Monday, September 21, 2009

Small-Business Owners Fret Over Large IRS Fines

By LAURA SAUNDERS
Five years ago, car-wash owner Orman Wilson set up a pension plan for himself and six employees. For that, he may owe the IRS a $1.2 million tax penalty.

Mr. Wilson, the owner of 19 coin-operated car washes in Houston, says he relied on four advisers, including a certified public accountant, to set up a plan that received approval from the Internal Revenue Service. Then, in late 2007, the IRS found fault with the plan and assessed it $250,000 -- plus special penalties of $1.2 million.

The penalties "would wipe us out," Mr. Wilson says.

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The source of the distress: tax-law changes made by Congress in 2004. At the time, lawmakers were worried that tax shelters, especially from large corporations, were costing the Treasury billions in revenue. To combat it, they imposed enormous fines on taxpayers who failed to tell the IRS of participation in any transaction the agency might consider a tax shelter.

"The fines are not for the shelter itself," says Mr. Brucker, "but merely for failing to file the form disclosing the transaction."

The penalty is $100,000 per offense, per year for individuals and $200,000 for businesses. In order to put teeth into the law, the provisions gave the IRS no leeway in imposing the fines and taxpayers no way to get them reviewed in Tax Court. (my emphasis)

http://online.wsj.com/article/SB125331489168624343.html

My comment/question on this - From my understanding of the tax courts, you are presumed guilty and it is the burden of the defendent to prove innocence. This is bad enough, but isn't adding insult to injury to tell someone that they can't even have their day in court at all?

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