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Agreement by State Tax Agencies Targets Abusive Tax Shelters

34 state tax agencies sign information sharing agreement

March 04, 2004

BATON ROUGE — The Louisiana Department of Revenue is one of 34 state tax agencies that today signed a joint agreement to share information about abusive tax shelters and illegal transactions. New York City joined state tax agencies in signing the agreement, which is intended to strengthen the fight against the complex and growing problem of abusive and possibly illegal tax schemes that allow companies to evade millions of dollars in taxes.

“These abusive tax shelter schemes depend on dozens of layers of transactions, each one intended to bury the taxable income a little deeper,” Louisiana Revenue Secretary Cynthia Bridges points out. “The layers are then scattered among any number of states.” Bridges says the agreement signed today is intended to uncover these types of tax schemes by sharing knowledge and having a close working relationship between the states. More states are expected to sign the agreement in coming weeks.

The Federation of Tax Administrators (FTA), an association of tax agencies in all states, has facilitated information sharing activity for more than 10 years by developing and sponsoring the Uniform Exchange of Information Agreement. Each state’s statutes spells out the manner in which confidential data must be shared, stored, and disposed of. Bridges points out that the multi-state disclosure agreement is the written authorization required by each state’s statutes. She says today’s agreement specifies the types of work that will be done together by the states in order to combat abusive and illegal transactions.

Stephen M. Cordi, Deputy Comptroller for Maryland and president of FTA, says, “Abusive tax avoidance transactions have become a threat to the fiscal health of our states. It’s hard to overstate the size of the problem, or the difficulty of dealing with it in an efficient and systematic way.”

Bridges says the document signed today focuses on the type of abusive tax transaction information to be shared, confirms the role of joint promoter audits and coordinated enforcement actions, and encourages active exchanges of case listings and documents. She says members of the joint agreement are teaming up with each other to work smarter, catch more tax cheats, and collect the revenue they owe.

The new agreement complements one signed last September between the Internal Revenue Service and 45 states, the District of Columbia and New York City. Under the terms of the Abusive Tax Avoidance Transactions (ATAT) partnership, the federal and state governments agreed to coordinate their efforts and share data on illegal schemes intended to evade both federal and state taxes. However, there are abusive shelters and illegal transactions engineered to avoid state taxation only, particularly those involving the taxation of corporations, partnerships and pass-through entities. Today’s agreement provides a formal structure for the states to notify one another when they uncover one of these new schemes, share insights on new compliance thinking, and point out potentially fruitful directions for audit exploration.

The following tax agencies signed today’s joint agreement: Alabama, Arizona, Arkansas, California Franchise Tax Board, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Minnesota, Missouri, Nebraska, New Jersey, New Mexico, New York City, New York State, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington State, West Virginia, and Wisconsin.
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