Procedure & Administration
CPAs at Risk as Government Continues to Attack Abusive Tax Shelters
1 Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability and includes, in particular, dishonest tax reporting (such as declaring less income, profit, or gain than actually earned or overstating deductions). Moreover, tax evasion is a crime in almost all countries and subjects the guilty party to fines and/or imprisonment.
2 Notice 99-59, 1999-2 CB 761.
3 This principle has been upheld by the courts. See ACM Partnership, 157 F3d 231 (3d Cir. 1998), cert. denied, 526 US 1017 (1999); Scully, 840 F2d 478 (7th Cir. 1988); Shoenberg, 77 F2d 446 (8th Cir. 1935).
4 TD 8876; REG-110311-98.
5 TD 8875; REG-103736-00.
6 TD 8877; REG-103735-00.
7 Notice 2000-15, 2000-1 CB 826.
8 Rev. Rul. 2000-12, 2000-1 CB 744.
9 Ann. 2000-12, 2000-1 CB 835.
10 REG-111835-99.
11Ann. 2000-51, 2000-1 CB 1141.
12 Ann. 2000-55, 2000-1 CB 1268.
13 Notice 2000-60, 2000-2 CB 568.
14 Notice 2000-61, 2000-2 CB 569.
15 Notice 2000-44, 2000-2 CB 255.
16 TD 9062 (6/24/03).
17 Available at http://tax.aicpa.org/Resources/Professional+Standards+and+Ethics/
Statements+on+Standards+for+Tax+Services/. The standards are issued by the Tax Executive Committee and the AICPA.
18 AICPA, Statements on Standards for Tax Services, preface, p. 5.
19 Criminal Tax Manual Section 12.04, available at www.usdoj.gov/tax/
readingroom/2001ctm/index.htm.
20 Sec. 7206.
21 Cheek, 498 US 192, 200 (1991).
22 Criminal Tax Manual Section 12.09[1].
23 Id. Section 12.09[5], citing Dykstra, 991 F2d 450, 452 (8th Cir. 1993), and Ramsey, 785 F2d 184, 189 (7th Cir. 1986).
24 Bussey, 942 F2d 1241, 1246 (8th Cir. 1991); DeFazio, 899 F2d 626, 635 (7th Cir. 1990); and Jewell, 532 F2d 697 (9th Cir. 1976). In Jewell, the defendant was convicted of transporting marijuana in his car from Mexico to the United States, but he deliberately avoided obtaining positive knowledge as to whether marijuana was present in his vehicle. The court held that the government can complete its burden of proof by proving, beyond a reasonable doubt, that if the defendant was not actually aware that there was marijuana in the vehicle, his ignorance in that regard was solely and entirely a result of his having made a conscious decision to avoid learning the truth.
25 Sec. 6707A.
26 Sec. 6662A. See Yang, Jeffers, and Lin, “Abusive Tax Shelters: Heavy Penalties Under the American Jobs Creation Act of 2004,” CPA Journal Online (August 2006), available at www.nysscpa.org/cpajournal/2006/806/essentials/p40.htm.
27 See Salmon and Amitay, “California Taxpayer Disclosure Requirements,” 35 The Tax Adviser (September 2004): 576.
28 U.S. DOJ Press Release, “Two CPAs Sentenced in $120 Million International Tax Shelter Case,” September 16, 2005, available at www.usdoj.gov/opa/pr/
2005/September/05_tax_485.html.
29 Sec. 7201; 18 USC §3571.
30 IRS News Release, IR-2007-71.
31 “Deutsche Bank Settles Hundreds of Investor Lawsuits over Fraudulent Tax Shelters,” BNA Daily Tax Report, February 12, 2007, p. K-1.
32 COBRA stands for Currency Options Bring Reward Alternatives. In a COBRA transaction, the taxpayer sells a short option and purchases a long option in identical amounts but with different strike prices on a foreign currency exchange. The taxpayer then contributes the options to a partnership formed for the transaction. When the options expire, the partnership realizes a gain or loss. The taxpayer contributes cash or other assets to the partnership. The taxpayer then contributes his or her interest in the partnership to an S corporation formed for that purpose. The partnership terminates. The S corporation then sells the contributed assets. Because the basis of the taxpayer’s interest in the partnership is increased by the purchase cost of the long option but not decreased by the premium earned on the sale of the short option, on the S corporation’s sale of its capital assets, the S corporation realizes a large loss, which reduces the taxpayer’s tax liability. Seippel v. Jenkens and Gilchrist, P.C., 341 FSupp2d 363 (S.D. N.Y. 2004).
33 Douglas, 98 AFTR2d 2006-6307 (N.D. Cal. 2006); and Stein, 97 AFTR2d 2006-740 (S.D. N.Y. 2006).
34 Weil and Scannell, “HVB Ex-Official Pleads Guilty over Tax Shelter,” Wall Street Journal, August 12, 2005, p. A3.
35 “Former KPMG Tax Partner Pleads Guilty to Tax Evasion, Conspiracy,” 2006 TNT 59-3, Doc. 2006-5864 (March 28, 2006).
36 2005 TNT 167-15, Doc. 2005-17993 (August 29, 2005).
37 “Judge Denies Motion of KPMG Ex-Partner,” Wall Street Journal, April 5, 2006, p. 1. However, charges were later dropped against Eischeid and a majority of the other defendants in the case because the court held that the government had violated the defendants’ constitutional rights by using its influence to cause KPMG to discontinue paying for the costs of their defense. “Federal Judge Dismisses Fraud Indictment Against Majority of KPMG LLP Defendants,” BNA Daily Tax Report, July 17, 2007, p. K-1.
38 U.S. DOJ Press Release, “Two CPAs Sentenced in $120 Million International Tax Shelter Case,” September 16, 2005.
