Uh Oh! See, e.g.; Fish, Shoot, Barrel

Well the accountant said it was OK. We're in big trouble now, aren't you. AP (02.22.05):

"The Internal Revenue Service offered Tuesday to reduce penalties for dozens of corporations - many of them 'household names' - and their executives if they admit participating in an abusive tax shelter aimed at hiding income from stock options.

The nation's tax collectors have identified 42 corporations with executives who wrongly sheltered more than $700 million from taxation and suspect there could be considerably more.

'This involved many leading companies - household names - and some of their senior executives,' said IRS Commissioner Mark Everson. 'There are basic governance issues here.'

'These deals were done for the benefit of executives and often at the expense of shareholders and they involved ... many leading publicly traded companies,' he said." Emphasis supplied.

IRS Offers Settlement to Executives, Companies Avoiding Taxes on Stock Options

These good folk would have "to report their involvement in the shelter and participate in the settlement (and agree to) pay a 10 percent penalty, half the 20 percent penalty that could be applied." The article didn't say, but you have to figure there'd be interest payable too.

Companies signing on "face no penalties, but they must disclose the names of all executives who participated. The IRS intends to contact the senior management of corporations known to have used the shelter and recommend that the matter be reviewed by the board of (directors') audit committee." Emphasis supplied.

An individual who declines to participate is looking at additional tax, interest and the 20% penalty. A corporation not participating faces loss of the deductions, which means more tax, plus penalties and interest. In addition, there would be liability for "underreporting income, failing to pay employment and income taxes and issuing incorrect W-2 statements." Ouch. Not to say it's criminal liability, mind you.

The deadline is May 23. The clincher is that a paper trail exists. To make this work, the parties needed to file reports of the transfer and exercise of these things with the Securities and Exchange Commission. The SEC keeps very good records from what I understand.

This is gonna be one interesting list of people. It'd also be interesting to see a breakdown of participants by political party identification, eh?