Mar 09, 2010

Moratorium on IRS Tax Shelter Penalties for Small Business Retirement Plans

The IRS recently extended--for the second time--a moratorium on collecting penalties for failing to report certain transactions considered tax shelters by the IRS. Caught in the IRS tax shelter snare are small business owners who paid into certain retirement accounts (namely 412(i) and 419(e) plans), even though the provision was intended to go after big corporation and wealthy individuals. As reported by Margaret Collins in a recent Business Week article, the IRS moratorium will suspend penalties on individuals who received less than $100,000 in savings from the unreported transactions and under $200,000 for other taxpayers. "Some of these businesses were assessed tax penalties as high as $300,000 per year but received a tax benefit for as little as $15,000 from the transaction," according to Senator Charles Grassley, an Iowa Republican. There is proposed legislation that would make the penalty proportional to the tax benefit received.