In 1986, Congress responded appropriately by enacting reforms that went a long way to restoring public trust in the integrity of the tax code. Although some of this gap can be attributed to the use of legitimate tax incentives, there is no doubt that there has been a striking growth in abusive tax shelters. We must however draw the line at the pursuit of engineered transactions that are devoid of economic substance. As the American Bar Association, the Joint Committee on Taxation and other professional bodies have attested, these transactions have no goal other than to reduce a corporation's tax liabilities and, in doing so, undermine the integrity of the tax system. Shelters create an atmosphere of cynicism among taxpayers, as law-abiding companies feel obliged to follow the lead of competitors who abuse the tax code.
Shelters complicate the tax code by forcing legislators to take remedial action.
In the past few years alone, nearly 30 narrow statutory provisions have been adopted in response to abuses, further complicating the tax code. And shelters divert resources from productive investment. The Treasury, the IRS, and Congress have taken aggressive action to curb visible shelters. We can and must do more. The IRS has also set up an Office of Tax Shelter Analysis, which will provide a consistent national approach to addressing shelter transactions.