Small Business Jobs Act Provides Needed Relief on 6707A Penalties

Reportable and listed transactions. The Senate bill limits the section 6707A penalty for failure to disclose a reportable transaction (that is, a transaction determined by the IRS to have a potential for tax avoidance or evasion) to 75% of the decrease in tax resulting from the transaction. The maximum annual penalty allowed will be $10,000 in the case of a natural person and $50,000 for all other persons for failure to disclose a reportable transaction. For listed transactions, the maximum penalty will be $100,000 in the case of a natural person and $200,000 for all other persons. The minimum penalty is $5,000 for natural persons and $10,000 for all other persons.

The bill also requires the IRS to report to Congress by Dec. 31, 2010, and then annually, on penalties assessed for certain tax shelters and reportable transactions (under sections 6662A, 6700(a), 6707, 6707A and 6708). The penalty under section 6707A has been criticized because the penalty amounts often exceed the tax benefit of the targeted transactions. The IRS has since last July been working under a self-imposed moratorium on collection enforcement of the section 6707A penalty to give Congress time to amend the penalty amounts. The AICPA has recommended that the IRS be allowed to abate the section 6707A penalty in cases where the taxpayer has acted reasonably and in good faith. The AICPA also believes that judicial review should be allowed in cases where the IRS has assessed a penalty under section 6707A. The Senate bill does not adopt either of these recommendations. http://www.journalofaccountancy.com/Web/20103340.htm



Also see:
1. http://blogs.forbes.com/deanzerbe/2010/09/14/small-business-tax-bill-moves-forward-as-senate-invokes-cloture/?boxes=financechannelforbes
2. http://www.webcpa.com/debits_credits/Small-Business-Bill-Offers-Tax-Shelter-Penalty-Relief-55620-1.html
3. http://www.fastpitchnetworking.com/pressrelease.cfm?PRID=46367

Judge Remands 412(i) Case Back to State Court

On August 17th, United States District Judge Jane Boyle granted the Plaintiffs request and remanded the case of Sawaged vs. Indianapolis Life, et al. back to the Superior Court of New Jersey, Law Division, Essex County.

Like many others, this case concerns the promotion, marketing, and sale of life insurance policies used to fund a defined pension plan pursuant to 26 U.S.C § 412(i) of the Internal Revenue Code.

Indianapolis Life removed the case from the New Jersey state court on a theory of complete preemption under ERISA. Specifically, Indy Life claimed that certain of Plaintiffs' allegations pertaining to misconduct following plan formation can be recharacterized as claims for breach of fiduciary duty under ERISA §§ 502(a)(2) and (a)(3). The court specifically rejected this argument.

Additionally, the court found that "although admittedly failure to file form 8886 may have been undertaken in a fiduciary capacity, the Court determines that it is an isolated allegation which is insufficient to support a finding of complete preemption."

For more information or to request a copy of the opinion, contact Chris Hellums at Chrish@pittmandutton.com

IRS Extends Moratorium on Tax Shelter Penalties

Under pressure from Congress, the Internal Revenue Service has once again extended its moratorium on collection enforcement actions on certain types of tax shelter penalties.

Last month, the Senate unanimously approved a bill that would prevent small businesses from incurring tax penalties aimed at large corporations and wealthy individuals who invest in tax shelters (see Senate Passes Bill to Fix Small Biz Tax Penalties). The Small Business Penalty Fairness Act revises Section 6707A of the Tax Code to set the penalty for failure to disclose reportable transactions to the IRS at 75 percent of the tax benefit received.

Last year, the IRS temporarily suspended its efforts to collect penalties on some listed tax transactions until Sept. 30, and later until the end of the year, after hearing complaints from members of Congress and National Taxpayer Advocate Nina Olson about the disproportionate penalties levied on small-business owners (see IRS Extends Moratorium on Small Business Tax Shelter Penalties).

On Wednesday, IRS Commissioner Doug Shulman notified Congress that the IRS is extending until June 1, 2010, the current moratorium on collection enforcement actions relating to tax shelter penalties assessed under Section 6707A. In addition, the IRS will continue to hold off on filing new notices of lien on amounts due solely related to Section 6707A penalties until June 1, 2010.


Chris Hellums
PITTMAN, DUTTON, & HELLUMS, P.C.
2001 Park Place North
1100 Park Place Tower
Birmingham, Alabama 35203
(205) 322-8880
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Email: chrish@pdkhlaw.com
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