Couldn't some "naive or innocent" people have purchased the shelters on the advice of their tax advisers or accountants, and so be greatly harmed unfairly, asked Rep. Gordon Snow, R-Roosevelt.

Maybe a few, Marelli said. But overall the tax-shelter buyers are smart people who know what they are doing. "Millions of dollars in taxes are being avoided," he said.

"These are not people making in even the high six figures, but people making in the seven figures" — more than $1 million in income. And he doesn't feel very sorry for them.

If Utah follows model legislation proposed for states by a national tax advisory group, failure to report that you had bought a tax shelter not approved by the IRS would be a base fine of $10,000. Other fines and penalties could push that up to $100,000. Corporations that buy the shelters could be hit with up to a $200,000 fine, Marelli said. "These are significant increases in our (current) fines and penalties."

On top of that, model legislation says that purchasing a shelter deemed "illegal" by the IRS would mean the Tax Commission couldn't waive any of the fines, interest due or any other penalty. The four-member commission couldn't even hear any appeals by the shelter abusers, he said.

Sen. Curt Bramble, R-Provo, a certified public accountant, said he thinks the state should go after the financial advisers who are selling the tax shelters. Marelli said the IRS has rules that allow the federal government to take up to 50 percent of the profits the sellers make on the instruments.

Some states take the other 50 percent.

"The idea is to drive these people out of business," Marelli said.

But there must be some flexibility, Bramble said. "We have to apply a reasonable person standard. You should have a pattern of behavior (for individuals) for such onerous penalties" to apply. And the Tax Commission should be allowed to waive penalties or hear appeals, he added.

---

E-mail: bbjr@desnews.com