The fines are severe. Under IRC 6707A, fines were up to $200,000 annually for not properly disclosing participation in a listed transaction. There was a moratorium on those fines until June 2010, pending new legislation to reduce them, but the new law, which was passed in September, virtually guarantees you will be fined. The fines had been $200,000 per year on the corporate level and $100,000 per year on the personal level. You were fined even if you made zero contributions for the year. All you had to do was to be in the plan and fail to properly disclose your participation.
You can possibly still help your clients avoid all this by properly filing Form 8886 immediately with the IRS. Time is especially of the essence now, as you must file before they assess the penalty. For months, the IRS held off on actually collecting from people that they assessed because they did not know what Congress was going to do. But now they do know, so they are going to move aggressively to collect from people that were already assessed.
There is no reason not to now, which is especially true because the new legislation still does not provide for a right to appeal or judicial review. The IRS is still judge, jury and executioner. Its word is absolute as far as determining what is a listed transaction, or now, a reportable transaction, participation that now triggers the same penalty. A reportable transaction is defined as any transaction with the potential for tax avoidance, a much broader definition than that for a listed transaction. So you have to file Form 8886 fast, but you also have to file it properly. The IRS treats forms that are incorrectly filed as if they were never filed. You can be fined for filing incorrectly, or for not filing at all. The statute of limitations will not begin unless you properly file. This means that the IRS can come back to get you any time in the future unless you file properly.
If you don’t want these new IRS agents, or any other IRS agents for that matter, to be earning their paychecks by coming after your clients and you as a material adviser, make sure you have done all you can to ensure that you have filed properly by reaching out for expert help today.
Here it is. Here is proof of my predictions. Perhaps you didn’t believe me when I told you the IRS was coming after what it has deemed “abusive transactions,” but here it is, right from the IRS’s own job posting website: “If you or your clients were involved with a 419, and you haven’t yet approached an expert for help, you had better do it now, before the notices start piling up on your desk.” Specific forms need to be properly filed under IRC Section 6707A to avoid large IRS fines. These fines are in addition to IRS audits and disallowances of tax deductions. With this tactic, the IRS gets your client twice. First, they get audited and their tax deduction gets disallowed with possible interest and penalties. Then the IRS comes after your client again for not properly filing forms under Internal Revenue Code 6707A. The resulting fines for not properly filing are large, but they can usually be avoided by properly filing the required forms. Here is a small portion of the job posting I referred to above: Job Title: Internal Revenue Agent (Abusive Transactions Group) Agency: Internal Revenue Service Open Period: Monday, October 18, 2010, to Monday, November 1, 2010Sub Agency: Internal Revenue Service Job Announcement Number: 11PH1-SBB0058-0512-12/13 Who may be considered: • IRS employees on career or career conditional appointments in the competitive service;• Treasury Office of chief counsel employees on career or career conditional appointments or with prior competitive status; and
• IRS employees on term appointments with potential conversion to a career or career conditional appointment in the same line of work. According to the job description, the agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietor-ships, small corporations, partner-ships and fiduciaries. They will be examining tax returns and will “determine the correct tax liability, and identify situations with potential for understated taxes.” These agents will work in the Small Business/Self-Employed Business Division (SB/SE), which conducts examinations for about 7 million small businesses, and upwards of 33 million self-employed and supple-mental income taxpayers. This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms and rely more on paid tax preparers. Their examinations can contain “special audit features or anticipated accounting, tax law or investigative issues,” and look to make sure that, for example, specialty returns are filed properly.
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