Courts Threaten to Undercut IRS Efforts to Go After Tax Shelters

A court ruling has weakened one of the Internal Revenue Service’s most powerful tools for policing tax shelters, making it harder for the agency to find people engaging in questionable practices.

The latest decision—which came this month in a case involving Michigan business owners and life-insurance products—could slow the government’s ability to require taxpayers to disclose their participation in aggressive tax shelters, tax lawyers said. It continues a yearslong trend in which courts are requiring that the IRS and Treasury Department follow detailed regulatory procedures that the government and academic experts had long assumed didn’t apply to the tax system.