Daily Tax Update - July 7, 2009

IRS TEMPORARILY SUSPENDS COLLECTION ACTIVITY FOR SOME LISTED TRANSACTIONS:  According to a July 6th letter to House Ways and Means Subcommittee on Oversight Chairman John Lewis, the IRS is suspending collection enforcement efforts for listed transactions through September 30 in cases where the tax benefit from the deal is less than $100,000 for individuals and $200,000 for corporations. The IRS’ action is based on Congress’ intent to enact legislation on the issue.

  • Shulman’s letter states, “Given your indication of a commitment to enact legislation to address this issue, and to provide the Congress that opportunity, we will not undertake any collection enforcement action through September 30, 2009, on cases where the annual tax benefit from the transaction is less than $100,000 for individuals or $200,000 for other taxpayers per year. Because the penalty determination is related to the underlying transaction, and we can only determine the amount of tax benefit through examination, we will continue our examination on these cases. This practice will allow us to identify cases meeting the collection suspension threshold and will not delay the information gathering and review process. Finally, while this letter relates to certain taxpayers who were caught up in a penalty regime in a way that the legislation did not intend, the basic underlying premise of the statute applying severe penalties where taxpayers employ abusive tax shelters in an attempt to avoid paying tax remains sound and critically important to the IRS.”
  • Finance Committee Chairman Max Baucus said, “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. 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. Make no mistake, I will continue to go after tax cheats and tax shelter investments, but these are disproportionate and undue penalties on honest, hardworking American business owners and their employees. I appreciate the IRS’ help on this, and I will move this forward until the issue is resolved.”
  • Ranking Finance Committee Charles Grassley said today, “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. 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.” 

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As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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