Washington (May 7, 2004) -- As part of its efforts to curb tax shelters, the Internal Revenue Service is urging taxpayers who invested in an abusive tax shelter known as "Son of BOSS" to accept a settlement offer -- or face more severe consequences later.

Son of BOSS, an offshoot of an earlier shelter called BOSS (bond and option sales strategy), was aggressively marketed by law firms, accounting firms and investment banks in the late 1990s and 2000 to companies and high-net-worth individuals, according to the IRS.

Under the agreement being offered until June 21, eligible taxpayers must concede 100 percent of the claimed tax losses, pay all applicable interest and accept a penalty unless they had previously disclosed their participation in the transaction, the IRS said. Taxpayers can deduct as a loss their out-of-pocket transaction costs -- typically promoter and professional fees.

Under the program's penalty structure, taxpayers who voluntarily disclosed the Son of BOSS transaction under Announcement 2002-2 pay no penalty. Taxpayers who didn't come forward under that announcement will pay a mandatory penalty of either 10 percent if it's their first and only abusive tax shelter investment, or 20 percent for those who've participated in other abusive transactions listed by the IRS.

The IRS warned that taxpayers who don't participate in the settlement will receive a notice of deficiency disallowing all losses and out-of-pocket costs, and will be assessed the maximum applicable penalties.

"We are taking this unusual step because of the severity of the abuse," IRS Commissioner Mark Everson said. "Anyone who doesn't come forward can still take the IRS to court. In such an instance, the government will vigorously pursue the full tax due, applicable interest and the maximum penalty."

"Taxpayers should not expect to settle court cases on terms more favorable than those offered in the IRS settlement initiative," added IRS chief counsel Donald Korb. "The IRS will work closely with the Justice Department on Son of BOSS cases."

-- WebCPA staff

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