From the Wall Street Journal:
Federal officials are considering easing a 2004 law that requires the IRS to set mandatory heavy penalties on companies and individuals who purchase certain illegal tax shelters.The law imposes penalties for making use of so-called listed tax shelters, or ones the Internal Revenue Service places on a list of the most-abusive transactions. Currently, there are 34 different types of tax shelters on the IRS list. . .
Robert Mathew, who owns a small Indiana asphalt-paving company. . . purchased a type of life-insurance policy known as a “springing cash value” plan as an alternative to a straightforward pension plan for his employees. Two years later, the IRS added this type of plan to its list of abusive tax shelters, and Mr. Mathew should have disclosed his purchase to the IRS. But he says the financial adviser who sold him the insurance plan at no point told him he needed to make such a disclosure.
Now, Mr. Mathew says, the IRS is demanding taxes and interest totaling $60,000. On top of that, the IRS has set penalties in the amount of $600,000, but has so far granted him several extensions, he says.
“I trusted people, my adviser, to take care of this. Then the IRS came and said, ‘Here’s $600,000 you’re going to have to pay.’ If I had to pay these fees, I would actually have to go bankrupt,” Mr. Mathew said. . .
You can view the IRS’s list of Abusive Tax Shelters and Transactions here. A number of them involve benefits-related transactions. You can access a benefits-related list here.
See also: Abusive Transactions That Affect Availability of Programs under EPCRS.
(These links are helpful for practitioners whose clients unfortunately meander into these types of transactions.)