"Son of Boss" tax shelter abusers settle with IRS

The Reuters news agency reported last Monday that the IRS recovered over $3.7 billion in unpaid taxes, interest and penalties from users of the "Son of Boss" tax shelter.

The IRS found "Son of Boss" to be abusive in 2000 and further stated that it resulted in an estimated $6 billion in understatements of taxes that are due from 1,800 taxpayers. The majority of these individuals are wealthy corporate executives who were seeking to shelter huge gains from either business or stock sales during the the late 1990s market boom.

IRS Commissioner Mark Everson stated "We are still processing a number of the more complicated elections and expect the final tally to be near $4 billion."

So far, nearly 1,200 people have taken advantage of the settlement offer, while 750 taxpayers have passed on the settlement.

"Son of Boss" is a variant of another illegal tax shelter called the Bond and Options Sales Strategy, known as "Boss." This shelter used financial products, such as currency options and government securities, to create what the IRS called artificial tax losses that were used to offset large profits from asset sales.

Under the settlement terms, participants are required to concede their entire claimed tax loss, along with paying a 10 - 20 percent penalty.

In exchange exchange for doing so, the participants were allowed deductions of part of their out-of-pocket transaction costs, which generally ran between 6 to 7 percent of the claimed tax loss.

The IRS stated that there had been a strong turnout for a settlement offer to companies and executives who participated in a tax avoidance scheme involving the transfer of stock options or restricted stock to family controlled entities.

The IRS identified over 114 executives and 42 companies who participated in abusive transactions. Of these, nearly 80 individuals and 33 companies participated in the settlement.

The settlement required the executives to include 100 percent of their stock option compensation in income, pay interest, income and employment taxes, as well as a 10 percent penalty.

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