Wall St. Tax Shelters in Focus

Wall Street’s investment banks used fraudulent shelters to avoid paying federal taxes on more than $10 billion in income over the last decade, according to testimony to a congressional panel Wednesday.

An investment bank employee, testifying from behind a screen to conceal his identity, said the Internal Revenue Service did little over the last six years to counter the continuing fraud when he reported the schemes.

“From my vantage point, the IRS simply does not understand how the tax shelters work or how the transactions and structures fit together,” he told the Senate Finance Committee. The IRS was “consistently outgunned and outmatched.”

The committee is studying ways of improving tax collection to help close a record federal budget deficit.

“This is not about raising taxes,” said Sen. Max Baucus (D-Mont.). “This is about enforcing the tax laws on the books.”

IRS Commissioner Mark W. Everson testified that the agency was combating cheating by auditing corporations and high-income individuals and punishing lawyers, accountants and tax professionals who sanction tax shelters. It also is targeting nonprofit organizations that are used by companies to avoid taxes, he said.

Congress is considering the creation of an IRS office to handle whistle-blower claims and ensure rewards are paid to those who come forward. The investment bank witness said the IRS denied him a reward for exposing the tax shelter scams.