IRS attorneys who have now reviewed a May 12, 2011 Government Accountability
Office (GAO) report, which was recently released to the public on June 13, 2011, say
the report is critical of the IRS’s enforcement efforts. Specifically, these IRS attorneys
indicate the GAO’s report (11-493) concludes the IRS isn’t adequately investigating
abusive tax avoidance transactions (ATATs) due to poor data.
While the IRS is evidently aware of the problem, IRS tax lawyers say such transactions
are often complicated schemes involving highly technical tax shelters making them
difficult for the Agency to uncover. These same IRS tax attorneys indicate the GAO’s
report also cites a lack of metrics, to adequately track enforcement efforts, makes it
impossible for the IRS to say whether their investigative efforts have been successful to
reduce the number of ATATs, or whether the number of ATATs is growing.
According to Stephen T. Miller, IRS Deputy Commissioner for Services, “The IRS
agrees that better data may lead to better decisions about focusing resource allocations
and improve our enforcement efforts for Abusive Tax Avoidance Transactions.” But,
IRS tax lawyers are quick to note that while better data might help the IRS be more
effective, the challenge will be for the Agency to do more with less given Congress’
recent cuts to the IRS’s budget.
The GAO recommended stronger penalties against non-material adviser promoters
submitting investor lists late. According to the GAO’s reasoning, IRS attorneys point out
that as ATAT trends are constantly changing, getting pertinent information on time could
help indicate which types of investigations the IRS might initiate.
As IRS tax law becomes increasingly more complex, in part through legislative
initiatives seeking to achieve political agendas, ATATs are likely to continue growing.
IRS tax lawyers suggest that eliminating much of the complexity associated with current
IRS tax law might actually reduce the number of ATATs.
In the end, the IRS is really a victim of the government’s own design. With more
politically driven deductions, tax credits, and loopholes for big companies, ATATs
are presumably growing as well. Of course, given the GAO report, we are left to our
assumptions because we now know the IRS can’t tell if ATATs are growing or not.
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