§231-36.7 Promoting abusive tax shelters. (a) A person promotes an abusive tax shelter by:

(1) Organizing or assisting in the organization of, or participating directly or indirectly in the sale of, an interest in:

(A) A partnership or other entity;

(B) Any investment plan or arrangement; or

(C) Any other plan or arrangement; and

(2) In connection with any activity described under paragraph (1), making, furnishing, or causing another person to make or furnish a statement with respect to:

(A) Whether any deduction or credit is allowed;

(B) Whether any income may be excluded; or

(C) The securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement,

which the person knows or has reason to know is false or fraudulent or is a gross valuation overstatement as to any material matter.

(b) A person found promoting an abusive tax shelter shall pay, with respect to each activity described in subsection (a), a penalty of $1,000 or, if the person establishes that the abusive tax shelter generated less than $1,000 of gross income, then one hundred per cent of the gross income derived or to be derived by the person from the activity. For purposes of this section, any activity described in subsection (a)(1) shall be treated as a separate activity for each entity or arrangement. Participation in each sale described in subsection (a)(1) shall be treated as a separate activity for each entity or arrangement.

(c) At the request of the director of taxation, a civil action may be brought to enjoin any person described in subsection (a) from engaging in any conduct described in subsection (a). Any action under this section shall be brought in the circuit court of the circuit where the person in subsection (a) resides or where the person's principal place of business is located. The court may exercise its jurisdiction over the action separate and apart from any other action brought by the State against those persons described in subsection (a). If the court finds that a person described in subsection (a) has engaged in any conduct subject to penalty under subsection (b) and that injunctive relief is appropriate to prevent the recurrence of that conduct, the court may enjoin the person accordingly.

(d) The director may waive all or any part of the penalty provided by subsection (b) with respect to any gross valuation overstatement on a showing that there was a reasonable basis for the valuation and that the valuation was made in good faith.

(e) For purposes of this section, "gross valuation overstatement" means any statement of value for any property or services if:

(1) The value so stated exceeds two hundred per cent of the amount determined to be the correct valuation; and

(2) The value of the property or services is directly related to the amount of any deduction or credit allowable to any participant.

(f) The penalty imposed by this section shall be in addition to any other penalty provided by law.

(g) This section shall be construed in accordance with regulations and judicial interpretations given to section 6700 of the Internal Revenue Code. [L 2009, c 166, §2]