Corporate tax shelters

In this chapter, we introduce a new approach to tax enforcement against corporate tax shelters in the United States. We argue that the "reportable transaction" rules, first introduced in response to the corporate tax shelter boom of the late 1990s, face significant limitations as the government’s primary response to abusive corporate tax shelters today. As we argue, these rules are reactive in that they often apply to emerging tax avoidance schemes rather than as a means of preempting abusive corporate tax planning. In addition, these rules may fail to deliver information that the IRS can use to detect corporate tax abuse, including due to manipulation of the disclosed information by the taxpayer. Finally, the IRS is likely to face litigation hurdles in designating “listed transactions” and “transactions of interest” through preemptive taxpayer challenges under the Administrative Procedure Act. In response, we propose three policy reforms that would mandate preemptive disclosure of broader categories of information related to tax planning from corporate taxpayers, in addition to the specific information that the reportable transaction rules currently target.