For many years now, the IRS has been aggressively pursuing individuals and entities responsible for marketing, selling or promoting abusive tax shelters. At the very least, the IRS seeks severe civil penalties from these individuals and entities and many times proceeds criminally against them.
Tax Attorney Lawrence Brown has deep experience representing tax shelter promoters. Lawrence Brown is a former Trial Attorney with the Department of Justice Tax Division. His private practice focuses on resolving complex tax disputes including tax shelter promoter investigations.
Are You a Tax Shelter Promoter (According to the IRS)?
The IRS targets tax shelter promoters under Section 6700 of the Internal Revenue Code (IRC). Under Section 6700, an accountant, attorney or other individual may be classified as a tax shelter promoter if the individual:
- Organizes (or assists in the organization of) an entity, investment plan or other arrangement; or,
- Participates (directly or indirectly) in the sale of an interest in an entity, investment plan or arrangement; and,
- As a result of either of the foregoing, assists with securing any tax benefit through false or fraudulent means or grossly overstating the value of the entity, investment plan or other arrangement involved.
This definition is extremely broad; and as a result, it allows the IRS to pursue cases against alleged promoters in a wide range of circumstances. When seeking to identify tax promoters, the IRS typically looks for a number of red flags. For example, according to the IRS, red flags for abusive tax shelters include:
- Confidential transactions that are apparently structured for unlawful tax avoidance purposes
- Promoters who offer refunds if the IRS disallows preferential tax treatment
- Tax shelters that involve accelerated deductions for defined contribution plans, debt straddles, lease-in/lease-out (LILO) transactions and other listed transactions
- Transactions that result in reportable losses under Section 165 of the IRC
- Transactions that lack adequate substantiation to confirm IRC compliance (which the IRS refers to as “transactions of interest”)
Crucially, none of these red flags are necessarily indicative of fraud. The tax code is extraordinarily complex, and it allows taxpayers to use a variety of complex transactions and structures to mitigate their federal tax liability. Additionally, even if you may have arguably assisted taxpayers with implementing abusive tax shelters, you still have defenses available. An experienced tax attorney can help protect you; and, if you are facing scrutiny from the IRS, engaging defense counsel before this scrutiny leads to charges will provide the greatest opportunity for a favorable outcome.
Understanding the Risks of Being Labeled a Tax Shelter Promoter
What are the risks of being labeled an abusive tax shelter promoter by the IRS? The short answer is, “It depends.” The IRS and U.S. Department of Justice (DOJ) both pursue a wide range of charges against alleged tax shelter promoters, and these charges can either be civil or criminal in nature.
Civil Penalties for Tax Shelter Promoters
In civil enforcement actions, individuals who are accused of promoting abusive tax shelters can face monetary penalties. Licensed professionals, including attorneys and accountants, can also face disciplinary action by the IRS Office of Professional Responsibility (OPR). Paying civil monetary penalties can trigger automatic scrutiny from the IRS OPR, so it is imperative that licensed professionals not simply pay IRS-imposed fines in order to move on. Instead, targeted professionals must engage experienced defense counsel to ensure that they are doing everything necessary to protect themselves.
Criminal Penalties for Tax Shelter Promoters
When charged with criminally facilitating the use of abusive tax shelters, alleged promoters can face substantial penalties. Charges in tax shelter promoter cases can include criminal violations of the IRS as well as violations of other federal criminal statutes. The fines in these cases can easily climb into the six figures (and can be significantly higher), and convictions can also lead to federal imprisonment.
Facing an Investigation for Promoting an Abusive Tax Shelter
With these risks in mind, if you are facing an investigation for promoting an abusive tax shelter, executing a strategic defense should be your first priority. At Brown, PC, we represent select clients in high-stakes federal tax controversies. If you are at risk for substantial penalties as a result of facing scrutiny from the IRS, IRS OPR or any other federal authority, we invite you to contact us for more information.
When we represent clients in tax shelter promoter investigations, we focus on protecting our clients against all potential risks. This includes not only the risk of civil or criminal penalties, but also the risk of disciplinary action by the IRS OPR and the risk of facing negative publicity. We represent clients who have a lot to lose, and we rely on our experience to protect them by all means available.
Speak with a Tax Shelter Promoter Defense Attorney at Brown, PC
To address tax shelter promoter investigation issues with a highly qualified tax lawyer, contact Brown, PC at 888-870-0025 or e-mail the law firm through this Web site for legal counsel regarding tax shelter promoter investigation issues. Our main offices are located in the Dallas-Fort Worth, Texas metroplex and we represent clients throughout the United States and the world.