Abusive Tax Shelters

Abusive tax shelters are tax saving machinations that the IRS views as excessive, and for which additional penalties may be applied. The government has never been fond of abusive tax shelters and has an array of penalty provisions to combat them. In a recent case, Reiserer v. U.S., 99 AFTR2d 2007-1438 (CA-9, 2007), the court held that the IRS could assess penalties under Code Section 6700 (100% of the gross income from the activity) and Section 6701 against the estate of a deceased promoter of abusive tax shelters involving offshore employee leasing. If the penalties were penal in nature, they would not have survived the promoter’s death. Because the court held they were not, the penalties survived, and his estate was liable. The IRS had weighed in against these transactions in Notice 2003-22, 2003-1 CB 851.