Tax fraud charges are extremely serious and can result from a variety of situations, including underreporting income. Although most of the tax fraud stories that we have covered in previous posts revolve around the IRS crackdown on California taxpayers, the California Franchise Tax Board also routinely goes after taxpayers that participate in tax shelters. A program called the Voluntary Compliance Initiative 2 is coming to an end and may mark the last chance for many Orange County residents to avoid prosecution for participating in tax shelters, or "abusive tax avoidance transactions." These include offshore accounts similar to those covered by the IRS' OVDI program.
An abusive tax avoidance transaction (ATAT) is any tax avoidance plan that is defined as a tax shelter under the Internal Revenue Code, a gross misstatement in income, or one of several types of transactions delineated in the Internal Revenue Code. What is considered an ATAT can be complicated, which is why California taxpayers should consult with an experienced California tax law attorney to determine whether any of their large financial transactions may be considered an ATAT.
The Voluntary Compliance Initiative 2 is a program that allows California taxpayers with tax shelters to avoid criminal prosecution, the cost of litigation and certain penalties associated with tax shelters. The types of penalties that can be avoided by participating in the VCI 2 include fraud penalties, interest-based penalties, noneconomic substance transaction understatement penalties, and accuracy penalties. Penalty forgiveness is only available to those who participate in the VCI 2 and time is running out. The deadline for participating in the VCI 2 is Halloween.
Source: State of California Francise Tax Board, "Voluntary Compliance Initiative 2 (VCI 2)."