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IRS BLANKET SETTLEMENT OFFER INCLUDES NON-LISTED TRANSACTIONS

October 28, 2005

The IRS yesterday made a blanket settlement offer for a wide range of tax-shelter transactions. The offer covers 16 "listed" transactions, which are transactions that the IRS has already targeted as abusive. It also covers five additional transactions that haven't yet been "listed" by the IRS. The offer would require taxpayers to pay all taxes "saved" by the transaction, plus 1/4 to 1/2 of the penalties that would otherwise be do. Taxpayers would be allowed to deduct their transaction costs for the deals.

The offer follows prior blanket settlement offers for specific tax shelters, including the "Son of Boss" initiative. By offering relatively favorable terms, the IRS hopes to minimize litigation risks and costs.

The "non-listed" transaction offer is new. It covers five sets of transactions:

Certain Abusive Conservation Easements (see Notice 2004- 41, 2004-28 I.R.B. 31) (5%);

Certain Abusive Donations of Patents and Other Intellectual Property ( Notice 2004-7,);

Reimbursements for Employee Parking (Rev. Rul. 2004-98);

Reimbursements of employees' medical expenses (Rev. Rul. 2002-3);

and Management S Corporation/ESOP Transactions (Rev. Rul. 2002-80).

Of these, the first two are the most interesting, as the IRS acknowledges that these transactions can be done in non-abusive ways. How should taxpayers know whether they should take advantage of them? Tax Analysts reports the IRS Commissioner's thoughts (subscription only link)

The commissioner, in response to a question, said taxpayers who are not sure whether their conservation easement or intellectual property transactions are abusive should consult their tax advisers. "I think they probably know who they are," Everson said of the taxpayers. "The individuals know whether they went into a transaction primarily to benefit a charity or to get an inflated tax deduction."

My initial view is that this looks like a favorable offer, especially for things like the parking transaction and the management ESOP deals.

Link: IRS press release, with additional links to more details.

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