Many people who settled with the Internal Revenue Service in the "Son of Boss" tax shelter case continued to have tax compliance problems after the settlement, according to a Treasury Department report.

Of 1,103 individuals who participated in the 2004 IRS Son of Boss settlement, 300 failed to meet tax filing or payment obligations for the period 2004-2006. That is 27% of all Son of Boss settlement participants.

The finding is from a report by the Treasury Dept. Inspector General for Tax Administration (TIGTA), released Monday.

"Our evaluation... showed that the settlement's participants were far less likely to meet their Federal tax obligations without IRS intervention than the general taxpayer population," the report states.

The IRS disputed the findings and called the report "flawed" in a Monday statement.

IRS issued a settlement offer to Son of Boss tax shelter investors in 2004. TIGTA tracked individual tax returns for Son of Boss investors to determine whether they had run afoul of tax rules subsequent to the settlement. The violations it tracked-failure to file a return and failure to pay on time-are two of the most common tax mistakes and most frequent reasons IRS penalties are assessed.

The report suggested that part of the reason for continued compliance problems may be that the tax shelter agreements do not include adequate enforcement and disclosure provisions.

For example in another IRS settlement program, the so-called offer-in-compromise program, the IRS can withdraw the settlement agreement and resume collection activities, if taxpayers do not meet all obligations in the five years after the settlement. But that is not the case with the Son of Boss settlements.

In addition, those who enter into offers-in-compromise agree to have their names and the amount of their settlements made public.

A 2004 study of a sample of taxpayers that reached "offers-in-compromise" with the IRS showed 96% compliance rates.

"Both our work and that of the IRS suggest that the prospect of losing benefits contributes to a high level of voluntary filing and payment compliance, which is key to reducing the tax gap," said J. Russell George, the Treasury Inspector General for Tax Administration.

But in its statement, the IRS said it is wrong to compare offers-in-compromise, a simple administrative procedure where the tax liability is not in dispute, and the more complex tax shelter settlements.

"The Son of Boss settlement was an overwhelming success for the IRS and the nation's taxpayers," according to the IRS statement. "The settlement quickly resolved a large number of cases on terms that were advantageous to the government, and led to billions of dollars being collected without costly and time-consuming litigation."

The IRS also noted that, as stated in the TIGTA report, Son of Boss investors who failed to file a return or pay in time were assessed penalties totaling almost $30 million.

In the Son of Boss tax shelters, taxpayers used artificial losses from certain bond or option transactions to offset real taxable income. IRS said it netted about $4 billion in taxes, interest and penalties from the settlement.

Median income in 2005 for investors in the Son of Boss tax shelters was $470,355, according to the TIGTA report.