Revised Corporate Tax Shelter Discussion Draft
February 14, 2001

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VII. No Penalty on Tax-Indifferent Parties

We previously have recommended and continue to believe that, if a tax shelter penalty is imposed on the taxpayer, the other parties who participate in the transaction should have “some skin in the game” and, therefore, should be subject to separate penalties (and should be granted separate appellate rights to assure them due process). In the case of a tax-indifferent party, the “penalty” for participating in an abusive tax shelter device could take the form of simply being subject to tax on the income allocated to it as part of the shelter scheme. The Draft does not penalize or create any disincentive to participation in an abusive tax shelter device by a tax indifferent party. We reiterate our prior recommendation that such a penalty or other disincentive be included in tax shelter legislation.

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