14 Feb 06    I.R.S. Offers Deal to Firms Promoting Tax Shelters, NYT, LYNNLEY BROWNING
17 Jan 06    What Is the I.R.S. Trying to Hide?, NYT, Editorial
11 Jan 06    IRS Froze Refunds, Study Says, Washington Post, Albert B. Crenshaw
11 Jan 06    I.R.S. Move Said to Hurt the Poor, NYT, DAVID CAY JOHNSTON
10 Jan 06    I.R.S. Is Sued on Failure to Release Tax Data, NYT, DAVID CAY JOHNSTON
11 Dec 03    At I.R.S., a Systems Update Gone Awry, NYT, DAVID CAY JOHNSTON
20 June 03    I.R.S. Seeks Names of Wealthy Clients Who Used Tax Shelters, NYT, DAVID CAY JOHNSTON

he Internal Revenue Service ordered one of the nation's biggest law firms, Jenkens & Gilchrist, yesterday to disclose the names of 600 wealthy clients who bought tax shelters that it considers abusive. The law firm said it would not comply.

The shelters allowed taxpayers to fabricate a minimum of $2.4 billion of deductions to reduce their taxable profits, said Cynthia J. Mattson, a senior lawyer at the I.R.S., adding that the figure is likely to be many times that. The tax agency is sending a strong signal to professionals and the wealthy that it will track down tax abusers. In other cases, it is seeking the names of people who bought tax shelters sold by the accounting firms of KPMG and BDO Seidman. Like the law firm, they are fighting disclosure. Two other big accounting firms, PricewaterhouseCoopers and Ernst & Young, reached agreements with the I.R.S. last year when it sought lists of tax shelter clients.

The I.R.S. won approval yesterday from a federal judge in Chicago to issue its summons to Jenkens & Gilchrist, which is based in Dallas. The law firm took in at least $72 million in fees for its tax shelters and probably much more, according to documents filed by the Justice Department.

The I.R.S. commissioner, Mark W. Everson, said that "attorneys and accountants should be pillars of our system of voluntary compliance, not the architects of its circumvention."

"Where necessary," he added, "we will vigorously pursue those who in fact act as promoters of abusive transactions."

The order does not preclude criminal prosecutions of the taxpayers who bought the shelters or the lawyers and accountants who devised and sold them, said Eileen J. O'Connor, chief of the Justice Department's tax division, and Pamela Olson, the Treasury's tax policy chief.

Jenkens & Gilchrist declined to answer questions, but said in a statement that it would not identify any clients whose names were sought in the summons, signed by Judge John W. Darrah of Federal District Court in Chicago.

The firm maintains that it did not sell tax shelters and merely gave advice.

"Americans have a right to consult with an attorney in confidence, and that only the clients themselves can waive that right," Jenkens said, adding that it expected the courts to uphold its position.

The summons does not apply broadly to people who sought advice, but only to those who bought tax shelters, said B. John Williams, chief counsel of the I.R.S.

The government has not used this particular type of summons before, Mr. Williams said, adding that it was aimed at blunting delaying tactics by the law firm. If the law firm fails to release the names within six months, then the normal time when the I.R.S. can take enforcement action becomes open-ended.

Jenkens & Gilchrist hired its own lawyer to review files in its Chicago office to determine if any clients bought tax shelters that the I.R.S. has deemed abusive. The Treasury Department requires promoters of such shelters, known as listed transactions, to keep records of the buyers and to turn them over when requested. The summons seeks in part to determine if Jenkens & Gilchrist flouted those regulations.

The lawyer who reviewed the firm's files, Daniel T. Hartnett, found that at least 607 of 700 clients whose files he examined bought tax shelters that were listed transactions, according to an affidavit by James M. Johnson, the I.R.S. revenue agent in the case. Mr. Hartnett declined to comment.

Several clients are already suing Jenkens & Gilchrist for selling what they say were worthless tax shelters. More lawsuits are expected.

Three Indiana men and a woman who sold their business at a $70 million profit assert in their lawsuit, filed in federal court in Manhattan, that Jenkens & Gilchrist sold them a tax shelter that was identical to one the government had earlier banned as improper.

Jenkens & Gilchrist charged $2 million, Ernst & Young $1 million and the law firm of Sidley Austin Brown & Wood charged $75,000 for an opinion letter that the tax shelter was sturdy enough to withstand I.R.S. challenge.

The shelter was called Cobra — for currency options bring reward alternatives. It used foreign-currency trades to generate losses whose only purpose was tax avoidance.

Tax shelters generally involve the use of complex transactions with no business or economic benefit other than to create paper losses and gains. The gains are taken by a partner who does not pay taxes in the United States, like an offshore bank or an Indian tribe, and the losses are taken by the buyer of the tax shelter to offset real financial gains. Typically, the transactions involve several layers of partnerships and other enterprises.

Nearly 100 tax shelters are under investigation, government officials said.

fter five years, a project to replace the Internal Revenue Service's aging file-keeping computer system with modern technology is so far behind schedule that the I.R.S. has told the prime contractor that unless it improves its performance by the end of the month, the government may have no choice but to fire it.

The project, which was expected to cost $8 billion when completed, has spent less than $1 billion so far, but it is already 40 percent over budget for what it has done, according to the I.R.S. Oversight Board, an independent watchdog body that Congress created in 1998.

Most taxpayers are younger than the computer system that the I.R.S. relies on to maintain its master files on individuals and businesses - all the records of who they are, where they are, their income, taxes paid, and the amounts they still owe or are owed as refunds.

The I.R.S. says it can still process returns and send out refunds on time, but its dependence on the 1960's-era Assembler and Cobol computer languages makes it difficult to investigate and resolve taxpayers' problems. Finding a record using the existing system can take a week; the new system is supposed to do the job in seconds.

"This is not about a one-time delay," said Larry Levitan, chairman of the Oversight Board. "Every single major project under way experienced a significant delay in time and overrun in budget - not two or three out of five, but five out of five. What we have here is a five-year track record of absolute consistency of cost overruns and delayed deliveries."

Big computer modernization projects often run late and cost more than anticipated. But even given the size of a system for the I.R.S. - one that must keep track of 200 million taxpayers and an increasingly complex tax code - the project is not succeeding, according to the board and to senior I.R.S. executives. The contractor, the Computer Sciences Corporation of El Segundo, Calif., must show improvement before the end of the year or face losing the contract, they said.

"If they don't produce we will make a change," Mark W. Everson, the I.R.S. commissioner, said of the contractor, even though experts at Carnegie Mellon University in Pittsburgh said that starting over with a new company would "probably result in different but no fewer problems along the way" - and delay the new system, which is called the Customer Account Data Engine, by two or three years.

"I would not enter lightly into rupturing the relationship," Mr. Everson said. "It is not a desirable outcome to abandon the relationship, but that does not mean we won't do that if we have to."

Paul M. Cofoni, president of the Computer Sciences unit running the project, CSC Federal Sector, said "in the early part of the program we did a poor job of defining" what needed to be done. But that was in large measure because the I.R.S. had no records of many changes to its old system, he said, and was reluctant to approve specifications for the new system until it could be sure the system would be able to find and display all the old information.

Mr. Cofoni said that many of those problems were being addressed.

"I can actually see daylight now," he said in a telephone interview. "We were given an action list of 46 items to be done in 30 days, and 85 percent of them were. We're at the point where we are starting to deliver, and when we're done people are going to say this is an outstanding, award-winning system."

In a report being distributed to the Bush administration and Congress, the Oversight Board said that it had not seen improvement in three years, and added that Computer Sciences' performance "must be monitored very closely and if significant improvements are not demonstrated quickly a change should and must be made."

Mr. Levitan of the Oversight Board said that the project was "losing credibility with Treasury, with the Office of Management and Budget and with Congress."

Five years into the project, some aspects are as much as 27 months behind schedule.

While the project to modernize the main file-keeping computer has encountered serious problems, other technology projects have worked, including a system developed by Computer Sciences that tracks the status of refunds and quickly routes calls from taxpayers to appropriate people to answer questions. Mr. Everson said this had allowed him to put more I.R.S. executives on the troubled project, although, as a result, the agency had to set aside ancillary modernization projects.

Mr. Levitan and others said that Congress needed to let the I.R.S. hire more executives who understand computers. Mr. Levitan said the agency relied too heavily on a single executive, Fred L. Forman, for computer management expertise. Dr. Forman, a former executive with American Management Systems, joined the I.R.S. in the middle of 2001 as an adviser to the modernization project and now serves as an associate commissioner.

"The I.R.S. needs 10 to 15 Fred Formans," Mr. Levitan said. "They have got some good people, but they don't have nearly enough to manage the program."

Major corporations often upgrade their systems as technology improves. The I.R.S. went four decades with the same system because two previous modernization attempts, the most recent in the mid-1990's, failed, costing taxpayers $4 billion. Much of the problem involves the risks associated with moving from one system to another. The current plan, begun in 1998, was to build the new system, import data and then turn off the old system.

But Charles O. Rossotti, the tax commissioner from 1997 through 2002, found that approach fraught with danger. Mr. Rossotti, the founder of American Management Systems, who was brought into the agency after the earlier modernization efforts failed, wanted to keep the old system going as data was moved to the new system in segments, beginning with the simplest tax returns, the one-page Form 1040EZ's, to insure reliable access to taxpayer records.

Mr. Levitan said that Mr. Rossotti brought technological coherence that has averted disaster. But he also says a collapse is inevitable without a new system, because the few people who could keep the old system functioning are close to retiring.

Delay in F.B.I. System

WASHINGTON, Dec. 10 (AP) - The F.B.I. is facing serious delays and cost overruns as it struggles to upgrade a computer system so agents can better share intelligence information and investigative files.

A key system component developed by the Computer Sciences Corporation, known as the Virtual Case File, was originally expected to be running by Saturday. Now, officials say, it will likely be several months into 2004 before agents have access to it.

In addition, the F.B.I. acknowledged that the price tag for the overall system could top $626 million, far above the original projected cost of $380 million.

The delay and higher cost figures were reported Wednesday by The Chicago Tribune.

Records showing how thoroughly the Internal Revenue Service audits big corporations and the rich, and how much it discounts the additional taxes assessed after audits, are being withheld from the public despite a 1976 court order requiring their disclosure, according to a legal motion filed last week in federal court in Seattle.

For decades, the information was given at no charge to a professor at Syracuse University, Susan B. Long, who made it available on the Internet at trac.syr.edu, with tools for people to conduct their own analyses.

Much of what the public knows about the efficiency, effectiveness and evenhandedness of the revenue service and other big federal agencies is based on the figures that Professor Long collects and posts.

In May 2004, the service told her that it would not provide the information and ordered its statisticians to stop answering her questions. It also advised her that if it ever did make the data public again, the information would cost $12,000 a month to receive electronic copies.

Professor Long, whose suit resulted in the court order in 1976, when she lived in Seattle, asked the federal court there to enforce that order, which instructed that the data be turned over without charge. Eric M. Stahl of Davis Wright Tremaine in Seattle, who is handling the case without charge, said the earliest hearing date would be Jan. 27.

The senior national spokesman for the tax agency, Frank Keith, wrote to Professor Long in June 2004 that he had lawyers examine her assertion that the agency was required to provide the data. After extensive research, Mr. Keith wrote, the lawyers concluded that no court order existed and that "accordingly, the I.R.S. is not in violation of any standing injunctions."

Professor Long responded by sending Mr. Keith a copy of the order. Mr. Keith said no one now at the agency was aware of it.

"We thought we were providing this information voluntarily," he said.

The agency has no plans to release the information, Mr. Keith said Friday. He argued that Professor Long's latest requests went far beyond the order, covering costly detailed information that could inadvertently allow the identification of specific taxpayers.

Professor Long said that was false. "There is no change in what we have asked for, and they know it," she said.

"The I.R.S. simply has no regard for court orders," Professor Long said, adding that other federal agencies whose information she collects are also obstructing her.

Researchers, reporters, lobbyists and others have argued that government agencies have for several decades become less open. That perception accelerated after the Sept. 11 attacks, drawing complaints from, among others, Senator John Cornyn, Republican of Texas.

President Bush signed an executive order last month "to ensure appropriate agency disclosure of information." In a meeting with newspaper editors last April, the president said, "The presumption ought to be that citizens ought to know as much as possible about the government decision making."

A spokesman for the White House, Trent Duffy, said he was unaware of the problems that Professor Long raised but that he would look into "agency specific complaints."

Mr. Keith said political appointees played no role in the decision to withhold the data.

"Decisions regarding the information to be made available to Professor Long," Mr. Keith said, "have routinely and consistently been made by career employees concerned only with how much of an administrative burden is involved, how much taxpayer money are we spending to meet this."

Among the withheld information are figures on how many hours are devoted to audits of large corporations and rich individuals, a basic measure of the thoroughness of the audits.

Among other findings, Professor Long's information has shown that in 1999 the poor were more likely than the rich to be audited.

David Burnham, co-director with Professor Long of the Transactional Records Access Clearinghouse, which collects raw government data, said the withheld information made it impossible to evaluate the intensity of audits. Mr. Burnham noted that the withheld data included figures that indicated how much auditors say is owed in extra taxes, but that the tax agency lets taxpayers negotiate down.

"It is simply impossible to evaluate the I.R.S. without this data," Mr. Burnham said, "and they know it."

Tax refunds sought by 1.6 million poor Americans over the last five years were frozen and their returns labeled fraudulent, although the vast majority appear to have done nothing wrong, the Internal Revenue Service's taxpayer advocate told Congress yesterday.

A computer program identified the refund requests as suspect and automatically flagged the taxpayers for extra scrutiny for years to come, the advocate said in her annual report to Congress. These taxpayers were not told that the I.R.S. criminal investigation division suspected fraud.

The advocate, Nina Olson, said the I.R.S. devoted vastly more resources to pursuing questionable refunds sought by the poor - which under the highest estimate is $9 billion - than to the $100 billion in taxes not paid each year by people who work for cash and either fail to file tax returns or understate their income.

As for the suspected fraud in refund requests, Ms. Olson said her staff sampled the suspect returns and found that 66 percent were entitled to the amount sought or more. Another 14 percent were due a partial refund. She expressed doubt that many among the remaining 20 percent had committed fraud.

Unless taxpayers press for their refunds, Ms. Olson said, they "are not given an opportunity to substantiate their claims or to show that any overclaims identified were due to honest error rather than fraud."

The I.R.S. criminal division defended its program as a successful effort to protect against refund fraud, saying it "has stopped literally billions of dollars of false refunds to criminals." It said the program was intended to be fair to all taxpayers while efficiently using limited law enforcement resources.

Ms. Olson also said in her report that the I.R.S. is answering far fewer telephone calls, spending far less to teach small businesses how to comply with the tax laws and, in general, is cutting back on services to help taxpayers comply with the law. She said cutting taxpayer assistance would probably result in more costly tax collection.

Senator Charles E. Grassley, the Iowa Republican who is chairman of the Senate Finance Committee, said, "We've seen a significant increase in refund abuse in recent years."

"However," he said, "I'm concerned by the advocate's findings that thousands and thousands of taxpayers are having their refunds frozen by the criminal investigation division, yet the taxpayers often do not know their refund has been frozen and can't effectively challenge the I.R.S.'s actions."

Ms. Olson said the criminal investigators' efforts, known within the I.R.S. as the Questionable Refund Program, were unfair and might be illegal.

"At a minimum, this procedure constitutes an extraordinary violation of fundamental taxpayer rights and fairness," Ms. Olson wrote, adding that it "may also constitute a violation of due process of law."

Her staff's sample of frozen returns found that the average reported income was about $13,000 and the refund due was about $3,500.

About three-quarters of those affected were employed parents who applied for the earned-income tax credit, under which all income and Social Security taxes can be returned and, in some cases, a payment made.

The credit is a kind of negative income tax, first advocated by Milton Friedman, the Nobel-winning economist, and championed by President Ronald Reagan as the government's best program to encourage the poor to improve their circumstances through work.

Ms. Olson's report noted that in recent years, Congress has given the I.R.S. more than $875 million to investigate suspected fraud in the $32 billion tax credit program. Ms. Olson has repeatedly said that Congressional estimates of rampant fraud appear to have little or no basis in fact.

She said that in cases where frozen refunds were later issued, the delay was typically more than eight months, which she said was a hardship on the poor taxpayers who had filed proper tax returns.

The criminal investigators defended the program, writing to Ms. Olson that they had blocked $2.1 billion in questionable refunds.

Ms. Olson said that statement was misleading because just two refunds, from a scheme run by prison inmates, accounted for $1.8 billion of the total. These refunds, she said, almost certainly would have been stopped anyway because tax experts at the Congressional Joint Committee on Taxation must review all refunds of $2 million or more.

She said the balance of the criminal division's refund fraud estimate appeared to be significantly inflated.

The criminal investigators also criticized the advocate's finding that 80 percent of taxpayers whose refunds were frozen were entitled to all or part of the money. They said that "innocent taxpayers" were the most likely to press for refunds.

Ms. Olson, in replying to the investigators, noted that they put suspect returns into three categories, the most serious labeled "conclusively" shown to be fraudulent. Ms. Olson's staff studied a sample of these returns and found that 46 percent of refund requests were proper, an estimate that the criminal investigators now agree is accurate.

Congress created the taxpayer advocate as part of a 1998 law intended to give individual taxpayers greater protections from perceived abuses by overzealous tax collectors and auditors.

Ms. Olson, who ran a tax clinic for the poor before her appointment in 2001 as taxpayer advocate, told Congress that the biggest need was a simplification of the tax system.

"Our tax code has grown so complex," she wrote, that "it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system."

The Tax Foundation, a nonpartisan research group that favors lower taxes, said in a separate report on Tuesday that complying with the tax code cost individuals, businesses and others $265 billion last year.

Ms. Olson cited the growing number of returns considered questionable in her 2003 report to Congress, but it drew little attention because she did not raise any of the fairness, effectiveness and efficiency questions that are in her latest report.

Professor Leslie M. Book of Villanova University, who runs a tax clinic for the poor and has studied how well the poor comply with the tax laws, said the computer program was a blunt and unfair tool for fighting fraud.

"Surely there are taxpayers who are ineligible claiming the credit," Professor Book said.

"But freezing refunds without giving taxpayers due process is an extremely dangerous way to administer the earned-income tax credit," he said. "These taxpayers often need more rather than less protection because they are not sophisticated, are afraid of government involvement."

Criminal investigators at the Internal Revenue Service froze more than 120,000 taxpayers' refunds last year on suspicion of fraud without notifying the taxpayers or giving them a chance to respond, the national taxpayer advocate said in a report released yesterday.

The advocate's office, which is part of the IRS, looked at a sample of taxpayers who complained that they never received their refunds. In two-thirds of those cases, there was no evidence of fraud. Many of the returns were filed by low-income workers, including some who claimed the earned-income tax credit, which sometimes entitles filers to a cash payment on top of their refunds.

The median adjusted gross income of taxpayers who were found to have committed "no fraud" was $13,330, and the median income of those who claimed the earned-income tax credit was $11,956. The median refund received was $3,685, which represented significant income for the taxpayers involved, said Taxpayer Advocate Nina E. Olson in her annual report to lawmakers on problem areas in tax administration.

Based on data from fiscal 2004, the Taxpayer Advocate Service estimated that as many as 1.6 million refunds have been frozen by the IRS's Criminal Investigation (CI) division over five years.

"At a minimum, this procedure constitutes an extraordinary violation of fundamental taxpayer rights and fairness. In our view, it may also constitute a violation of due process of law," said Olson of the IRS's freezing of refunds without giving taxpayers notice or the opportunity to defend themselves.

"Even in cases where CI has made 'conclusive' determinations of fraud and characterized the taxpayers as 'criminals,' it has not provided the affected taxpayers with any notice or opportunity to present documentation to rebut CI's suspicion before a final 'determination' is made."

Some refunds are eventually released or the taxpayers subjected to audit. But in many cases, the report said, refunds remain frozen for years.

Taxpayers mystified at the disappearance of their refunds have flooded the Taxpayer Advocate Service with requests for assistance. Last year, the TAS handled more than 28,000 such requests, up from about 16,400 a year earlier, and such complaints now represent the largest number that the advocate service receives about any IRS program.

However, IRS employees, including those of the TAS, generally are forbidden to give a taxpayer any information about a missing refund until six months after the taxpayer contacts the agency, Olson's report said.

The IRS has increased efforts to prevent tax-refund fraud after seeing a growing number of cases, some of them quite large, in recent years. It adopted software to help it identify potential fraud, but Olson said it appears that the software is kicking out more returns than the agency is able to process in a timely fashion.

Yesterday, Richard Speier, acting chief of the Criminal Investigation division, said the agency is facing a sharp increase in refund fraud -- 322 percent over the past six years -- and "we are trying to . . . ensure that honest taxpayers and the tax system itself are not victimized." The 120,000 frozen refunds represent a tiny fraction of about 130 million annual tax returns, he said.

The report stirred concern on Capitol Hill. Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said that although the number of falsely claimed refunds has increased in recent years, Olson's report "raises serious questions."

"Taxpayers deserve notification of their refund status and a chance to tell their side of the story. It concerns me that the IRS appears to be freezing refunds and leaving taxpayers in the dark about it," Grassley said.

Olson acknowledged that dealing with fraud is an important task and that balancing that goal with protecting taxpayers' rights is not easy.

But the TAS study of taxpayers' complaints found that in 66 percent of the cases, there was no evidence of current-year fraud and that fully 80 percent of these taxpayers ultimately received either full refund or partial refund of the amount they had originally claimed.

The study also found that the median delay in receiving refunds was more than 861/27 months. "Clearly, the amounts at issue and the lengthy delays cause significant hardship for many of these taxpayers," Olson said.

The Criminal Investigation division in a formal reply to Olson -- included in her report -- said it is "keenly aware of the impact our fraud detection activities can have on legitimate taxpayers," but said Olson's conclusions about the program "are drawn from a significantly biased sample and therefore do not accurately represent the effects of the program." The report "significantly overstated the problem," the division added.

However, Speier said, "we are going to be doing much more" to notify taxpayers whose refunds are frozen.

According to the TAS, the Questionable Refund Program, begun in 1977 but recently expanded, uses "data-mining" computer software to pick out refund requests that show indications of possible fraud. Such refund requests are held for a week and then either released or frozen "until the IRS assures itself that no fraud is present."

Refunds frozen for more than a week are supposed to be reviewed by Criminal Investigation division employees and then released or frozen. Frozen returns may be referred to IRS auditors for examination. Such cases are shipped electronically in bulk to auditors twice a year.

But the TAS found that "many, perhaps most" such returns either are not shipped to auditors or are rejected by them. Such refunds remain frozen, and unless the taxpayer contacts the IRS, he or she will never be told what happened.

Indeed, the TAS said, "they may be left in permanent freeze status," adding that it "identified numerous cases that remained [frozen] for over three years."

Olson recommends that taxpayers be notified promptly if refunds are held up, and in cases where fraud is identified, that returns be referred immediately to auditors. She also suggests taxpayers be notified of their right to sue in U.S. district courts or the U.S. Court of Federal Claims to get their refunds.

And her report, which lists the most significant problems with the tax system, finds that the refund freezes are only the second-most serious. No. 1 on Olson's list is the IRS plan to allocate more resources to enforcement and less to taxpayer service while moving "to 'migrate' taxpayers toward electronic services and away from face-to-face contact," which affects the greatest number of taxpayers.

© 2006 The Washington Post Company

January 17, 2006    Editorial

The attributes that allow the Internal Revenue Service to do its job - power and pervasiveness - are the same ones that create the potential for the mistreatment of taxpayers. To prevent abuse, the public must have a steady stream of facts and figures on how the agency collects taxes.

But as The Times's David Cay Johnston reported last week, after years of providing such data, the I.R.S. is now balking. A motion filed recently in federal court asserts that the agency is defying a longstanding court order requiring it to release audit statistics. The information in question shows how thoroughly the I.R.S. audits corporations and rich taxpayers compared with others, how much time it spends on audits, and how much additional tax is recommended. The figures are crucial in gauging the agency's fairness, efficiency and effectiveness.

The motion was filed by Prof. Susan Long, who teaches statistics at Syracuse University. In 1974, while writing her dissertation, Professor Long sued the I.R.S. for access to agency statistics. In 1976, she won an order entitling her to the audit data on an ongoing basis. Today, much of what the public knows about the I.R.S. is based on data she has gathered and, since 1992, posted online at trac.syr.edu.

In May 2004, the I.R.S. refused to release figures Professor Long had requested. The timing was curious. A month earlier, she had posted data showing sharply fewer corporate audits in 2003 and had critically contrasted the data with public comments in early 2004 by the I.R.S. commissioner, Mark Everson, about cracking down on corporate wrongdoing. The I.R.S. says the events aren't connected.

First, the agency told Professor Long that it was under no obligation to provide the data. Reminded of the court order, the I.R.S. now says that Professor Long's requests have become excessive and could inadvertently reveal the identities of taxpayers. Professor Long simply asks the court to enforce its order. She deserves to prevail again.

    The Internal Revenue Service is making an unusual offer of leniency to firms that made and sold questionable tax shelters: come forward, pay penalties and turn over information, and you may avoid criminal prosecution.
    The offer is being made to accounting firms, law firms, banks and investment firms that have created and sold tax shelters that the I.R.S. considers bogus, as well as to firms that carried out the financial transactions that underpin such shelters. Questionable shelters have been sold to thousands of wealthy investors in recent years. Under the offer, the firms must disclose the names of those investors.
    Firms that do not come forward face larger fines and possible criminal prosecution, according to a copy of the four-page offer now being mailed to firms. A spokesman for the I.R.S. confirmed the contents of the letter. The I.R.S. has extended similar offers to wealthy investors in recent years, but this is the first of its kind to firms that promote tax shelters.
    The offer has some carrots. The agency is offering to not disclose publicly the names of firms that come forward or the terms of their settlements. It also offers to assess no penalties against the firms for failing to provide information about investors earlier. (Firms are already required to keep lists of investors in shelters that the I.R.S. considers abusive.) Other penalties will still apply.
    The I.R.S. expects to bring in several billion dollars through the offer once the program is completed later this year, according to people briefed on the program. Offers will be made to at least 66 tax shelter promoters and possibly more, but probably not to all 118 firms now being actively audited by the I.R.S. for their work on aggressive shelters, according to the people briefed on the program. The I.R.S. began making its offers to promoters in late December, and has so far sent out about 30 letters. It expects to extend remaining offers in coming months. The offers cover questionable transactions sold before Oct. 22, 2004, and give firms 30 days to pay.
    Under the offer, the I.R.S. reserves the right to refer to its own criminal division any employees from firms that received amnesty whom it suspects of having broken the law. More significantly, the agency reserves the right to refer firms and employees to the Justice Department for criminal prosecution. The offer comes at a time when the Justice Department has brought criminal charges against 17 former professionals with the accounting firm KPMG, an outside lawyer and an investment adviser. The 19 are accused of scheming to defraud the I.R.S. through the creation and sale of four tax shelters. All are fighting the charges. Federal prosecutors in Manhattan have also been investigating the role of three lawyers in questionable tax shelters.
    Tax lawyers said yesterday that the I.R.S.'s offer would not affect the government's ability to conduct criminal prosecutions in tax shelter cases. Carolyn D. Ciraolo, a tax lawyer in Baltimore, said that any firms that cooperate with the government are more likely to help the government build cases against another firm or other employees. It is unclear how popular the offer will be among promoters. "It is a bad deal," said one lawyer who represents an accounting firm that has been sued by investors who bought its shelters. He said that the I.R.S. wanted too much information under the offer, citing a requirement that marketing materials and other documents must be turned over, leaving a firm potentially exposed to further investigations and prosecutions.
    Tax shelters typically require an accounting firm to design and sell the shelter, a law firm to write legal opinions blessing the transactions and a bank or investment firm to carry out the financial workings. Dozens of accounting, law and financial firms have been named in civil complaints filed by former investors as promoters of questionable shelters. A 2003 report by a Senate subcommittee on aggressive tax shelters described the roles of Deutsche Bank and the law firm Sidley Austin Brown & Wood, among others.
    Until now, the I.R.S. has confronted promoters of abusive shelters by assessing penalties for violating rules that required firms to register such shelters and to keep lists of investors who buy them. Penalties are calculated either as 1 percent of the losses claimed by a taxpayer, or as much as 50 percent of the profits earned by the promoter. Current regulations on penalties for promoters allow the I.R.S. to collect from a single promoter all of the penalties due on a single shelter transaction involving multiple promoters. But under the amnesty offer, the I.R.S. proposes to collect only a portion of each promoter's penalty due on each shelter, calculated as a percentage reflecting the firm's degree of participation in the transaction.
    "We view this as a bit of an incentive to encourage promoters to come forward, so that they will pay their pro-rata share and not somebody else's share," said Eric L. Smith, an I.R.S. spokesman.
    But promoters have not always seen shelter-related penalties as a barrier to doing business. According to the Senate report, a 1998 memorandum written by Gregg W. Ritchie, a former KPMG partner and one of the 19 indicted, concluded that aggressive shelters were so profitable as to make the fines and penalties worth the risk. Gary V. Mauney, a lawyer with Lewis & Roberts in Charlotte, N.C., who represents investors suing the firms that sold them tax shelters, said of the I.R.S. offer yesterday: the "I.R.S. is essentially following the logic of the Ritchie memo. Promoters are going to look at this offer and laugh all the way to the bank."