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Abusive Tax Shelters

Other States

The IRS and the various states are coordinating efforts and sharing information in trying to stop the proliferation of abusive tax shelters. Practitioners and taxpayers must continue to monitor the developments in this area with regard to all of the states to determine if additional reporting and disclosures are required in any state. At the Tufts Law Firm, we will assist taxpayers who come to us and express an interest in trying to comply with Federal tax law disclosure rules to also learn about and comply with any applicable state law disclosure and reporting requirements, working in conjunction with local advisors in these states.

Multistate Tax Shelter Voluntary Compliance Program

To encourage taxpayers who have entered into abusive tax shelters to disclose their participation and amend their returns, 23 states have established a multi-state tax shelter voluntary compliance program. Hosted by the MTC, the program allows taxpayers to unwind abusive tax shelters in exchange for a state benefit, usually full abatement of penalty. The program runs from May 1 until October 1, 2007.

Definition of Abusive Tax Shelter: An Abusive Tax Shelter is a common name for a “tax avoidance transaction” or “abusive tax avoidance transaction.” A tax avoidance transaction (or abusive tax avoidance transaction) means any plan or arrangement devised for the principal purpose of avoiding state or federal income tax (and similar business activity taxes), and includes, but is not limited to, Listed Transactions as defined by the U.S. Internal Revenue Service (IRS). A Listed Transaction is a transaction that is the same or substantially similar to one that the IRS has determined to be a tax avoidance transaction and is so identified by IRS notice or other form of published guidance. An Abusive Tax Shelter may be, but is not necessarily, a “Reportable Transaction” as defined by the IRS. In addition, an Abusive Tax Shelter may affect only state taxes and would therefore be unaddressed by the IRS. See Instructions to IRS Form 8886 for information about Listed Transactions and Reportable Transactions.

Definition of Tax Shelter Voluntary Compliance Program: The MTC Multistate Voluntary Compliance Program (VCP) is a joint effort of participating states to offer taxpayers a single point of contact and a substantially uniform procedure with which to disclose participation in an Abusive Tax Shelter and to file amended returns (or initial returns if the failure to timely file was due to participation in an Abusive Tax Shelter) in exchange for a benefit, usually waiver of penalty. It is not voluntary disclosure, which is offered only to non-filers. It is not amnesty because it is limited to Abusive Tax Shelters.

Forms, rules, procedures, and a list of participating states may be found at http://www.mtc.gov/.

For more information, contact the Multistate Tax Commission by email at VCP@mtc.gov; by telephone at (202) 624-8699; or by writing to the Voluntary Compliance Program c/o Multistate Tax Commission, 444 North Capitol Street, Washington, D.C. 20001.

States participating in the voluntary compliance program include: Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Georgia, Iowa, Indiana, Massachusetts, Missouri, Montana, New Jersey, Oklahoma, Oregon, Rhode Island, Texas, Utah, Vermont, Washington, and Wisconsin.

The Multistate Tax Commission is a compact of state governments working to promote equitable and efficient administration of tax laws that apply to multistate and multinational enterprises.

Tufts Law Firm
Tufts Law Firm, PLLC
159 Lookout Place, # 202  •  Maitland, Florida 32751
Phone: (407) 647-8886  •  Fax: (407) 641-8082
Toll Free: 1-866-747-3423

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