Removing part of the veil of secrecy behind Oklahoma's tax credits problems.

A recent Wall Street Journal article (below) tells of new accounting rules that require companies to report details of funds they received through tax schemes like tax credits.

The IRS is setting its sights on tax credit programs.

Question: who is going to have to cough up the money? The first guess - what will not matter to the IRS are, what now appear to be meaningless letters, those pushing these tax shams, got their friends at the Oklahoma Tax Commission to issue providing investors a false sense of security. Caveat emptor?

Question: who will the IRS collect from? They can't collect from those failed companies. If the IRS determines fraud was involved, that removes the shield a corporation provides investors. It makes sense they will come after those who benefited and have money which can be collected.

The third question - if the IRS can recover money when it determines a scheme was abusive, then why doesn't the state?

Here are some of the key points brought out in the Wall Street Journal.

Article: "Lifting the Veil on Tax Risk New Accounting Rule Lays Bare, A Firm's Liability if Transaction Is Later Disallowed by the IRS." WSJ, May 25, 2007

"Hundreds of companies could be on the hook to the Internal Revenue Service and other authorities for tens of billions of dollars in back taxes due to transactions they believe could be challenged, newly required regulatory disclosures show."

Tax Threat

• The News: New accounting rules require companies to estimate what they could owe tax authorities if past tax benefits are challenged.
• Issue for Investors: Some companies could be forced to pay large amounts of cash to settle tax bills.
• Bottom Line: The disclosures are subjective estimates, but can provide valuable information.

The rule, known as FIN 48, forces companies to better disclose how much they have set aside, or reserved for financial-reporting purposes, to pay governments in case tax-saving transactions are successfully challenged by taxing authorities.

In the past, companies had to reveal little information about transactions that could face some risk in an audit by the IRS or other government entities. Now, companies are being required to disclose the amount they have put into tax reserves, along with other potentially challengeable amounts related to past tax benefits. These sums are being disclosed as a liability for "unrecognized tax benefits" in quarterly 10-Q reports filed with the Securities and Exchange Commission.