orporate tax shelters have been the subject of intense debate over the past few years. They are a growing problem, costing the federal government billions of dollars annually. In an effort to curb these abuses, after a series of hearings (in which the AICPA, among other organizations, participated), the Treasury proposed regulations that would require registration, listing investors and disclosure of certain tax-motivated transactions. However, these proposals seem to be overly broad in scope and onerous in parts and may encompass many creative—but legitimate—business transactions.
What Is a Corporate Tax Shelter?
While a corporate tax shelter is difficult to define, under current law an arrangement is treated as such an entity if one of its significant purposes is the avoidance or evasion of federal income tax. These arrangements or transactions share several characteristics:
In February 2000, the Treasury proposed regulations to curb these abuses.
Registration. In general, tax shelter promoters would be required to register any entity, plan, arrangement or transaction
Lists of investors. Organizers and promoters would have to maintain lists of investors and copies of all offering materials. This requirement applies to any transaction structured for a significant purpose of tax avoidance or evasion, regardless of whether offered under conditions of confidentiality or the promoter fees involved.
Reportable transactions. Unless an exception applies, a corporate taxpayer would have to disclose participation by attaching a statement to its return in two types of transactions:
For a discussion of the proposed regulations and the AICPA comments, see “ Registration, Listing and Disclosure of Potentially Abusive Corporate Tax Shelters ,” by Roby Sawyers, in the August 2000 issue of The Tax Adviser.
—Nicholas Fiore, editor