SON OF BOSS SETTLEMENT INITIATIVE


J

John H. Fisher

FS-2004-13, May 2004

SON OF BOSS SETTLEMENT INITIATIVE

The Internal Revenue Service today announced a settlement initiative for
Son of Boss investors through June 21.

The Service concluded in Announcement 2004-46 that for efficient tax
administrative reasons, it will offer Son of Boss investors an opportunity
to quickly close out their tax disputes. Under its terms, eligible
taxpayers must concede 100 percent of the claimed artificial tax losses
and in some cases accept the imposition of a penalty. Participating
taxpayers will be allowed to treat as a loss their out-of-pocket
transaction costs, typically promoter and professional fees.

The settlement initiative establishes a three-tiered penalty structure.

- Taxpayers will pay no penalty if they voluntarily disclosed the Son of
Boss transaction under Announcement 2002-2.
- For taxpayers who did not come forward under that Announcement, the
mandatory penalty will be:
- 10 percent for those whose Son of Boss investment reflects the
first and only abusive tax shelter investment.
- 20 percent for those who have participated in other abusive
transactions listed by the IRS.

As a part of the closing procedures, taxpayers will be required to provide
the IRS with a statement, under penalties of perjury, identifying their
participation, if any, in other listed transactions.

Promoters and others who received fees in connection with the Son of Boss
transaction and also invested in Son of Boss deals will not be eligible.
Also ineligible will be taxpayers in cases in which the Service has
informed the taxpayer (or the Tax Matters Partner of a TEFRA partnership)
that the Service has designated, or is considering designating, the Son of
Boss transaction for litigation in accordance with Chief Counsel
procedures for designating cases for litigation.

Additional details on the Son of Boss initiative include:

Election Process
Son of Boss investors must follow a three-step process to participate in
the settlement initiative:

- Participation Election. A written election must be made no later than
June 21, 2004, and submitted under penalties of perjury. There will be no
extensions of this time and the Announcement spells out the five items of
information that must be included in the Notice of Election.
- Additional Information-60 Days. Taxpayers eligible to participate will
be notified and given 60 days to provide additional information and
documentation, again under penalties of perjury. The requested information
and documentation will allow the Service to calculate the additional
taxes, interest and any penalties due as a result of the taxpayer's
participation in the initiative. The Service may grant additional time for
this process if good cause is shown.
- Closing Agreement and Payment-30 Days. After receipt of the taxpayer's
requested information and documentation, the Service will prepare a
closing agreement under ' 7121 of the Code reflecting the terms of the
settlement, which must be signed and submitted within 30 days. The Service
may extend this period for good cause. The closing agreement will provide
that: (a) providing inaccurate information about tax benefits claimed from
other listed transactions, including other Son of Boss transactions, is
misrepresentation of a material fact within the meaning of ' 7121(b) of
the Code, and (b) the taxpayer waives all defenses to the assessment and
collection of the tax liabilities determined under this initiative,
including the applicable penalty and interest.

The Service expects participants to make full payment of taxes, interest
and any penalties at the time of execution of the closing agreement. Those
who don't make full payment then will be required to provide detailed and
complete financial statements and conclude other financial arrangements
acceptable to the Service prior to the execution of the closing agreement.
Failure to conclude acceptable financial arrangements will render the
investor ineligible to participate.

Dispute Resolution Procedures

Those not participating will receive a Notice of Deficiency or Notice of
Final Partnership Administrative Adjustment, as appropriate, (a)
disallowing all tax benefits and attributes claimed from the Son of Boss
transaction, including out-of-pocket costs and fees, and (b) assessing
appropriate maximum penalties, including those under '6662 or '6663 of the
Code.

Under the IRS Procedural Rules applicable to the administrative appeals
process (26 C.F.R. ' 601.106(f)(2)), the IRS has concluded that to achieve
uniformity and enhance overall compliance with the tax laws, Appeals
consideration will not be available to Son of Boss investors.

Appeals' role is to independently review the litigation hazards in a
particular case and then attempt to settle the case in a fair and
impartial manner. "We viewed Son of Boss transactions as clearly abusive
and, for sound administrative reasons, concluded that the resolution terms
should be set with bright-line clarity to facilitate a quick resolution,"
IRS Commissioner Mark W. Everson said.

Potential related criminal investigations of Son of Boss transactions also
made conventional Appeals case review problematic.

"The approach that we followed here should in no way be viewed as having
set a precedent for subsequent resolution strategies," Everson cautioned.

Statute of Limitation Issues
In connection with Son of Boss transactions, tax advisers often developed
complex legal structures and tax return formats designed to obscure
discovery of the transaction by the IRS. The IRS will carefully scrutinize
Son of Boss tax returns to determine the potential application of the
6-year statute of limitations provision for substantial omission of
income.

Particular attention will be paid to the structure used by taxpayers to
implement the Son of Boss transaction and whether the return on its face
provides a reasonable basis for the IRS to identify the existence of the
Son of Boss transaction, or the reporting involved the concealment of
transactions through, for example, the use of grantor trusts to report
only a net gain or loss.

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
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