Maybe I'm just buying the company line, but the zealousness with which the IRS and the media are going after tax shelters these days seems to border on an old-fashioned witch hunt.

It’s no secret that as the tax code grew more and more complex over the past couple of decades (aided and abetted by our elected officials who have repeatedly and resoundingly opposed a simpler tax system), attorneys and accountants set to work to devise strategies to help clients avoid overpayment of taxes. Clients demanded it, and the market filled the need.

If you want to get picky, every $10 taxpayers give to a local charity and write off on their 1040s could be viewed as a tax shelter. Just because the publicized cases are on a grander scale doesn’t necessarily mean that every piece of tax shelter advice sold by KPMG or Ernst & Young or Skadden, Arps is a nefarious plot to cheat the government out of millions of dollars. Yes, many of these "schemes" were proprietary and considered trade secrets by those who sold them, but that doesn’t make them criminal or wrong. Sure, the possibility exists that some tax-avoidance advice sold by the Big Four firms or big law firms pushed the envelope, but it’s by no means a certainty and I’d bet that the government will have a tough time finding enough evidence of wrongdoing to make most cases stick.

It’s also telling that this week the IRS Chief Counsel’s Office issues a notice to its lawyers reminding them to maintain their ethical standards when pursuing tax shelter cases. An especially aggressive stance taken by some IRS attorneys in what was viewed as a tax shelter test case prompted the unusual notice.

Read between the lines and what the Chief Counsel’s Office found was that its attorneys interpreted the IRS’ public stance on cracking down on tax shelters to mean they had carte blanche to win the case – by any means necessary.

It’s time for the media and the IRS to calm down. Investigate the issues by all means, prosecute if the evidence warrants it, but let’s keep hysteria out of the mix.

 

 

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