It seems like the IRS is attacking tax shelters on all fronts. First you saw the IRS go after a number of the Big Four and this past week you saw the Service issue rulings and regulations curtailing abusive tax shelters involving the claiming of the foreign tax credit and 412(l) plans funded with specially designed life insurance.
The IRS is starting to react faster than in the past. I see it as a kind of let's try and nip it in the bud, rather than waiting to fight it out in the courts for a favorable decision.
Interestingly, a number of accountants are applauding the IRS's efforts. I believe the encouragement is, in part, because these tax practitioners feel the aggressive tax shelters are hurting their reputation. Another component is their continuing experience with the impact of Sarbanes-Oxley. Accounting firms have given up auditing of public companies as a result of the legislation, while others have geared themselves up to do Section 404 compliance internal control work for those companies.
There's no question that many firms were forced to rethink their strategic business plans. Some firms even went after Andersen partners and staff member with a vengeance, filling needs that were unmet for years or instantly creating new niches. Everything wasn't negative but firms became more aware they could be impacted without any causal action on their part.
This new awareness means some accountants are becoming proactively involved earlier in issues that might affect the profession. I expect tax shelter is one of those. I also believe there will be a louder voice by those in and representing the profession and this will include a number of tax practitioners working with the IRS to identify and combat abusive tax shelters.
So besides the IRS now acting faster, you have many in the profession taking the initiative. I have the strange feeling in the aftermath of Andersen/Enron, that there may be significant changes for the profession because of the regulatory reaction to abusive tax shelters. The firms that will benefit are those that are nimble, quick, and willing to change their strategic business direction thereby seizing opportunities.
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