IRS Temporarily Suspends Collection Enforcement on Certain Listed Transactions

In a letter to Rep. John Lewis, D-Ga., chairman of the House Ways and Means Committee’s Subcommittee on Oversight, IRS Commissioner Doug Shulman stated on July 6 that the IRS will suspend collection enforcement activities on certain listed transactions through Sept. 30.

IRC § 6707A imposes penalties on taxpayers who fail to include information about certain reportable transactions with their return. The penalties can be as high as $200,000. The penalties under section 6707A are designed to deter what the IRS considers to be abusive tax shelters. However, the IRS is concerned that because the penalties apply uniformly without exceptions and without regard to the amount of tax at issue, some taxpayers are being subjected to penalties that are excessive, considering the small tax benefits generated by their transactions.

The IRS is therefore suspending collection enforcement activities until Sept. 30 in cases where the tax benefits from the listed transactions are less than $100,000 for individuals or $200,000 for other taxpayers. According to Shulman, this will give Congress time to enact legislation to modify the penalty amounts so that they are more in line with the tax benefits of the transaction.

While the IRS is temporarily suspending certain collection enforcement activities under section 6707A, Shulman notes in the letter that “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.”