SENATE INVESTIGATIVE SUBCOMMITTEE RELEASES REPORT TO COMBAT ABUSIVE TAX SHELTERS

WASHINGTON— February 10, 2005: Today, Senator Norm Coleman (R-Minn.) and Senator Carl Levin (D-Mich.), Chairman and Ranking Minority Member of the U.S. Senate Permanent Subcommittee on Investigations, released a bipartisan Subcommittee report with ten recommendations to combat abusive and illegal tax shelters. “Abusive tax shelters hurt the American people, the honest hard working families that pay their fair share,” Coleman said. “This Report details how accountants, lawyers, bankers, and investment advisors developed, implemented, and mass-marketed cookie-cutter tax shelters used to rip off the Treasury of billions of dollars in taxes. I am against regulation just for the sake of more regulation, the preferable way is for professional firms to self-impose high ethical standards without requiring Congressional review to highlight their transgressions. I am pleased to note that in response to our investigation the accounting firms examined in this Report have committed to change their ways and this Report details those changes. However, stronger penalties and the recommendations in this report to reign in other firms and bankers and lawyers are still needed to restore the public trust in our tax laws. ” “The Senate must take the lead in clamping down on abusive tax shelters that steal tens of billions of dollars from the U.S. treasury and force honest taxpayers to make up the difference,” said Levin. “I believe we have the bipartisan support necessary to pass real penalties on abusive tax shelter promoters, enact stronger prohibitions on transactions with no business purpose other than tax avoidance, and take tough action against the accountants, lawyers, and bankers hawking these deceptive and abusive tax shelters.” The Subcommittee held hearings in November 2003, and released a Minority staff report showing how accounting firms, law firms, banks and security advisory firms had joined forces to develop, market, and carry out abusive or illegal tax shelters. The bipartisan Subcommittee report released today provides new details about the abusive tax shelters promoted by KPMG, Ernst & Young, or PricewaterhouseCoopers, as well as the commitments each accounting firm has since made to end their abusive tax shelter business. It also provides new information on how other professional firms helped promote these tax shelters, including Sidley Austin Brown & Wood, Deutsche Bank, HVB, Wachovia Bank, Presidio and Quellos. The report also provides new information about how two charitable organizations, the Los Angeles Department of Fire & Police Pensions System and Austin Fire Fighters Relief and Retirement Fund, became involved with an abusive tax shelter. The Subcommittee made the following ten bipartisan recommendations to combat abusive tax shelters: 1. Enforcement Focus. The Internal Revenue Service and the Department of Justice should continue enforcement efforts aimed at stopping accounting firms and law firms from aiding and abetting tax evasion, promoting potentially abusive or illegal tax shelters, and violating federal tax shelter regulations, and should impose substantial penalties on wrongdoers to punish and deter such misconduct. 2. Promoter Penalties. Congress should enact legislation to increase the civil penalties on aiders and abettors of tax evasion and promoters of potentially abusive or illegal tax shelters, to ensure that they disgorge not only all illicit proceeds from such activities, but also pay a substantial monetary fine to punish and deter such misconduct. 3. IRS Appropriations. Congress should appropriate additional funds to enable the IRS to hire more enforcement personnel and increase enforcement activities to stop the promotion of potentially abusive and illegal tax shelters by lawyers, accountants, and other financial professionals. 4. Economic Substance Doctrine. Congress should enact legislation to clarify and strengthen the economic substance doctrine and to strengthen civil penalties on transactions with no economic substance or business purpose apart from their alleged tax benefits. 5. Interagency Cooperation. Congress should enact legislation authorizing the IRS to disclose relevant tax shelter information to other federal agencies, such as the Public Company Accounting Oversight Board, federal bank regulators, and the Securities and Exchange Commission (SEC), to strengthen their efforts to stop the entities they oversee from aiding or abetting tax evasion or promoting potentially abusive or illegal tax shelters. 6. Accountant Rules. The Public Company Accounting Oversight Board should strengthen and finalize proposed rules restricting certain accounting firms from providing aggressive tax services to their audit clients, charging companies a contingent fee for providing tax services, and using aggressive marketing efforts to promote generic tax products to potential clients. 7. Bank Oversight. Federal bank regulators, in consultation with the IRS, should review tax shelter activities at major banks, and clarify and strengthen rules preventing banks from aiding or abetting tax evasion by third parties or promoting potentially abusive or illegal tax shelters. 8. Securities Firm Oversight. The SEC, in consultation with the IRS, should review tax shelter activities at investment advisory and securities firms it oversees, and clarify and strengthen rules preventing such firms from aiding or abetting tax evasion by third parties or promoting potentially abusive or illegal tax shelters. 9. Tax Opinion Letters. The IRS should further strengthen federal tax practitioner rules issued under Circular 230 regarding the issuance of tax opinion letters to ensure that such practitioners, including law firms and accounting firms, have written procedures for issuing tax opinions, resolving internal disputes over legal issues addressed in such opinions, and preventing practitioners or their firms from aiding or abetting tax evasion by clients or promoting potentially abusive or illegal tax shelters. 10. Charitable Organizations. The IRS should review tax shelter activities at charitable organizations, and clarify and strengthen rules preventing such organizations from aiding or abetting tax evasion by third parties or promoting potentially abusive or illegal tax shelters. Contacts: Tom Steward (Coleman) 202-224-5641 Tara Andringa (Levin) 202-228-3685

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