Tax shelter disclosures.

• Author: Laffie, Lesli S.

According to IR-2002-22, midway through the 120-day "window of opportunity" for disclosing tax shelter transactions, the IRS has taken new steps to protect a taxpayer's right to assert attorney-client and work-product privileges when voluntarily disclosing shelter transactions.

On Dec. 21, 2001, the IRS started a 120-day window of opportunity for taxpayers to voluntarily disclose tax shelters and other questionable items reported on returns. According to the Service, 21 taxpayers thus far have disclosed more than $1 billion in claimed losses under this initiative.

The disclosure initiative is part of an IRS and Treasury effort to identify and curtail shelter activity. Information obtained through disclosures helps the IRS more readily identify unregistered shelter promoters and find other taxpayers who have not disclosed their shelter participation.

The IRS hopes to encourage taxpayers to disclose shelters and other questionable items potentially resulting in a tax underpayment, by waiving certain accuracy-related penalties. A taxpayer need not agree that the disclosed shelter or item resulted in an underpayment to avoid penalties.

Taxpayers who make disclosures must, among other things, describe the transaction's material facts, provide the names and addresses of the promoters who solicited their participation, provide on request copies of materials and documents related to the transaction or item, and sign a penalty-of-perjury statement as to the accuracy of the...