Taxman catches up with US executives

Some 80 US executives and 33 companies have admitted to using abusive tax
shelter schemes and agreed to pay the Internal Revenue Service (IRS) taxes on
$500m (£285m) in under-reported income.

The IRS reported yesterday that 80 out of 114 executive it had pursued
admitted to using the tax shelters – whereby stock options were transferred to
family-controlled partnerships – and had agreed to pay tax on the $500m total as
well as a 10 per cent penalty.

A remaining 19 executives who under-reported $400m in income have refused to
pay up, and are now facing an audit or criminal investigation.

According to the Financial Times, the IRS’s decision earlier this year to
inform individual executives and their companies about the abusive shelters
investigation helped force the relatively high rate of compliance.

Of 42 companies engaged in the tax shelter, 33 agreed to settle, four had
passed the statute of limitations for audits, and five did not participate in
the settlement.

The IRS commissioner Mark Everson was quoted as saying the ‘vast majority’ of
executives who had been contacted by the IRS had agreed to the ‘tough terms’ of
the settlement, which reflected the US’s higher corporate governance standards.

He said he thought the executives involved in the shelters were sophisticated
enough to realise that they were involved in an abusive scheme, although they
were often advised in it by auditors and taxation lawyers

The Public Company Accounting Oversight Board, the accounting watchdog, is
reportedly working towards a ban on accounting firms offering tax advice to
executives with an oversight role on financial reporting.

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