Abusive Tax Shelters

State Anti-Tax Shelter Rules

Practitioners and taxpayers must look beyond Federal tax disclosure rules and determine whether any additional filing or reporting obligations are imposed under applicable state law.

Illinois

Illinois was the second state, after California, to enact its own anti-tax shelter legislation.  For more details on Illinois' program, please see http://www.revenue.state.il.us/AbusiveTaxShelter.

New York

New York has recently enacted its own anti-tax shelter legislation.  Under this law, enacted in April of 2005, taxpayers must disclose reportable transactions, listed transactions, and "NY reportable transactions" (if targeted and identified by the New York Commissioner of Revenue) with their New York state income tax returns.  The penalty for failing to do so could be as much as $50,000. 

For promoters and peddlers of tax shelters or other "material advisors",  with nexus to New York, registration may be required (effective September 9, 2005).  The penalty for failing to do so ranges from $20,000 to $50,000 or 75% of gross income derived from the shelter.

For firms required to maintain investor lists in accordance with Section 6112, with nexus to New York, they must maintain a duplicate list for New York tax authorities.  A failure to provide an investor list to New York tax authorities upon request (within 20 days) could lead to a $10,000 per day penalty.

Similar statute of limitations rules as those enacted by the JOBS Act of 2004 have been put in place in New York.  Similar understatement penalty increases will exist with respect to reportable transactions and the aiding and assisting in the filing of fraudulent returns is increased to $5,000. 

A voluntary compliance program may be implemented by the Department of Taxation and Finance.  For more details, please see Pakenham & Mulvey, Tax Analysts Doc. 2005-9111, State Tax Notes Today, May 16, 2005. See also, http://www.tax.state.ny.us.