aggressive."

Now that the party's over, and the hangovers have made corporate tax directors more circumspect:

The IRS’s emphasis on enforcement is gradually succeeding in changing the mindset of corporate tax executives concerning the advisability of overly aggressive tax positions, according to Deborah Butler, associate chief counsel for procedure and administration with the IRS Office of Chief Counsel.

Butler, speaking October 25 at a BNA Tax Management conference in Washington, said she has noticed a “change in attitude” among her private-sector colleagues, resulting in a more conservative approach to strategic tax planning. Butler and other panelists attributed the more risk-sensitive outlook to multiple factors, including financial disclosure and reporting requirements of the Sarbanes-Oxley Act of 2002, possible waiver of the attorney-client privilege, stricter application of penalties, and the IRS’s ability to pursue tax accrual workpapers.

Once the hangovers go away, some taxpayers will again reach for the "hair of the dog." While the bigger accounting and law firms have pulled away from the tax shelter business, it survives in smaller, discreet "boutique" firms catering to non-public businesses. The tax shelter businesses waxes and wanes depending on the balance of fear to greed. All it will take to make greed ascendent are a few years and a few high-profile taxpayer victories, and the wheel will go around again.

Link: Tax Analyst free story

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