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IRS cracks down on tax shelters

The IRS announced that it collected more than $3.2 billion from wealthy people in its most ambitious effort ever to crack down on improper tax shelters.

In a news conference held last Thursday, IRS Commissioner Mark Everson said that there had been "some real pain" among over 1100 taxpayers who participated in the "Son of Boss" tax shelter settlement. Everson also added that "Some people have had to sell their villas and yachts" in order to come up with the money.

Everson further stated that there were close to 400 people who declined to participate, while another 200 involved failed to qualify for the settlement plan. The IRS should gather around $3.5 billion before the project ends in the coming months, he said.

The scheme, known as "Son of Boss, is spinoff of an older shelter called "Boss." "Son of Boss" is a very complex, no-risk strategy in which promoters, such as accounting firms and investment banks, sold financial products generating losses to offset large gains, often from selling a business or exercising stock options.

Commissioner Everson said more than 90 percent of those participating in the shelter were wealthy individuals, business owners and corporations.

Everson also said that this project dwarfs previous efforts in pursuing tax evaders. A program initiated to crack down on improper use of offshore credit cards netted nearly $270 million, equivalent to the amount paid by just three individuals in the "Son of Boss" initiative. One person has paid back nearly $100 million and the average was nearly $1 million.

"This was not a bargain-basement deal," said Everson. Under the terms of the program, people were required to pay back 100 percent of the claimed tax losses, and also pay either a 10 percent or 20 percent penalty.

Those declining to participate in the initiative and choose instead to litigate their case are faced with assessment of the maximum penalty of 40 percent. Everson added that those who go to court will have their names publicized, while those participating in the settlement will not be named by the IRS.