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The IRS has formally agreed to stop collecting penalties against some small businesses for participating in forbidden transactions. These penalties, designed to punish abusers of tax shelters, have erroneously placed enormous fines on some small businesses -- many of whom had no intention to skirt taxes and gained little if any benefit.
Here is a rundown of the problems listed transaction penalties have become for some small businesses. As discussed, the heavy so-called Section 6707A penalties seek to punish businesses and individuals who participate in forbidden tax shelters. The draconian fines (which can't be appealed) also caught some small businesses who purchased benefits plans or other packages from financial advisors with no knowledge that the plans were (or would later be identified as) forbidden transactions.
After calls from Congressional leaders, the IRS has reportedly agreed to suspend its collection of the fines for businesses that gained less that $200,000 per year through using listed transactions. According to the AP, the suspension will last until September.
What about after September? By that time, hopefully Congress will have addressed what most now agree has been an unintended consequence of poorly drafted tax rules.
With the future uncertain as to how the IRS will treat transactions it identifies as tax shelters, it remains wise to be safe. Make sure any financial professional, accountant or attorney you use ensures that your benefits plans don't toe too close to the listed transaction line.