Tax Shelters Voluntary Compliance Program
- What is an "abusive tax shelter?"
- How do I know if I'm involved in an abusive tax shelter?
- What benefits do I receive if I participate in the Tax Shelters Voluntary Compliance Program?
- Who can participate?
- Will I have to waive my appeal rights?
- How do I participate?
- Didn't Wisconsin already do this?
- What is an "abusive tax shelter?"
An abusive tax shelter (also known as a "tax avoidance transaction") is any transaction, plan or arrangement devised for the principal purpose of avoiding federal or Wisconsin taxes. An abusive tax shelter includes, but is not limited to:
- A "listed transaction." A listed transaction is a transaction that is the same as or substantially similar to one the IRS has determined to be an abusive tax shelter by published guidance. The IRS maintains a list of these transactions on its web site at www.irs.gov/businesses/corporations, in the section for "Abusive Tax Shelters."
- A transaction devised for the principal purpose of avoiding Wisconsin income or franchise taxes without providing a similar benefit for federal income tax purposes.
- How do I know if I'm involved in an abusive tax shelter?
Following is a list of questions taxpayers may ask themselves to determine if they've used an abusive tax shelter transaction:
- Is the tax loss, deduction, or credit a significant amount compared to your investment, and is it used to offset income from unrelated transactions?
- Is your economic and out-of-pocket loss minimal compared to the tax benefits realized?
- Does the transaction lack a business purpose other than reduction of taxes?
- Does the transaction lack a reasonable possibility of making a profit?
- Are multiple entities involved to unnecessarily complicate the transaction?
- Does the tax position ignore the true intent of relevant statutes and regulations?
- Does the transaction produce a tax result that seems too good to be true?
If you answered "yes" to any of the above questions, you are potentially involved in an abusive tax shelter.
- What benefits do I receive if I participate in the Tax Shelters Voluntary Compliance Program?
If you participate in the program, the Department of Revenue will waive any civil or criminal penalties that would otherwise apply, including the new penalties enacted by 2007 Wisconsin Act 20 relating to disclosing reportable transactions. These penalties may otherwise include one or more of the following:
- $30,000 for failure to disclose a listed transaction.
- 30% of a tax understatement attributable to a listed or reportable transaction, plus an additional penalty equal to 100% of the interest assessed on the tax computed on the understatement.
- 25% of a tax understatement attributable to negligently filing an incorrect return or failing to file a return.
- 100% of a tax understatement attributable to intent to defeat or evade taxes.
- $10,000 for filing a false return or willful failure to file a return.
Additionally, if you voluntarily disclose an abusive tax shelter that is eligible for this program and is also a reportable transaction, but you wait until after May 31, 2008 to disclose it, you may be subject to a penalty of 20% of any tax understatement attributable to the reportable transaction, plus an additional penalty equal to 50% of the interest assessed on the tax computed on the understatement.
- Who can participate?
Any individual, corporation, S corporation, LLC, partnership, or trust which used a tax shelter to:
- reduce the taxpayer's Wisconsin income or franchise tax liability for a taxable year beginning before January 1, 2007,
- increase the taxpayer's Wisconsin loss or credit carryforward for a taxable year beginning before January 1, 2007,
- cause the taxpayer not to file Wisconsin income or franchise tax returns which would otherwise be required for a taxable year beginning before January 1, 2007, or
- for a pass-through entity, to do any of the above with respect to a partner, member, shareholder, or beneficiary of the pass-through entity.
- Will I have to waive my appeal rights?
In general, yes, but only with respect to the tax shelter transaction for which you are participating in this program. However, if the IRS grants an appeal or claim for refund with respect to the tax shelter transaction, Wisconsin will allow an appeal or claim for refund that corresponds to the one allowed by the IRS.
- How do I participate?
- Complete an amended (or original) Wisconsin return for each year in which the tax avoidance transaction reduced Wisconsin income or franchise tax liability or caused nonfiling of Wisconsin returns.
- If the tax avoidance transaction required Form 8886 (Reportable Transaction Disclosure Statement) for federal income tax purposes, submit a copy of federal Form 8886 and provide details of the transaction. If the tax avoidance transaction did not require Form 8886 for federal income tax purposes, provide details of the transaction.
- Complete Wisconsin Form WI-VCP.
- Enclose a check for full payment of the unpaid tax and interest.
- Send the above items to: Wisconsin Department of Revenue, Tax Shelters Program, P.O. Box 8958, Madison, WI 53708-8958.
- Didn't Wisconsin already do this?
Wisconsin participated in the Multistate Tax Commission's (MTC's) Multistate Tax Shelter Voluntary Compliance Initiative from May 1, 2007 through October 1, 2007. Through that program, Wisconsin offered to waive all penalties otherwise attributable to tax underpayments resulting from a tax shelter. However, the MTC's program was before Wisconsin enacted the new reportable transaction disclosure requirements. Wisconsin's current program offers taxpayers an additional opportunity to review their past returns and disclose any abusive tax shelters that are "reportable transactions" before the additional penalties for failure to disclose those transactions take effect.
FOR MORE INFORMATION PLEASE CONTACT:
WISCONSIN DEPARTMENT OF REVENUE
Tax Shelters Program
P.O. Box 8958
Madison, WI 53708-8958
Phone: (608) 266-3969
Fax: (608) 267-0834
E-Mail Additional Questions
Last updated January 15, 2008