After 32 years of IRS work — and more than $100 million in resolved tax debt — I've seen just about every version of the problem you're dealing with. I'm Darrin Mish, a tax attorney in Tampa. Here's what you should know.
Much debate has gone into the recent healthcare bill. As with any new bill, some people support it while others vehemently oppose it. But whether you support or oppose the bill, you probably do not realize that it contains some little-known and overlooked provisions. Click here to watch or read more information on IRS Back Taxes.
The first provision is one that taxes high income earners with a surtax while the second imposes a penalty on employers who do not provide approved health insurance and individuals for not having it. But along with these two provisions come other ‘revenue provisions’. One such revenue provision mandates the IRS to penalize on honest but errant taxpayers for example a taxpayer who fills up the wrong form when making tax returns. This means taxpayers no longer have the luxury of making an honest mistake.
The revenue provision even limits the IRS in using their discretion to waive any tax penalty for sympathetic cases. This is yet another example of Congress blatantly approving all provisions of a bill without proper scrutiny. In this particular case, these revenue provisions are so insignificant that it is all too easy for lawmakers to gloss over them and approve the bill, thereby overlooking these provisions. Recently the Small Business Council of America highlighted two pitiful cases.
The first involved the owner of a coin-operated car wash business who set up a retirement plan for his seven employees only to be charged with a $900,000 fine for not reporting the plan properly. The business and its owner are now headed for bankruptcy. Another case was about a Utah business owner with six minor children given a $100,000 penalty for not filling up the correct tax form.
Further back in 2004, Congress made into law automatic penalties for any taxpayer who fails to attach tax shelter reporting forms to their tax returns.
In all these cases, many taxpayers were slapped with excessive penalties they did not deserve. In yet another similar case in 2007, Congress passed the provision of a supplemental appropriations bill that presented a major change in how penalties are computed for professionals who provide tax preparation services. The penalties under this provision were such that the professionals who prepared the tax returns were subjected to a more severe penalty than the taxpayers themselves, thus creating a conflict of interest for the tax preparer. As a result, the tax professionals gave advice to their clients that protected themselves more than their clients the taxpayer.
Resulting from all these examples of bad lawmaking, Congress has instructed the IRS to suspend collecting penalties on cases where honest mistakes were made by taxpayers until the lawmakers can deliberate on what to do.
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