State Official Lauds Tax Dodge Crackdown

State Official Lauds Tax Dodge Crackdown
State Continues Fight Against Abusive Shelters

By Simon Eskow

New York is broadening its efforts to crack down on abusive tax shelters, having entered agreements with the federal government and many other states to cooperate and share information about investigations, a state tax official said at a recent conference.

“Information about shelters before was two ways (between two taxing authorities),” said Thomas Heinz, director of tax audits for the New York State Department of Taxation. Now, after signing a memorandum of agreement (MOU) with the IRS and more than 40 other states as of May 2004, Heinz said, information about abusive tax shelters can be shared to a greater extent, aiding investigation and prosecution.

Heinz, a 35-year veteran of the state tax department, said that in addition to signing MOUs with 42 other states, New York is participating in a national database of tax shelter cases, adapting a program pioneered by the IRS to encourage users of abusive tax shelters to turn themselves in, and launching a new unit in the department dedicated to preventing tax shelter abuse.

New York’s efforts are part of a growing national trend to make pursuit of abusive tax shelters a high priority. Agreements to share information with other taxing authorities help to ease investigations of tax shelter schemes that intentionally hide and bury taxable income across many states.

The IRS has been taking the lead in pursuit of tax shelters. The Service has been cracking down on “Son-of-Boss”–style tax shelters since 2000, and in May launched a settlement offer initiative to encourage voluntary disclosure. The IRS reported in August that the program brought in 1,500 Son-of-Boss participants. And as of this writing, the U.S. Senate expected to extend prosecution of those kinds of violations beyond the Aug. 15 statute of limitations.

Heinz told the 90-plus audience that New York offered a similar initiative to state taxpayers in May. The state offered investors in Son-of-Boss shelters, which hide income by creating artificial losses, leniency to those who came clean by amending their tax returns.

California, Heinz said, which offered a leniency initiative for users of abusive transactions, netted $1.2 billion in previously unrecoverable tax revenue. The New York initiative brought 1,000 tax dodgers in out of the cold, recovering revenues in the billions.

The state, meanwhile, has created a separate tax shelter unit to tackle and investigate abusive schemes, Heinz said. The unit has been able to collect information on abusive schemes going back as far as 1999.

Heinz, who has spoken at many Society conferences, announced that the conference would be his last speaking address.
Sponsored by the Taxation of Individuals Committee, the Strategic Planning for Your High-Net-Worth Clients Conference featured presentations on trust planning, state and federal taxes, and pension plan design and fiduciary responsibility.

Steven Goodman and William Henry Jones were the conference cochairs; Alan Dlugash is the committee chair.