Hmmm… The bill has passed but no action from IRS

All those ensnarled in 6707A mess anxiously waited for Congress to pass the legislation for the small business support. However, it has been a few months and IRS has not sent out revised assessments. Is there a motive behind this delay? If you’ve paid the penalties voluntarily or involuntarily, keep in mind – if you plan to appeal, your timer started from your first payment. Do not wait for the revised assessment for your appeal. If you want to get the whole thing behind you, you can patiently wait for IRS to get their act together, but keep in mind the interest meter is running. It would be prudent for you to pay the estimated penalties and stop the interest meter.

Following is an excerpt of information from the IRS:

“We are currently in the process of recalculating all assessed Section 6707A penalties in accordance with the amendment. We will partially abate any assessments made under the prior version of the statute that exceed the new penalty amount. Upon completion of our review, we will notify you of the new penalty amount and the amount of any partial abatement and refund to the extent allowed by law. It could take between a few weeks and a few months. (It will take some time, as we have to readjust approximately 1,000 assessments. To do so, we must obtain all of the closed case files and review those files and associated income tax files.) The collection suspension will remain in effect for each taxpayer’s account until the penalty is recalculated.”

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Small Business Jobs and Credit Act of 2010 presented to President

The bill containing relief for 6707A penalties has passed the Senate and the House and is awaiting the President’s signature. Following is the text of the relevant part of the bill:

PART IV–PROMOTING SMALL BUSINESS FAIRNESS

SEC. 2041. LIMITATION ON PENALTY FOR FAILURE TO DISCLOSE REPORTABLE TRANSACTIONS BASED ON RESULTING TAX BENEFITS.

(a) In General- Subsection (b) of section 6707A of the Internal Revenue Code of 1986 is amended to read as follows:

‘(b) Amount of Penalty-

‘(1) IN GENERAL- Except as otherwise provided in this subsection, the amount of the penalty under subsection (a) with respect to any reportable transaction shall be 75 percent of the decrease in tax shown on the return as a result of such transaction (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes).

‘(2) MAXIMUM PENALTY- The amount of the penalty under subsection (a) with respect to any reportable transaction shall not exceed–

‘(A) in the case of a listed transaction, $200,000 ($100,000 in the case of a natural person), or

‘(B) in the case of any other reportable transaction, $50,000 ($10,000 in the case of a natural person).

‘(3) MINIMUM PENALTY- The amount of the penalty under subsection (a) with respect to any transaction shall not be less than $10,000 ($5,000 in the case of a natural person).’.

(b) Effective Date- The amendment made by this section shall apply to penalties assessed after December 31, 2006.

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IRS Extends Moratorium on Tax Shelter Penalties

The Small Businees Fair Tax bill S. 2917 was passed in the Senate unanimousley. We are still awaiting the House to vote on the sister bill HR4068.

IRS has extended the Moratorium on 6707A penalties until June 01, 2010.

Following are some of the links related to the news.

Webcpa – IRS-Extends-Moratorium-Tax-Shelter-Penalties

Bloomberg: IRS Extends Moratorium on Tax Penalty Fought by Small Business

Initially aimed at tax shelters for big corporations and wealthy individuals, the provision has also been applied to small-business owners who have paid into retirement accounts for themselves and their employees without following IRS disclosure requirements, said Kathleen Pakenham, a New York- based partner at White & Case, who represents 30 such clients.

“It’s a Band-Aid,” said Pakenham of the moratorium. “It’s not addressing the underlying problem.”

Grassley Urges Fair Tax Treatment for Small Businesses Compared to Large Banks

Senator Grassley in a letter to Treasury Secretary Timothy Geithner and Commissioner Shulman, pointed out to the unfair treatment of the Small Business community and compared to the overly accommodative stance towards large businesses, including Citibank.

In his letter Senator Grassley pointed out that an overwhelming 72% of section 6707A penalties are against small business owners.

Please read the full text at:
Grassley Urges Fair Tax Treatment for Small Businesses Compared to Large Banks

Please be sure to contact Senator Grassley’s office as well as your representatives with any issues you are facing.

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SHULMAN PROMISES GRASSLEY EXTENSION OF MORATORIUM ON PENALTY COLLECTIONS

All,

The moratorium on collection has been extended for two additional months until March 1st.

Following is the text of the letter

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December 23, 2009
The Honorable Chuck Grassley
Ranking Member
Committee on Finance
United States Senate
Washington, DC 20510

Dear Senator Grassley:

I am writing to update you on the IRS’s activities on penalties assessed under section 6707A of the Internal Revenue Code. In July 2009,1 committed to suspend collection enforcement actions in response to your request, along with your commitment to seek legislative action to remedy the inequities this provision of
the tax law caused.

Since then, I extended the initial moratorium to afford the Congress more time to act. Additionally, earlier this month, we stopped filing new notices of lien where the amount due is solely related to section 6707A
penalties. I also reiterated our commitment to work with taxpayers who are experiencing financial hardship as a result of existing liens covered by the moratorium. These actions are highly unusual for the IRS, and
we have exercised significant administrative discretion in providing temporary relief. We undertook our actions in the spirit of helping to reduce the effect on the small businesses and individuals.

To provide the Congress additional time to act on the legislative remedy, I will extend the current moratorium on collection enforcement actions, and we will continue to hold off on filing new notices of lien
on amounts due solely related to section 6707A penalties until March 1, 2010. We will also continue to work with taxpayers experiencing financial hardship on a case by case basis. Finally, to ensure continued open dialog, I have asked our Legislative Affairs division to provide a dedicated point of contact for congressional offices that have constituents affected by this issue. Legislative Affairs will also organize staff briefings on IRS regulations and procedures on liens as needed.

I hope this update is helpful, and I would be happy to discuss this matter with you. Please contact me or have your staff contact Floyd Williams at (202) 622-4725.

Sincerely,
Douglas H. Shulman

Time is running out for Us

Our small business representative are more concern with saving their “Political Capital” for others and have not pressed the justice of our positions. We need Due Process with Reasonable Cause
However it is not in the proposed new regulations before the finance committees on the 6707A
Congress has till December 31 to pass corrective measures for the 6707a penalty.
Their staff may have already finished the draft bill to be voted on by the Finance Committees.
Think of paying 75% of the allege tax saving each year of your plan as the best case .
But Our representatives have not argued or pressed our case.

We ,as small business persons ,have been zero problem tax payers all our lives, we have used independent CPA firms to do our taxes and company audits, used A rated Insurance Companies for our plans, had leading law firms provide legal advice, have paid penalties already on the same subjected plans now again being assessed the 6707A.

But without Due process with Reasonable Cause all these precautions are of no value
in the IRS collections of 6707a upon us. The IRS is not our problem , it is the rules of congress
that dictate to them what actions to follow. If we have Due Process then the IRS will provide a workable and easy method for all of us to be treated fairly. Check out the process for filing a petition to Tax Court, it is easy for a non- attorney to complete and represent themselves through a local Tax Court

If Due Process with Reasonable Cause is not in the draft now, we all must pay the penalties soon.. . Many of us will pay well over a $ 100,000 .
What are we to do.
Think , is it better just to pay the 6707a penalty in a few months, or is it better to fly to D.C and meet in person the finance committee staff. We will not be concerned about saving our “political capital” for representing Big Business and earning big lobbying fees. We will only be concerned about the justice of our cases.
If there are others who believe as I do , let us meet with the staff members of the finance committees
ourselves . We will need a group, not just a few, to press for a meeting soon. Please e mail me at
DBYaffe@Gmail.com to commit to this trip

6707A story in WSJ: Small-Business Owners Fret Over Large IRS Fines

 

The WSJ article Small-Business Owners Fret Over Large IRS Fines covers the penalties citing a few examples of the grossly unfair penalty. This story gives a national exposure to the unfair penalties people are subjected  to for obtuse reasons. The story makes it clear that although the intention for the law was to go after large corporation a lot of small business have been assessed the gigantic penalties.

The story, however, does not cover the precedence setting tax code written by Congress. This is the only penalty in the tax code, that Congress has specifically written that the penalty cannot get Judicial Review. Also, this is the only penalty that does not have any clause for capping the penalty. There are taxpayers, who are being subjected to over 1000% penalties for any potential tax benefits. The penalties unfortunately are pointed to the honest small business owners who are paying more than their fair share of tax burden and whose sole intentions are to have legitimate retirement plans.

The story also does not cover the arbitrariness of what IRS deems to be a Listed Transaction, nor does it cover the unconstitutionality of the law and nor the false sense of security IRS gives to the business owners by issuing the “Letter of determination.” Unsuspecting taxpayers had all reasons to believe the plans to be legal base on “Letter of determination” from the IRS.

 Continue to write to your representatives and asking for their support for correcting the gross injustice.

As a reminder, please reread the Taxpayer Advocates report to Congress, and send a copy of the report to your Congressmen. The TAS was created to give advise to Congress regarding issues in the tax system.

Please use this forum to expand on the thoughts to address this issue and share ideas with others.

Thanks

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Access all the posts through 6707a Blog

Petition for Representatives

PETITION

The taxpayers with small business, organizations representing the small businesses, attorneys and CPA representing effected small businesses and professional organizations are petitioning for providing Reasonable cause exception and allowing Judicial review provision to 6707A Penalties code under the IRS rules.

 

A  Reasonable cause provision exists in all other IRS Penalties, 6707A being the only exception.

 

 

The signatories for this petition are Small Business owners and operators who have been harmed or forced to declare bankruptcy due to the mis-guided and unjustly harsh effect of IRS 6707A penalties and professional organizations. The 6707A penalty can result in a $ 300,000 penalty for a tax benefit of as little as $5,000 for contribution to small business employee benefit plan. The current code allows for these penalties to be stacked resulting in Millions of Dollars of penalties for a small contribution.

We urge the Senate to support the passage of Senate Bill S.765 and the House of Representative to support House Bill HR.2143 . These bills should, in their final form,:

1. Allow Reasonable Cause exception for Small Business for all reportable and listed transactions. It should provide protection from penalties for prudent taxpayers using independent Licensed tax preparers /CPA firms who review, complete and file returns for the small business in their effort to comply with IRS rules and filing requirements.
2. Forbid the multiple stacking of penalties against a small business owner, who has a pass-through company ( Sub Chapter S, LLC, partnership ). A small business owner who is substantially the major owner of the company and is imposed a penalty as the employer and then, being also an employee of company is imposed additional penalties for the same reason. Additionally forbid, stacking of penalties for every amended return.
3. Not stacking penalties year by year for the same infraction. ie. If the taxpayer was not aware of his transaction being a listed transaction in year one, the penalty shall not again be assessed in subsequent years of filing taxes on the same position.
4. Once the new law passes, if subjected to the penalties, the interest should accrue from the reassessment of penalties, if any.

The immediate need for Reasonable cause and non-stacking of penalties is also supported by:

• IRS Commissioner Douglas Shulman
• IRS National Taxpayer Advocate Nina Olsen
• The American Bar Association
• Several small Business Associations including
  • US Chambers of Commerce,
  • Small Business Council of America and
  • National Federation of Independent Businesses.
• The American Institute of Public Accountants

Petitioners (Taxpayers, Professionals and Organizations)

{list of petitioners include taxpayers, professionals and professional organizations. List suppressed to maintain confidentiality}

To join the petition please contact Dan Yaffe at:

email: DBYaffe@Gmail.com
phone: 702 376 1877

 

Tax penalty reprieve brings collective sigh of relief at firms

Good to see a positive story in the press. The story of Kustomgrafix shows clearly what is wrong with the taxcode.

Tax penalty reprieve brings collective sigh of relief at firms

To the extent possible, each taxpayer should reach out to their local and national news outlets (print, radio, tv, blogosphere) to air this story. Even the taxpayers who are not impacted by the 6707A need to be concerned based on the precedent this law is setting. The precedent setting 6707A code is the only revenue penalty code that does not allow for reasonable cause exception nor does it allow for judicial review. This code does not look at proportionality nor the double, triple, quadrupling the penalties. This code does not look at penalties on entities where no taxes are due. This code does not look at the intent of the taxpayer. This in USA? Who would have thunk it.

Please forward the Kustomgrafix story and all other related stories to your House Representative and Senators to raise awareness of the grossly unfair tax code.

IRS Suspends Some 6707a Penalties

In response to the letter from Congress, IRS Commissioner Douglas Shulman has temporarily suspended the 6707a penalties until September 30, 2009.

Here are  links to newsreports on the subject:

Webcpa: IRS Suspends Some Small Biz Tax Shelter Penalties

Bna Software:  IRS Suspends Collection Enforcement for Some Listed Transactions

According to the above report - Grassley praised the IRS’s suspension, but added that it would probably need to be extended. “It’s good to have the reprieve from the IRS, though the suspension will probably need to be longer in order to get necessary changes through Congress,” said Grassley in a statement. “The IRS should also do the right thing by studying why only small businesses have been hit with the penalties since they’re less likely to have the expensive lawyers that big corporations do. It’s a matter of tax fairness for both the IRS and Congress.”

Baucus also praised the IRS’s move. “I’m pleased the IRS complied with our request so that Congress can do its part to ensure the Tax Code treats small businesses fairly,” he said. “We are working — both sides of the aisle and the Capitol — to ensure assessed tax penalties fall in line with received tax benefits. Until we reach that goal, we require cooperation from the IRS so that millions of American small businesses don’t get another chip stacked against them in the lagging economy.”

Another interesting thing to note in the report –

On Monday, the Government Accountability Office released a report recommending that the IRS develop a plan to better focus its penalty efforts (see GAO Says IRS Should Re-evaluate Taxpayer Penalties). In response to the report, Grassley said the IRS should look into evaluating the penalties.

More on the GAO report in another post.

If you have not already signed up for the petition do so soon. There is strength in numbers and the information will be kept confidential.