• Deadline Approaches for IRS Settlement Initiative
  • January 19, 2006
  • Law Firm: Buckingham, Doolittle & Burroughs, LLP - Akron Office
  • Taxpayers have through January 23, 2006 to take part in a limited-time opportunity, offered by the IRS under a settlement initiative (the "Initiative"), in order to settle a number of broad-based tax-avoidance transactions considered abusive by the IRS. Of particular interest to tax-exempt organizations, the following transactions are covered by the Initiative:

    • Charitable contribution deductions for abusive conservation easements transfers.
    • Charitable contribution deductions for abusive donations of patents and other intellectual property.
    • Distributions by charitable remainder trusts attributable to abusive transactions involving appreciated assets.
    • Health care "double dip" reimbursements or loans.
    • Transportation and parking "double dip" reimbursements.

    The Initiative provides the following settlement terms:

    • The participant must concede all tax benefits and must pay 100% of taxes and interest owed.
    • Transaction costs (including promoter fees and fees for certain professional services) are generally allowed as an ordinary loss.
    • Specified percentages of the applicable maximum penalty will be assessed (a 5% penalty will be assessed for each of the above-mentioned transactions).
    • A participant must file an Election Form with the IRS on or before January 23, 2006.

    The Gulf Opportunity Zone Act of 2005, signed into law on December 21, 2005 (the "Act"), creates an additional incentive for individuals to participate in the Initiative. The Act imposes tougher rules regarding interest on unpaid tax liabilities for those that engaged in abusive tax shelters. The Act eliminates the previously permitted suspension of interest on unpaid tax liabilities for individuals who engaged in certain abusive tax-avoidance transactions. However, those individuals settling with the IRS under the Initiative do not lose the benefit of the interest suspension.