CHAIRMEN OF HOUSE AND SENATE TAX COMMITTEES ASK IRS TO STAND DOWN ON 6707 PENALTIES

Senators Grassley, R-Iowa and Max Baucus, D-Mt, who are members of the Senate Finance Committee, along with John Lewis, D-Ga. and Charles Boustany, R-La of the House Ways and Means Oversight Committee have asked the IRS to cease efforts to collect penalties from small businesses who bought certain employee-benefit plans branded tax shelters by the IRS.

In a letter to IRS Commissioner Doug Shulman, they advised that they intend to pass legislation reducing the penalties for such tax shelter transactions. In the meantime, they want IRS to suspend collection efforts in cases where the penalty exceeds the actual tax benefit realized.

At issue are the 6707 penalties for "listed" transactions, which the IRS considers the most egregious.
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Failure to disclose such a transaction to the IRS now automatically draws a penalty of $100,000 per year for individuals and $200,000 per year for businesses. The penalties are stackable so that a small business owner would be subject to a $300,000 penalty for a single year's participation in the tax shelter.

In a press release, Senator Grassley said "[w]hen I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," ... "The penalty should be commensurate with the transgression."

Perhaps the focus here is in the wrong place. I would submit that if the insurance companies, brokers, promoters, and attorneys who create such plans were held accountable with the fines, penalties, and perhaps criminal liability for creating such plans, the would cease being hatch every five or so years.

Chris Hellums represents numerous individuals and small businesses in litigation against the brokers and promoters of such plans. He can be reached by e-mail at Chrish@PDKHLAW.com