IRS Offers Settlements for Stock Option Scheme
The federal government offers settlements for executives who participated
in a stock option scheme that involved 42 corporations, more than $700
million, and a plot to avoid income taxes
By Stanley H. Block
The allegation that the
United States government does not actively pursue the wealthiest of
American taxpayers is untrue.
Want proof?
Take the Internal Revenue
Service’s action last month. On February 17, the IRS announced a
settlement initiative for executives and companies that participated in an
abusive tax-avoidance transaction. In these transactions, executive — with
the willful help of their corporations — transferred stock options to
family-controlled entities in an effort to avoid paying income taxes on
the options.
So far, the IRS has
identified dozens of executives, 42 corporations, and more than $700
million in stock options related to this scheme.
Now, the federal government
is offering one chance: come clean now or pay the price.
“These transactions raise
questions not only about compliance with the tax laws, but also, in some
instances, about corporate governance and auditor independence,” said IRS
Commissioner Mark W. Everson in a statement. “These deals were done for
the personal benefit of executives, often at the expense of shareholders.”
Corporate executives who
engaged in these transactions have until May 23 to accept a settlement
offer to resolve their tax issues. The offer also extends to corporations
that issued the options to executives and directors as part of their
compensation. Under the terms of the offer, executives must report 100
percent of the income and pay a 10 percent fine.
Those executives who do not
come forward will face the standard 20 percent fine and possible criminal
penalties, according to the IRS.
Financial services firms
marketed this abusive transaction in the late ’90s and early 2000s.
Now, the IRS, in another
example of its aggressive policing of tax law in the United States, has
targeted those who participated in the scheme. It shouldn’t come as a
surprise to those who monitor the tax-collecting agency.
Last year, the IRS audited
more than 1 million taxpayers, increasing by 40 percent the number of
audits given to people who made more than $100,000. In addition, criminal
investigations in 2004 jumped 20 percent over the previous year.
This settlement offer for
executives participating in tax-avoiding transaction is just another
example of the IRS’s zealous enforcement.
It also debunks the myth that
the federal government does not pursue America’s wealthiest taxpayer.
Everson has made it clear with these actions and others that America’s
privileged few aren’t above the law.
“We want to give executives
and corporations a chance to clean up past transactions,” Everson said
threateningly.
Stanley H. Block is a Maryland State Tax
Attorney and a member of the American Society of IRS Problem Solvers. You
can contact him at 410-727-6006 to obtain a free subscription to his newsletter
titled The IRS Times & Inquirer.
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