IRS Tax Crackdown Yields $3.2 Billion

The IRS has collected more than $3.2 billion, mainly from wealthy people, in its most ambitious effort ever to crack down on improper tax shelters, the agency said Thursday.

There’s been “some real pain” among the 1,165 taxpayers who are participating in the “Son of Boss” tax shelter settlement, IRS Commissioner Mark W. Everson said at a news conference. “Some people have had to sell their villas and yachts” to come up with the money.

Everson said there were still about 400 people who have chosen not to participate and another 200 involved in the tax shelter who didn’t qualify for the settlement plan. The agency should garner about $3.5 billion before the project concludes in the coming months, he said.

A spinoff of an older shelter called “Boss,” the scheme known as “Son of Boss” is a highly complex, no-risk strategy where promoters such as accounting firms and investment banks sold financial products that generated losses to offset large gains, often from selling a business or exercising stock options.

Everson said more than 90% of those who participated in the shelter, popular in the 1990s, were wealthy individuals. Others included business owners and corporations.

He said this project dwarfed previous efforts to pursue tax evaders. A program to crack down on improper use of offshore credit cards netted $270 million, equivalent to the amount paid by just three individuals in the “Son of Boss” initiative. One person paid back more than $100 million and the average was nearly $1 million.

Under the terms of the program, people were required to pay back 100% of the claimed tax losses and pay a penalty of either 10% or 20%. The IRS said that as part of its efforts, the California Franchise Tax Board collected $132 million in state taxes that were owed.