The recent Internal Revenue Service report indicating that it collected $3.2 billion from 1,165 taxpayers from the "Son of Boss" tax shelter scheme may just be the tip of the iceberg when it comes to filling government coffers. Hundreds of individuals and corporations are still fighting in court, while most likely thousands of other tax shelter participants who have yet to be investigated should consider stepping forward, rather than waiting to be targeted.While usually poker-faced, the IRS this time around seems publicly pleased with what it has achieved, and the odds are good that we will see more of these kinds of settlement offers to help clean up a number of other popular abusive tax shelters. As numerous stories reported, the IRS recently announced a settlement initiative for executives who transferred millions of dollars of compensatory stock options to trusts and other vehicles owned by family members and then claimed that the exercise of those options and sale of the stock was not taxable to them.

These settlement initiatives are important because there are thousands of tax shelter audits and investigations currently open, and the IRS simply does not have the manpower to take every one to court - hence, they'll need to devise creative ways to reduce the caseload.

Out of roughly 1,800 taxpayers who have been identified as participants in Son of Boss deals, two-thirds have now settled with the IRS, while the rest are still fighting. While individual settlement payments have reportedly been as high as $100 million, the typical payment has been almost $1 million. Nine states, including Illinois, have collected $23.5 million from amended state returns. Illinois' share was $1.6 million.

The next big issue: Whether the courts will endorse the IRS's view of Son of Boss and impose taxes, penalties and interest on the remaining participants.

The IRS's record of litigating 1990s tax shelters is about 50-50; they won some very high-profile cases, including ACM Partnership and Long Term Capital Management. But recent losses were equally important, including one involving a GE Capital partnership and another involving Black & Decker.

Because most shelter cases are very complex, there's some concern that courts, particularly "generalist" tribunals such as the U.S. District Courts, don't have the deep knowledge of tax and economics necessary to analyze these transactions.

The fallout from shelter business on professional services firms has also been significant. Most of the then-Big Five accounting firms had substantial business in this area - with a few receiving their share of bad press for their participation. They are now fighting lawsuits all over the country charging them with fraud, malpractice, etc. One sizeable law firm was involved in hundreds of tax shelter transactions, and the fallout came close to destroying it. A hefty settlement was reached recently, and reports indicate that the firm lost roughly one third of its lawyers as the situation was unfolding.

What do taxpayers do if they participated in one of these kinds of deals, but are not currently under audit? They should consult their tax advisor - preferably one with substantial audit experience who isn't tainted by having hawked the shelter in the first place. And if their financial circumstances permit, it may make sense to file one or more amended returns eschewing the illusory shelter losses, and to pay the tax that would have been due, before the IRS knocks on their door. Otherwise, they may end up selling their villa or yacht - as happened to some Son of Boss participants - to come up with the money the IRS will eventually request from them.

Barbara Flom is a principal in the corporate, securities and tax group of the Chicago-based law firm Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz Ltd.

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