The government has never been fond of abusive tax shelters and to combat them has an array of penalty provisions. Abusive tax shelters are transactions done to improve tax benefits without a major change in income or assets. Their only real purpose is to reduce tax benefits and usually includes trusts, foreign investors, S-corporations or LLCs. In a recent case, Reiserer v. U.S., 99 AFTR2d 2007-1438 (CA-9, 2007), the court held that the IRS could assess penalties under Code Section 6700 (100% of the gross income from the activity) and Section 6701 against the estate of a deceased promoter of abusive tax shelters involving offshore employee leasing. If the penalties were penal in nature, they would not have survived the promoter's death. Because the court held they were not penal in structure, the penalties survived, and his estate was liable. The IRS had weighed in against these transactions in Notice 2003-22, 2003-1 CB 851.
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