Sacramento, Calif. (April 14, 2004) -- The California Franchise Tax Board, the department that administers state personal income taxes and corporation taxes for the state, has subpoenaed two major insurance companies it says may have insured certain abusive tax shelters against government enforcement actions.
The FTB said the subpoenas demand the names and addresses of all California residents, persons with mailing addresses in California, and businesses doing business in California who were issued insurance policies or who sought to procure policies for tax liability, fiscal event, tax indemnity or any similar product from 1999 through 2002.
FTB spokeswoman Denise Azimi said the board has no idea how many potential clients may have purchased the insurance and said the board could not disclose which companies it subpoenaed. An Associated Press report noted that The Hartford and American International Group Inc. were named in a November report to the U.S. Senate Government Affairs investigations subcommittee on tax shelters sold by KPMG in the late 1990s and early 2000s. Neither company returned calls for comment before press time.
The subpoenas require the insurance companies to provide documents pertaining to the marketing, sales and issuance of the tax liability insurance policies, "particularly as they may relate to the proliferation of abusive tax shelters," the FTB said.
The announcement was made days before the board's relief program for taxpayers who've invested in abusive tax shelters ends. Under the Voluntary Compliance Initiative, which runs through April 15, taxpayers who used abusive tax shelters can amend their state tax returns before the state starts pursuing the harsher penalties authorized by legislation signed last year. The new anti-shelter law increases the time period to conduct audits, the registration requirements, and strengthens the penalties for both investing in and promoting illegal tax shelters.
The FTB says abusive tax shelters are estimated to cost the state from $600 million to more than $1 billion annually. To date, the voluntary compliance effort has collected $167 million.
-- Melissa Klein Aguilar
