Taxpayers Who Used Abusive Tax Shelters Get a Break

Oregon is currently involved with 20 other states and the Multistate Tax Commission, in a program that allows taxpayers to report abusive tax shelters without penalty. The program ends October 1st.

Salem-News.com

(SALEM, Ore.) - State officials say time is running out for businesses and individuals, "to come clean if they used abusive tax shelters to avoid paying taxes."

A special one-time opportunity has been created so that taxpayers can avoid paying costly penalties if they report their abusive tax shelters during this period, Department of Revenue Director Elizabeth Harchenko said, “If they wait until after the program ends, they will have to pay penalties. It could be very expensive for them.”

Taxpayers who filed returns showing abusive tax shelters for any tax period beginning before January 1st, 2006 may participate in in a new program. Taxpayers who have not filed tax returns also may participate.

Oregon has joined 20 other states in the Multistate Tax Commission, or MTC, a program that allows taxpayers to report abusive tax shelters without penalty, but the program ends October 1st. “It will be easy for taxpayers to comply because so many states are working together through the MTC to form one set of procedures and a single point of contact. We’ll also be pooling our enforcement abilities,” Harchenko added.

The Revenue Department describes an abusive tax shelter as something that results in a taxpayer avoiding payment of state or federal income tax. They include, but are not limited to "listed transactions" as defined by the IRS. There are links at the bottom of the story that can lead you to more information.

Abusive tax schemes became popular in the 1990s among both individuals and businesses, with one-time large capital gains. Some businesses and individuals believed at the time that the tax schemes were legitimate.

The MTC program will give those taxpayers an opportunity to report abusive tax shelters without penalty. The program ends October 1st.

The reason for this is the Oregon's Legislature's passage of Senate Bill 39, that requires taxpayers involved in abusive tax shelters to report them when they file their tax returns. They also stiffened the penalties.

This will be the first time Oregonians will work with this new option. For the tax year 2007, corporate and individual Oregon tax forms will include a box taxpayers can check if they have participated in an abusive tax shelter. State officials say corporations could face even bigger penalties.

"If an individual doesn't check the box—or checks the box but doesn't report the income—they could face fines of 60 percent of the unreported income, plus a $3,300 or $33,000 fine, plus interest, plus any other applicable penalties," said the Department of Revenue's ATAT Coordinator Jamee Hedeen. "It could be very expensive for them."

Hedeen says that to avoid all penalties, taxpayers who participated in "abusive tax shelters" should take advantage of the current MTC program that ends October 1st. To participate in the MTC program, you must complete separate forms MTC-VCP-1 for each state to which you owe taxes. With each form, you must send an amended or original state tax return, federal Form 8886, and full payment to the MTC. The MTC must receive all documents by October 1st.

Forms, rules, procedures, and a list of participating states are available at mtc.gov. For more information, contact the MTC by e-mail, VCP@mtc.govVCP@mtc.gov; telephone, 202-624-8699; or in writing, Voluntary Compliance Program, c/o Multistate Tax Commission, 444 North Capitol Street, Washington, DC, 20001.

After the program ends, Oregon's Revenue Department will contact taxpayers who could have participated in the MTC's program but chose not to. Beginning January 1st, 2008, taxpayers involved in abusive tax shelters will face paying the new, costlier penalties in SB 39.

For more information on SB 39, visit oregon.gov/DOR. A directory of listed transactions is on the IRS website, irs.gov.