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Tax shelter { June 28 2002 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2002/06/28/business/28TAX.htmlhttp://www.nytimes.com/2002/06/28/business/28TAX.html
June 28, 2002
Pricewaterhouse and I.R.S. Settle Tax Shelter Dispute
By DAVID CAY JOHNSTON
The accounting firm PricewaterhouseCoopers agreed yesterday to make a "substantial payment" to the Internal Revenue Service for marketing corporate tax shelters and then failing to comply with rules requiring it to keep a list of such shelters and the clients who used them.
Pricewaterhouse is the second large promoter of tax shelters that the I.R.S. has forced to disclose that it violated Treasury Department rules. Merrill Lynch announced last August that it paid what it called a substantial penalty.
Pricewaterhouse, which did not disclose the amount of the penalty, made it clear that it intended to continue selling tax shelters and suggested that it had negotiated a significant concession from the I.R.S. regarding future disclosures about its clients.
The agreement comes as the I.R.S. is pressing accounting firms, investment houses and tax shelter boutiques for details about the transactions and who did them. Broadly worded I.R.S. summonses were issued in January and February, tax industry officials said yesterday.
In 1999, Lawrence H. Summers, who was then Treasury secretary, said abusive corporate tax shelters were the largest enforcement problem facing the I.R.S. He announced new rules to stop companies from fabricating deductions by manipulating tax rules, as well as the requirement to keep lists of shelters and their users. At the time officials cited estimates that abusive shelters cost the government at least $10 billion annually.
Pricewaterhouse neither admitted nor denied violating the regulations, which it promised to obey in the future.
The agreement announced yesterday covers all tax shelters sold by Pricewaterhouse since 1995. That would include a tax shelter known as BOSS, for bond option sales strategy, that generated bogus income tax deductions by using a foreign bank in a partnership arrangement to create the appearance of investment losses. That transaction was included in a list of deals prohibited by the 1999 Treasury rules.
News of the agreement was reported on Wednesday night by Sheryl Stratton of Tax Notes magazine on its Web site. The official announcement was made yesterday afternoon.
Under federal law, the I.R.S. cannot comment on a specific taxpayer without that taxpayer's permission. Even though Pricewaterhouse had control over the statement released by the I.R.S., it took issue with it, an act suggesting that the settlement negotiations were not friendly.
David Nestor, the accounting firm's spokesman, told several reporters that the firm objected to the I.R.S.'s description of the unspecified penalty as "substantial." Mr. Nestor explained that in the context of the firm's $22.3 billion in revenue last year the amount was insignificant.
In return for the payment, Pricewaterhouse appears to have won a significant concession from the I.R.S. that may comfort clients who buy its tax avoidance products.
While the I.R.S. issued broadly framed requests for information on tax shelters and clients, Pricewaterhouse's statement said that the I.R.S. had agreed to tailor future requests for tax shelter information.
"As part of the agreement," the firm said, "the I.R.S., during any examination of PricewaterhouseCoopers for compliance with registration and list maintenance requirements, will limit its requests for client-specific information from the firm to authorized legal processes, such as summonses."
While that language may comfort clients that their tax secrets are safe unless the I.R.S. has already learned their identity, another part of the Pricewaterhouse statement sought to assure clients that the tax shelters it is selling now, and will market in the future, should withstand government demolition efforts.
Pricewaterhouse said that it had "risk management procedures in place to ensure that we can continue to pursue tax minimization strategies for our clients while complying fully with tax shelter registration, list maintenance and promoter requirements."
Ernst & Young said yesterday that it had complied with the summons it received early this year, was continuing to cooperate with the I.R.S. and was not being asked to pay a penalty. KPMG and Deloitte & Touche had no comment.
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