Bryan C. Skarlatos quoted in Law360 Tax Authority article entitled “New Exec Could Help IRS Efficiently Tamp Down Tax Schemes,” which explores how the “creation of a tax scheme promoter investigation coordinator role and a new fraud enforcement unit could help the cash-strapped agency more efficiently police tax schemes by conserving resources.”
Excerpts from the article are below:
The Internal Revenue Service’s creation of a tax scheme promoter investigation coordinator role and a new fraud enforcement unit could help the cash-strapped agency more efficiently police tax schemes by conserving resources.
In February, the IRS tapped Brendan O’Dell, a senior adviser in the Large Business and International Division, to temporarily serve as its promoter investigation coordinator while the agency searches for a permanent replacement. The role is meant to coordinate IRS enforcement efforts against promoters of abusive tax schemes. The agency also announced in early March that Damon Rowe, a former official in the Criminal Investigation Division, would lead a new fraud enforcement office in the Small Business and Self-Employed Division.
The moves come as the IRS has ramped up its policing of microcaptive insurance arrangements, cryptocurrency underreporting and syndicated conservation easements. Some of that work will go on even as the novel coronavirus pandemic has caused the agency to direct much of its workforce to telework and to suspend some enforcement efforts. In an April 14 memo, LB&I Commissioner Douglas O’Donnell wrote that the agency’s policing of syndicated conservation easements and microcaptive insurance campaigns would continue, albeit without in-person contact.
The agency has centralized and coordinated enforcement on specific issues before, and it can have beneficial effects for tax administration, according to tax professionals who spoke with Law360.
Bryan Skarlatos, a tax controversy attorney with Kostelanetz & Fink LLP, told Law360 he expects the promoter investigation chief to take an active role in centralizing and coordinating enforcement strategies, which could help the agency more quickly address tax scheme promoters and abusive transactions. It’s important for the agency to tamp down promoter cases as they arise and publicize the results to deter bad behavior by other promoters, Skarlatos said.
“The whole idea with promoter enforcement and promoter exams and promoter injunctions is that you have taxpayers who may be willing to take aggressive positions, especially if there’s a promoter involved,” he said. “And the more efficient way of dealing with that, instead of going after each taxpayer is to go after the promoter, again, from the top down.”
The agency’s settlement initiative for Son-of-Boss tax shelters — which were meant to curb taxpayers’ capital gains from selling an asset through purchases of long and short foreign currency options that were then transferred to a partnership and were deemed illegal in 2003 — provides some lessons that could guide the agency’s two recent moves, Skarlatos said.
Son-of-Boss tax shelters typically involved similarly situated taxpayers, so the agency successfully took a universal approach toward enforcement that didn’t make big distinctions between taxpayers, Skarlatos said. By contrast, when the agency cracked down on people hiding funds in overseas accounts, levels of culpability differed between taxpayers, as did their willingness to cooperate, he said. As a result, the agency’s approach to enforcement was more nuanced, he said.
“They recognized that they had to have different buckets of remedies for people with differing levels of culpability,” he said. “I think it’s important to try to do that when you’re dealing with promoter situations because there are so many different types of tax shelters that are being promoted, that the promoter should be treated differently depending on levels of culpability, and their willingness to come forward.”
