IRS offers deal to users of Son of Boss tax shelter

May 06, 2004|By BLOOMBERG NEWS

WASHINGTON - The Internal Revenue Service offered leniency yesterday to thousands of users of a tax shelter that cost the government at least $6 billion in the late 1990s, letting them pay reduced penalties and deduct the deal's transaction fees if they agree to a settlement.

The IRS said many taxpayers can avoid the maximum penalties of up to 40 percent of their liability and deduct the costs of their fees if they come forward by June 21 and pay back taxes, interest and a penalty for using the so-called Son of Boss shelter. Users paid millions of dollars in fees to accountants, bankers and lawyers for tax advice that generated an artificial loss to offset a one-time gain.

It was the first time the IRS offered a settlement that demands 100 percent of the tax owed, plus interest and at least some penalty. In addition to reducing their out-of-pocket costs, taxpayers can avoid possible criminal penalties by settling, IRS Commissioner Mark Everson said in an interview.

It was the third major development in the IRS' efforts to fight tax shelters in a week. Earlier, the agency won two legal battles forcing KPMG LLP and the law firm Sidley Austin Brown & Wood to disclose the identities of customers that purchased other types of tax shelters.

The IRS outlawed the Son of Boss transaction, which used elaborate partnership arrangements to generate artificial losses, in August 2000. PricewaterhouseCoopers gave the transaction its name, which stands for Bond and Options Sales Strategy.

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