Indeed, the United States Tax Court ruled the AlliedSignal deal, struck in 1990, was a sham, and an appeals court upheld that decision earlier this year. AlliedSignal, now called Honeywell and planning to merge with General Electric, is appealing. Merrill Lynch sold a similar shelter to 10 other companies. But few tax shelters are uncovered by an Internal Revenue Service whose resources have been significantly reduced in recent years. And even if one is discovered, penalties are rare.
Criminal prosecution is almost unheard of.
And, as in the AlliedSignal case, the Treasury is still without the money while appeals drag on for years. In short, the money to be made can seem well worth the very small risk of being caught. That is why the tax shelter business is thriving to an extent that worries even some people in the field. He cited a case he knows about on the condition that he not identify the participants. He noted that the recent weakness of the I.R.S. because of budget cuts and new restraints imposed by Congress has only emboldened corporations.