When should illegal tax shelter penalties be waived? In the view of some Members of Congress, when the fines are being levied on a small business.
In 2004, a law took effect to automatically assess penalties on large corporations that exploited illegal tax shelters. The fines could reach as much as $300,000 a year.
The automatic fine implementation, however, is forcing some small businesses who use the same techniques to pay penalties that are substantially larger than the tax savings they got from the questionable shelters.
A bipartisan groups of Congressmen say that's not right.
The law was created, according to the Senators and Representatives, for large companies.To ease its unintended consequence, the lawmakers have written IRS Commissioner Doug Shulman and asked him to temporarily stop imposing the penalties on small businesses while Congress comes up with legislation to reduce them.
The members seeking the IRS relief for small firms are Senate Finance Chairman Max Baucus (D-Mont.) and Finance's ranking minority member Charles Grassley (R-Iowa) and House Ways and Means members John Lewis (D-Ga.), chairman of the W&M Subcommittee on Oversight, and Charles Boustany (R-La.), ranking minority member on the Subcommittee.
"We're asking the IRS to temporarily suspend the collection of certain penalties while we work on legislation," said Baucus. "I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive."
Grassley, who was Finance Committee chair when the law in question took effect, said tax shelter punishment should be more case appropriate. "The penalty should be commensurate with the transgression," he said. "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."
The Congressmen did not discuss a timetable for corrective legislation. Meanwhile, an IRS spokesperson said the the agency was reviewing the lawmakers' request.