Who Is a Tax Shelter Promoter?
According to the IRS, a tax shelter promoter is any person who organizes (or assists in the organization of) a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, or participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement, and makes or furnishes or causes another person to make or furnish a statement with respect to any tax benefit by reason of participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter.
Is the IRS Interested in Tax Shelters and Transactions?
Yes. The IRS established the Office of Tax Shelter Analysis (OTSA) to collect and analyze information about abusive tax shelters and transactions. According to the IRS, a comprehensive strategy is in place to: identify and deter participation and promotion of abusive tax transactions through audits, summons enforcement, litigation and alternative methods; publish taxpayer guidance on abusive transactions and tax shelters; and promote reportable transaction disclosure filings by those who participate or promote abusive transactions.
What Type of Tax Shelters and Transactions Is the IRS Currently Investigating?
The IRS is generally interested in any abusive tax shelters and transactions that pose a significant compliance risk to the IRS and has established an abusive tax shelter hotline for people to provide helpful information. Currently, the IRS has expressed particular interest in basket contracts (see Notice 2015-73 and Notice 2015-74), Section 831(b) micro-captive transactions (see Notice 2016-66 and Notice 2017-8), and syndicated conservation easement transactions (see Notice 2017-10).
What Is a Syndicated Conservation Easement?
A “syndicated conservation easement” is essentially an investment vehicle where pre-packaged conservation easements are marketed to investors with the representation that a charitable deduction will accompany the investment in excess of the amount invested. The investment vehicle is usually in the form of pass-through entity, such as a limited liability company or a partnership. Individual investors invest money into the pass-through entity, and the promoter uses those funds to purchase the land. The entity donates a conservation easement on the property to a qualified organization in order to create the deduction for the investors, with the intent that the deduction exceeds the contribution. For more information, see Syndicated Conservation Easements (and Other Tax Schemes) Beware.
Are Tax Shelter Promoters Subject to Civil Penalties?
Yes. Generally, a tax shelter promoter must pay a penalty equal to $1,000 for each promotional activity or, if lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity. For more information, see Section 6700 Penalties – False or Fraudulent Statements.
Are Tax Shelter Promoters Subject to Criminal Prosecution?
Possibly. Promoter investigations may result in an injunction, penalty assessment, discontinuance, and/or a criminal referral. If the investigation results in a criminal referral, a tax shelter promoter may be prosecuted for various types of crimes, including: conspiracy to defraud the United States, wire fraud, filing false tax returns, and money laundering.
When Should You Consult a Tax Attorney?
A tax attorney can help guide you through a tax shelter promoter investigation and defend you from the IRS. Tax attorneys are necessary any time that you need to have a “privileged,” confidential discussion with a tax professional. Additionally, because a tax promoter investigation may result in a criminal referral, it is important to reach out to a tax attorney as soon as possible.