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| by Lance Wallach |
The bill reducing fines for improperly or not filing under 6707A has passed. That sigh of relief you heard last week might have come from people participating in the plans named above, or anything seeking tax relief that is similar to them – what the IRS calls a listed transaction. People think that Congress bailed them out of trouble for participation in such transactions, and that the excessive fines that were being imposed are now a thing of the past. While the situation is certainly better than it was for some people, and while I do not want to rain on anyone’s parade, you are still in Disasterville, and the next to last bus out just left.
Consider this: The new legislation calls for MINIMUM penalties of $5,000 per person per year, and $10,000 for a business. That is $15,000 per year if you are incorporated. So, if you have been in a plan since, say, 2003, you are looking at fines in excess of $100,000 before you even start to talk about how much of a tax benefit there has been.
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In 2004, Congress enacted Section 6707A of the Internal Revenue Code authorizing the imposition of penalties for failure to provide the IRS information with respect to "reportable transactions."1 The penalties apply not only to taxpayers, but also material advisors (i.e., those that assist taxpayers such as attorneys, accountants, etc.). Penalty amounts for noncompliance can be severe – up to $200,000 as well as criminal prosecution.
ReplyDeleteIn late 2016, the IRS published Notice 2016-66 (Notice), which identified certain micro-captive transactions as "transactions of interest," a type of reportable transactions. Stated simply, micro-captive transactions are a form of self-insurance through a related (or "captive") party. In the Notice, the IRS explained that such transactions have a potential for tax avoidance or evasion. Characterizing micro-captive transactions as transactions of interest triggered the reporting requirement for taxpayers and their material advisors under Section 6707A.