Grassley, Baucus Praise IRS Effort on Abusive Tax Schemes Involving Stock Options
WASHINGTON – Today the Internal Revenue Service (IRS) announced a settlementinitiative for an abusive listed transaction used by executives and their companies to evade incomeand employment taxes related to compensatory stock options. Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, praised IRS efforts taking aggressive action to identify and shut down these tax shelters.
In the scheme, described in IRS Notice 2003-47, an executive delays paying income tax onstock options for up to thirty years, and also evades related employment taxes. The employersupports this abuse by misstating the executive’s W-2 income and through other actions. Thesettlement initiative encourages the involved parties to come forward to pay all income andemployment taxes, as well as applicable penalties. Participants in the transaction who fail to use theinitiative will be subject to more stringent terms and conditions. The initiative warns those who donot come forward that the IRS will use all available tools to find them.
“I appreciate the IRS’ effort to flush out the participants in this scheme,” Grassley said. “Theagency plays a key role in enforcing a zero tolerance approach to executive tax evasion. Executivesare like any other taxpayers. They have a duty to pay every penny they owe, not a penny more or apenny less. I urge all participants in this abusive arrangement to come forward and ’fess up whilethey have the chance.”
Baucus said, “I am pleased that the IRS is taking strong, innovative action to put an end tothe abusive manipulation of compensatory stock options by highly paid executives and their largecorporate employers to evade income taxes. Collusion between large corporations and well-paidexecutives to avoid paying their fair share is contemptible and must not be tolerated. And bycracking down on abuses like this, the IRS can contribute to balancing the budget.
“Participants in these transactions who plan to play the ‘audit lottery’, hoping never to befound, should not get too comfortable. Legislation I introduced and that was passed in the AmericanJobs Creation Act of 2004 keeps the statute of limitations open on a tax return with a listedtransaction until one year after the IRS receives information about it. In addition, there are substantialpenalties for failing to disclose a listed transaction.
“I support the IRS’ efforts to combat this and other abusive transactions. As Congress beginsits debate on the 2006 budget, I urge members to give the IRS the tools it needs to deter, detect andput a stop to this type of abusive behavior, which contributes to our ever growing tax gap andundermines the financial well being of our country and its citizens.”
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