The penalties for getting caught in an abusive tax shelter are severe.
Specific Schemes
The IRS has targeted specific transactions, including:
- Lease-In/Lease-Out (LILO): Deals often involving foreign municipalities to shift tax benefits.
- Basis Shifting: Using partnerships to artificially inflate the tax basis of assets.
Consequences
Beyond paying the back taxes and interest, corporations face a 20% to 40% accuracy-related penalty. Executives can also face criminal prosecution if fraud is involved. The "good faith" defense is becoming harder to claim for these pre-packaged shelters.