IRS offers leniency to informer firms

The US’s Internal Revenue Service (IRS) has written to accountancy firms and other suppliers of tax shelters advising them that it will back off from criminal prosecutions if they fully declare their knowledge of questionable use of shelters, including which clients have used them.

Through the leniency offer, it is believed that the IRS hopes to recover billions of dollars of lost revenue from the illegal use of tax shelters. News of the IRS’s offer emerged on the same day that it disclosed the size of its tax gap, the difference between the amount of tax that should have been paid, and the amount actually paid on time. For the 2001 tax year, the tax gap amounted to $345bn.

IRS commissioner Mark W Everson said: ‘The magnitude of the tax gap highlights the critical role of enforcement in keeping our system of tax administration healthy.’

Everson explained that while helping taxpayers to better understand their obligations under the existing system would improve collection rates, the underlying problem of complexity could only be resolved by fundamental tax reform and simplification.