BP's Maximum $18 Billion Spill Fine Likely to Be Lowered

As BP continues to work on cleanup efforts in the Gulf, the company now has to deal with massive civil penalties. Previous estimates put the potential fines at $17.6 billion, but now experts are predicting they may be able to negotiate a lower penalty.

According to Bloomberg.com, the fines could crimp the company’s ability to pay for cleanup costs, force it to sell more assets, and cut into future investment plans of incoming Chief Executive Officer Robert Dudley.

The Clean Water Act makes BP, as owner of the oil, liable for fines of $1,100 per barrel spilled even if it did nothing wrong, says Wayne State University law professor Noah Hall in Detroit. The penalty jumps to $4,300 per barrel if BP was grossly negligent. Hall says gross negligence in a civil case would include making “conscious decisions” that increased the likelihood of an incident like the blowup while engaged in a risky business, such as deepwater drilling.

BP Chairman Carl-Henric Svanberg told Bloomberg Television on July 27 that the company doesn’t believe it will be found grossly negligent or determined to be the sole responsible party for the spill.

Continue reading at Bloomberg.com…

4 Million Will Pay Health Care Penalty

A Congressional Budget Office (CBO) report has been released, and if their predictions are correct 21 million Americans will be without health insurance in the year 2016. 4 million of them will likely be required to pay a penalty for being uninsured. According to this CNN article, the CBO is projecting the federal government could see a $4 billion per year revenue increase between 2017 and 2019.

High-income families making at least $96,000 will pay two-thirds of those fines, while families making between $24,000 and $96,000 will contribute nearly one-third of the funds collected.

Under the health care overhaul, which legislators passed in March, most U.S. residents will be required to purchase health care or pay a fine. By 2016, the penalty will be either a flat $695, or 2.5% of household income -- which ever is higher. The fines are capped based on income.

The CBO report noted the majority of the uninsured will not be subject to these fines because they belong to exempt groups including extremely low-income households, some religious sects and unauthorized immigrants.

IRS Suspends Penalty Collections Against Some Small Firms

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.

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.

Changes To Frivolous Tax Policy

Thinking of filing a frivolous tax return? Think again! The recently passed Tax Relief and Health Care Act of 2006 made several changes to the "frivolous tax submissions penalty" (Section 6702). Previously, the penalty for filing a frivolous tax return was only $500 and was not much of a deterrent. The new penalty has been increased from $500 to $5,000. This is a dramatic increase and should serve as a greater deterrent from filing a frivolous tax return. Also, the revised legislation gives the IRS the authority to determine what qualifies as a frivolous return. For more information on the new regulations click here.