Tax Commissioner Announces Partnership With Other States In Combating Abusive Tax Avoidance Transactions

RICHMOND, VA - Tax Commissioner Kenneth W. Thorson signed a Memorandum of Understanding (MOU) between Virginia TAX and 34 states plus New York City.  These agencies signed a joint agreement to share information among themselves on abusive tax shelters and illegal tax avoidance transactions, a move intended to strengthen their fight against this complex problem.  Abusive tax avoidance transactions include any scheme specifically designed to illegally avoid or evade taxes.

Historically, Virginia and other states have exchanged information and data on specific individuals or businesses suspected of tax evasion.  However, these exchanges did not focus on whole groups of taxpayers or businesses evading tax liabilities all using a common scheme.  This agreement is a proactive step among states to focus shared resources, information, investigative tools, and training aids for identifying and unraveling increasingly complex webs of transactions used by taxpayers and their promoters to evade paying their fair share of state tax revenue.

 "Virginia strongly supports this agreement among states to combat abusive tax avoidance transactions," said Tax Commissioner Kenneth W. Thorson.  "Over the past several years, Virginia has strengthened its efforts to protect the integrity of our system of voluntary tax compliance.  This new agreement between states furthers our ability not only to share information but to learn from the common experiences of our sister states and to counter cross-border abusive schemes."

"Most of our Virginia citizens pay their taxes. We expect that all individuals and businesses that benefit from services paid with our tax dollars to comply fully with the tax laws of Virginia," said Commissioner Thorson.  "I am proud to say that most individuals and businesses do comply with the law.  Yet, we are all aware that there are those who do not pay their fair share.  In fact, some develop schemes either to pay less taxes, or not pay taxes at all.  Still, they enjoy the benefits of our tax dollars and they are getting a 'free ride'.  With this agreement we are turning up the heat and are working nationwide, hand in hand with other states to find and penalize those individuals and companies."

Commissioner Thorson continued, "This initiative also complements Governor Warner's efforts in the General Assembly to address corporate loopholes and to provide the Department with the tools to trace business income that escapes taxation by the use of complicated ownership structures and intricate transfers of assets and income between related companies.  These structures are often devised to avoid state taxation among corporations, partnerships, limited liability companies, and other pass-through entities. Today's agreement, along with our proposed tax reforms, would provide Virginia new tools to detect these schemes and, together with our sister states, trace their breadth and scope across the country."

The new agreement complements one signed last September between the IRS, Virginia, and 44 other states, the District of Columbia and New York City.  Under the terms of the Abusive Tax Avoidance Transactions (ATAT) partnership, the federal and state governments agreed to coordinate their efforts and share data on illegal schemes to evade both federal and state taxes.  However, this new interstate agreement does not permit the sharing of confidential federal information between states, except with the express written permission of the IRS.