Under pressure from Congress, the Internal Revenue Service has once again extended its moratorium on collection enforcement actions on certain types of tax shelter penalties.

Doug Shulman

Last month, the Senate unanimously approved a bill that would prevent small businesses from incurring tax penalties aimed at large corporations and wealthy individuals who invest in tax shelters (see Senate Passes Bill to Fix Small Biz Tax Penalties). The Small Business Penalty Fairness Act revises Section 6707A of the Tax Code to set the penalty for failure to disclose reportable transactions to the IRS at 75 percent of the tax benefit received.

Some small businesses that unknowingly invested in transactions of listed tax shelters have been subjected to tax penalties as high as $300,000 per year, but received tax benefits of as little as $15,000. In some cases, small-business owners had set up arrangements such as employee pension plans using advice from their accountants, and had even received initial approval from IRS officials.

Last year, the IRS temporarily suspended its efforts to collect penalties on some listed tax transactions until Sept. 30, and later until the end of the year, after hearing complaints from members of Congress and National Taxpayer Advocate Nina Olson about the disproportionate penalties levied on small-business owners (see IRS Extends Moratorium on Small Business Tax Shelter Penalties).

On Wednesday, IRS Commissioner Doug Shulman notified Congress that the IRS is extending until June 1, 2010, the current moratorium on collection enforcement actions relating to tax shelter penalties assessed under Section 6707A. In addition, the IRS will continue to hold off on filing new notices of lien on amounts due solely related to Section 6707A penalties until June 1, 2010.