Academic journal article Journal of Accountancy

Corporate Tax Shelters

Academic journal article Journal of Accountancy

Corporate Tax Shelters

Article excerpt

Treasury takes aim at abuses.

Corporate tax shelters have been the subject of intense debate over the past few years. They are a growing problem, costing the federal government billions of dollars annually. In an effort to curb these abuses, after a series of hearings (in which the AICPA, among other organizations, participated), the Treasury proposed regulations that would require registration, listing investors and disclosure of certain tax-motivated transactions. However, these proposals seem to be overly broad in scope and onerous in parts and may encompass many creative--but legitimate--business transactions.


While a corporate tax shelter is difficult to define, under current law an arrangement is treated as such an entity if one of its significant purposes is the avoidance or evasion of federal income tax. These arrangements or transactions share several characteristics:

* Lack of economic substance.

* Inconsistent treatment for financial accounting and tax purposes.

* Use of parties not directly affected by the tax treatment ("tax-indifferent"), such as foreign entities and tax-exempt entities.

* Active marketing by promoters.

* Promoters that require participants to sign confidentiality agreements.

* Contingent fee or insurance arrangements.

* High transaction costs.


In February 2000, the Treasury proposed regulations to curb these abuses.

Registration. In general, tax shelter promoters would be required to register any entity, plan, arrangement or transaction

* That is structured for a significant purpose of tax avoidance or evasion. This includes

* Any "listed transaction," identified by published guidance from the Treasury or the IRS. …

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