Posted on 02/02/2006 2:28:00 PM PST by calcowgirl
Abusive tax shelters cost state billions
But going after wealthy cheats would be blow to business growth, report says
SACRAMENTO — Cash-starved California collected hundreds of millions of dollars in a special, one-time attack on ever-growing illegal tax shelters used by the rich and corporations but could be raking in billions more, according to a state report released Wednesday.
The downside is that a long-term war on the complex, secretive tax strategies — marketed in the thousands by firms and baffling to tax auditors — could hurt business growth in California, which runs counter to the wishes of Gov. Arnold Schwarzenegger's administration.
Nationwide, government tax losses are estimated at more than $85 billion. The Internal Revenue Service and other states have joined California in attempting to crack down on the problem.
"We cannot ask California taxpayers to endure deeper budget cuts or to pay more for government services when so many wealthy tax cheats are not paying their fair share of taxes," said Dario Frommer, D-Glendale, who co-authored the legislation. The state's independent Legislative Analyst's Office reported that a recent three-month amnesty program for users of so-called abusive tax shelters, ordered by the legislation, resulted in payments from businesses and individuals of $1.4 billion.
The Franchise Tax Board figures that, after deducting money they would have collected anyway through audits, the state gained $700 million — at a time when stakeholders in various budget programs are fighting over tens of millions.
The effort was separate from a broad-based tax amnesty program adopted by lawmakers that ran from Feb. 1 to March 31 last year.
As part of the legislation that created the short amnesty program on abusive tax schemes, lawmakers also bolstered penalties and extended the time the state can prosecute cases.
So far, state tax officials have received about
50,000 disclosures of abusive tax shelters, along with 15,000 tax-shelter investor names. In addition, about 1,255 taxpayers have registered their participation in such schemes.
The abusive tax shelters stem primarily from firms and the wealthy taking advantage of situations not specifically identified in federal or state tax laws.
Though simple schemes began flourishing in the 1980s, they have grown into "legally complex, opaque and financially technical transactions, coupled with an aggressive interpretation of state and federal tax law," Legislative Analyst Elizabeth Hill said.
To be considered legal, they must have "economic substance or business purpose," Hill said.
But the abusive tax shelters "have no true economic purpose but exist solely for reason of tax avoidance," she said.
State tax officials said they usually involve such strategies as separation of income and expenses and use of pass-through entities such as partnerships. Some use third-party facilitators, employ offshore foreign accounts and involve short-term transactions.
They also center on allowing double benefits from a single-tax loss, such as a deduction from both personal and business-related income.
"The abusive tax shelters are now usually marketed by accounting, banking and consulting firms and frequently involve several entities teaming up in order to provide a tax shelter program, legal opinion regarding the transaction and other financing assistance," Hill said.
"They can be quite difficult to identify and often even harder to understand, even for trained tax auditors," she said.
Abusive Tax Shelters: Impact of Recent California Legislation, January 27, 2006
That's a shame. All those greedy people stealing the government's money.
This is the same argument that gets used to justify tolerance of employing illegal immigrants. I guess if you are making enough money, obeying the law ceases to matter.
Why are the rats surprised? When you drive taxes up, you simply increase the incentive to find, uh, *creative* means to pay less.
40% of illegal immigrants are paid off the books, the other 60% claim so many dependants that they don't pay taxes and they also collect the refund!
"the refund"
I don't know the name of it because I've never been able to collect it.
Our freeway system through Oxnard and Ventura has been in the process of major re-engineering the last 2 years, with still a year or so to go. Was supposed to be done beginning of the this year.
I was on a prime-time, mid-afternoon run today, sunny skies, past the main area of work. Not a single solitary Cal-trans worker there, no activity whatsoever... and 3 very HUGE cranes sitting idle by the side of the freeway. Completely idle, and same story a few hours earlier!!! And I see it just like that so often when driving by (these idle cranes probably costing us taxpayers at least $5K to $8K for the daily rental.)
Local newspaper did an article on it a couple months ago. When they asked the Cal-Trans guy who's in charge of the project why it was so far behind schedule, the guy had the nerve to say "gosh, these projects are never on time, everyone expects delays. We're doing all we can, it's just the way things go."
Can you just imagine saying that to your boss, when you tell him a deadline on a job for one of your best customers "just won't be on time. Sorry, boss!" Yeah that would work on my job, no problem.
Amazing! And I'll write my nice checks to the state and to the federal fovernment in April (after my employer has been deducting violently for the whole year anyway!), and those checks will pay for a couple of those huge cranes to sit idle for a couple days.
Recall in 1994 after the big Northridge earthquake, Cal-Trans hired an independent contractor to rebuild one of the main LA freeways that had been heavily damaged. They negotiated an incentive that for every day ahead of schedule that the contractor completed the work, the contractor would receive a $1 million bonus. It was scheduled to take 6-8 months. Surprise, the contractor completed it in less than 3 months and got a gigantic, multi-million dollar bonus. Proving of course that it can be done quickly and efficiently. There just is usually no incentive to do so.
I am so proud of our government agencies. They deserve more and more of my money, especially since I know they plan so carefully and spend my money so wisely.
Abusive Taxes Create Need for Tax Shelters
Keeping your own money aint stealing unless the robber is the gubbermint.
Yes, Mexican and Chinese immigrants can be quite skilled at scamming the system. The newbies are taught how by those already here and with experience.
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