Bloomberg Law Quotes Carolyn Schenck on Promoter Enforcement

For Jeff Socha, illegal tax shelters are just a hazard of the job.

A financial adviser catering to entrepreneurs and other wealthy people, Socha is keyed into tax strategies that could help them save money. But he’s constantly dodging arrangements that are either bad deals or flat-out sketchy.

. . .

The listed transaction reporting requirements intend to help with promoter enforcement, said Carolyn Schenck, a Caplin & Drysdale Member who served as the national fraud counsel at the IRS until last year. Other tools include special reporting rules for material advisers and audits or injunctions focused specifically on promoters. But those cases are complex, and IRS criminal investigations historically focus on areas that have the highest deterrent impact.

“Our tax system is designed to assess taxpayers first, then investigate third parties separately if needed, after the fact,” Schenck said. “Not every outside influence is clearly a promoter in an abusive scheme-sense.”

Promoters can survive even when their clients are audited or targeted for prosecution. A constant across the industry holds that the next scheme is just around the corner.

“Promoters thrive in the gaps between civil enforcement and criminal investigation,” Schenck said. “When those gaps widen, compliance erodes.”

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