Here's a huge win for business taxpayers. Well, it's a win for those involved in Son of Boss tax shelters.
Generally, the IRS can't audit your company for anything over three years back. Now, after the recent Supreme Court ruling, the IRS 3-year rule also applies to Son of Boss tax shelters.
Son of Boss tax shelters have been a major source of IRS tax revenue. First, though, do you know what exactly a tax shelter is?
of "tax shelter" is vague, at best. It refers to a scheme to avoid paying
taxes. The IRS has been hunting tax shelters down in an attempt to collect
unpaid taxes for years and as a result, has netted billions of dollars in doing
Tax shelters could involve the use of nonprofits, offshore accounts or even employee plans. A tax shelter is more than a creative plan to lessen your tax burden. It's a straight up scheme to avoid taxes.
It's tax evasion.
Let's move on to Son
of Boss tax shelters.
Son of Boss shelters involved the inflation of the
basis (i.e. the price at which you acquired the property). The
effect that an inflation in basis was such that when you sold the property, your
capital gain on that property would be lower.
Here's an example: Imagine you purchased a house at $200,000 and sold it at $500,000, you would have $300,000 in gain, right? But now, what if you could fudge the numbers, to show that you actually bought the house at $400,000? You would only have $100,000 to declare as gain.
Pretty crafty, eh?
Well, the IRS wasn't as impressed. In the most recent case, they hit up a company started by two entrepreneurs. The company was part of a Son of Boss scheme. But the IRS tried to audit the company six years later, citing some verbiage in the tax laws.
Normally, the IRS only has three years. But here, the IRS claimed that they had an exception.
The Supreme Court, however, didn't buy it. They held that the IRS only has three years to crack down on Son of Boss tax shelters.
Nevertheless, this case points out an interesting issue for savvy entrepreneurs. Be wary of any creative tax schemes imposed by your tax advisers. If it seems fishy, think twice or get a second opinion. It's okay to try to work out creative solutions to minimize your taxes, but be careful not to walk into a tax evasion scheme.