Pamela F. Olson, Treasury Assistant Secretary for Tax Policy, testified today before the Committee on Finance, U.S. Senate, on “abusive tax avoidance transactions”.

The Treasury Official’s testimony noted:

• The complexity of the Internal Revenue Code has created opportunities for abuse; abusive transactions are but the symptom of a larger problem.

• Treasury and the IRS have taken appropriate and aggressive actions to address the abusive transaction problem, more than in any period in recent memory.

• Treasury has made a number of legislative proposals, including new broader disclosure requirements and enhanced penalties.

Treasury has been promoting the need for transparency and certainty – that is, a web of rules, backed by meaningful penalties, that would reinforce each other by requiring information reporting to the IRS about potentially questionable transactions both by the taxpayers participating in the transactions and by promoters. In 2002 the Department issued “Enforcement Proposals for Abusive Tax Avoidance Transactions”, which described the legislative proposals and administrative actions needed to create this web.

Neither Treasury nor the IRS waited for the enactment of the legislative proposals, but moved forward with all of the administrative actions described in the Enforcement Proposals. *(See link below for a copy of the testimony, which includes a status report on the Proposals)*

Ms. Olson pointed out that these actions have been important steps in creating the transparency and certainty needed to combat abusive transactions. She said, *”The legislative proposals would complete and reinforce the web by simplifying the disclosure rules and imposing meaningful penalties on taxpayers and promoters who fail to provide the IRS with requested information. We commend the Committee for including these important proposals in pending legislation, and we look forward to continuing to work with you and Congress to enact these proposals into law.”*

The Treasury Department and the IRS have been working together to identify and evaluate potentially abusive transactions more quickly. Additionally, the IRS and the Justice Department have been vigorously pursuing promoters of abusive transactions.

**Abusive Tax Shelters**

Also testifying before the Senate Committee on Finance was Michael Brostek, Director, Tax Issues of the US General Accounting Office. He presented a statement (see link below) on work done by the GAO on abusive tax shelters, including:

· their nature and scope;

· the IRS’s strategy and enforcement mechanisms to combat them and the performance goals and measures the IRS uses to trace its major effort in that area;

· the decision-making process IRS used and the plans it has to devote more resources to addressing abusive shelters