Wednesday, June 17, 2009

Lawmakers Want IRS To Suspend Tax Shelter Penalty

Lawmakers are asking the IRS to suspend tax shelter penalties, which are hitting some small businesses with fines as much as $300,000, while they work out ways to reduce them. The Associated Press recently published an interesting article on the story, check out a snippet of it below.

Some small businesses are being hit with big fines for not disclosing the use of questionable tax shelters to the IRS, an unintended consequence of a law aimed at corporations that use the shelters to avoid taxes.

The penalties, which can reach $300,000 a year, are automatic under the law. But a bipartisan group of lawmakers asked the IRS Monday to temporarily stop imposing them while they work on legislation to reduce them.

A 2004 law setting up the automatic penalties was designed to stop large corporations from exploiting tax shelters known to be illegal. But the lawmakers said some small businesses have been penalized for using the tax shelters to reap tax savings that are smaller than the penalties.

The lawmakers, led by Sen. Max Baucus, chairman of the Senate Finance Committee, said the penalties are excessive.

"We're asking the IRS to temporarily suspend the collection of certain penalties while we work on legislation," said Baucus, D-Mont. "I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive."

The lawmakers sent a letter Monday to IRS Commissioner Doug Shulman, asking him to temporarily suspend efforts to collect penalties that exceed the tax benefits achieved through the tax shelter.

The letter also was signed by Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee; Rep. John Lewis, D-Ga., chairman of the House Ways and Means Subcommittee on Oversight; and Rep. Charles Boustany of Louisiana, the top Republican on the subcommittee.

"When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," Grassley said. "The penalty should be commensurate with the transgression."

Internal Revenue Service spokeswoman Michelle Eldridge said the agency was reviewing the lawmakers' request.

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