State joins IRS in new crackdown on evaders

By Mary Dalrymple
Associated Press

WASHINGTON — The Internal Revenue Service announced yesterday that it has entered a new partnership with state tax administrators to crack down on tax evasion.

Under agreements with 40 states including Hawai'i and the District of Columbia, the IRS will share information about abusive tax avoidance transactions and who uses them. The IRS expects more states to join the partnership.

Corporations and high-income individuals will be the first targets, along with those who promote the schemes.

"We're closing in on you from all sides," IRS Commissioner Mark Everson said. "The states and the federal government are now fighting as allies."

Everson said the agency sees evidence that there are fewer tax shelters marketed and used by the nation's largest corporations and accounting firms. Scams aimed at individuals and smaller businesses continue to grow, including a few that encourage taxpayers to disappear from the tax system.

"This is not a problem that we think is going away," he said.

The information-sharing arrangement comes as cash-strapped states examine their budgets and look for new sources of revenue. State tax administrators estimate that they will recoup 20 cents for every dollar collected by the IRS.

In Hawai'i, corporate income tax collections were down nearly 82 percent, or $37.2 million to $8.3 million, during fiscal year 2003.

The drop was blamed on tax credits and the use of tax shelters, some of which are being scrutinized by the state's Department of Taxation.

IRS officials guessed there may be billions in taxes that go uncollected because of scams.

"We're not in this just for a short-term revenue gain," said Stephen M. Cordi, president of the Federation of Tax Administrators and deputy comptroller of Maryland.

"If we do not aggressively partner with the IRS to shut down these abusive schemes ... we lose the trust of our compliant taxpayers."

Under the agreement, the federal and state governments will share information when an evasion is detected or identified instead of waiting until they finish an audit.

Advertiser staff writer Sean Hao contributed the Hawai'i information in this article.