IRS Gets Solid Response to Tax Shelter Settlement Offer

July 13, 2005 ( - Federal tax officials say they have received a "strong turnout" for their offer to settle up with companies that participated in an illegal tax shelter.

>The Internal Revenue Service (IRS) said in a news release that of the 124 executives initially targeted for possible settlement as part of the agency’s crackdown on the abusive stock option transactions, 10 were determined not to have participated in the abusive transaction (See  IRS: Settlement Window for Stock Scam Open until late May ).

>Of the remaining 114, 80 executives decided to participate while 15 other executives reached agreement through the audit process. Nineteen individuals did not elect to participate. Those who declined to participate in the settlement offer are either under audit or had other pending criminal tax investigations, the IRS said.

>Those executives who elected to participate or otherwise resolved their tax liability have $500 million in potential income adjustments. The IRS estimates that the 19 executives who did not participate in the settlement offer underreported their income by more than $400 million.

>By transferring stock options to family controlled partnerships, the IRS charged that executives tried to defer tax on stock option income for up to 30 years. The settlement required executives to include 100% of their stock option compensation in income, pay applicable interest, income and employment taxes and pay a 10% penalty.

“When we announced this initiative in February, we wanted to give corporations and executives a chance to turn the page and make things right,” said IRS Commissioner Mark Everson. “The vast majority of those involved chose to come forward under the settlement’s tough terms. The response reflects higher standards for corporate governance and less tolerance for abusive tax transactions.”

>The IRS also released the latest figures on its Son of Boss settlement offer, a 2004 initiative to resolve another abusive tax shelter transaction. To date more than 1,200 electing taxpayers have qualified to participate in this offer. The taxes, interest and penalties collected from this group has now topped $3.7 billion.

>More about the stock option settlement program is  here .