From the Wall Street Journal.com:
The Internal Revenue Service said it will suspend through Sept. 30 efforts to collect penalties assessed against certain small business owners, after key lawmakers said the penalties were more punitive than Congress intended.
Small business owners who bought employee benefit plans that the IRS has condemned as "listed" tax shelters are facing hundreds and thousands in penalties, in some cases more than 10 times any tax benefit derived from the transaction.
IRS Commissioner Doug Shulman said in a letter Monday to lawmakers that the agency will suspend collection activities in cases where the transaction resulted in an annual tax benefit of less than $100,000 to individuals or less than $200,000 for businesses.
"I am dismayed by the feedback that I have received from some of the most seasoned IRS examination professionals that this statutory provision, in certain cases, requires them to assess penalties that are way out of line with penalties for other similar cases of non-compliance," he wrote.
Last month, lawmakers including House Oversight Subcommittee Chairman John Lewis, D-Ga., and Rep. Charles Boustany, R-La., and Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, told Shulman they aim to pass legislation to make penalties in such cases less stringent.
They asked the IRS to cease efforts to collect the penalties until Congress has passed legislation reducing them for small businesses.
At issue is a penalty for failure to report a listed tax shelter transaction, among transactions the IRS considers most egregious. Set up by a 2004 law, the penalties are assessed at $100,000 per individual per year, and $200,000 per business entity per year. Under the law, the IRS has no discretion to reduce the penalty amounts and they cannot be challenged in court.