Washington, DC - Bipartisan lawmakers from the Senate Finance Committee and House Committee on Ways and Means sent a letter Friday to Internal Revenue Service (IRS) Commissioner Douglas H. Shulman, requesting assistance while Congress works to address certain penalties assessed on small businesses. The lawmakers are seeking to help small businesses that invested in listed tax shelter transactions that generated modest tax benefits, but resulted in tax penalties significantly larger than the tax benefits received.
In the letter, Senate Finance Chairman Max Baucus (D-Mont.), Ranking Member Chuck Grassley (R-Iowa), along with Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) and Ranking Member Charles Boustany (R-LA) point out that such disproportionate consequences were unexpected at the time the penalty was enacted, and that the circumstance was unanticipated at the time the penalty was enacted, and they expect to introduce legislation that would result in penalty amounts in better proportion to the tax benefits. While the penalty has helped IRS end many abusive deals, many of the shelters being examined by the IRS involve significantly smaller dollar amounts, and current penalty levels may be excessive in some circumstances.
“Congress needs to do its part to make sure that the tax code treats these businesses fairly. We’re asking the IRS to temporarily suspend the collection of certain penalties while we work on legislation to bring the assessed tax penalties in line with the received tax benefits," said Baucus. “This is an issue of fairness, and making sure that businesses are not made to pay undo penalties, particularly in a down economy. I don’t condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive. It’s important that we get this done as soon as possible and I urge and expect the IRS to comply with our request."
“When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent. I was focused on the big corporations that were actively seeking to hide their participation in tax shelters," Grassley said. “The penalty should be commensurate with the transgression."
“Small businesses should not be run out of business by tax shelter penalties aimed at big corporations. These issues require tax law changes that Ranking Member Boustany and I support," Ways and Means Oversight Subcommittee Chairman Lewis stated at a June 4, 2009 hearing raising the issue. “This penalty has unfairly punished far too many small businesses. It is only fair that the IRS stops collecting this penalty while Congress works to resolve this issue. It is the right thing to do."
“I am pleased to work with my colleagues on this effort to support and protect small businesses from excessive penalties," stated Ways and Means Oversight Subcommittee Ranking Member Boustany. “During these economic difficulties, our bipartisan and bicameral effort is critical to maintaining small businesses and supporting their role in creating jobs and the thousands of people they employ."
The lawmakers indicated that, while they are committed to creating bipartisan, bicameral legislation to modify the law and make the penalties more proportional to the tax savings, Commissioner Shulman should, “use the discretion provided to the IRS with its effective tax administration authority to suspend efforts to collect IRC [Internal Revenue Code] section 6707A liabilities … while Congress acts to remedy this situation."
