NCPA - National Center for Policy Analysis

Amnesty For Improper Use Of Tax Shelters Reveals $16 Billion In Deductions

May 3, 2002

Based on information gained through a special four-month long amnesty program that encouraged taxpayers to come in from the cold, the Internal Revenue Service has concluded that wealthy taxpayers and large corporations in recent years took more than $16 billion in improper tax deductions.

IRS officials were taken aback by the size and scope of the disclosures they received.

  • The total of all the tax-shelter write-offs disclosed is likely much higher than $16 billion, officials said, because many taxpayers didn't list the amounts of their deductions.
  • Those who participated in the amnesty program were taking were taking deductions of $10 million to $300 million, the IRS said.
  • The amount of tax avoided is typically about one-third of the amount of the deduction, based on the taxpayer's applicable tax rate.
  • The results included 621 disclosures covering 947 tax returns.

The amnesty disclosures also reflected how tax-shelter hustlers have profited from peddling to wealthy individuals. Of the 577 taxpayers who have been counted so far in the amnesty program, at least 400 are individuals, and a number of partnerships that sent in disclosures involved individual taxpayers. The biggest category was a type of loss-generating scheme that manipulates the tax value of an asset to produce a fake loss.

Source: John D. McKinnon, "IRS Finds Improper Deductions Exceed $16 Billion," Wall Street Journal, May 3, 2002.


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