[Congressional Record Volume 155, Number 169 (Monday, November 16, 2009)]
[Senate]
[Page S11384]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Grassley, and Mr. Crapo):
  S. 2771. A bill to amend the Internal Revenue Code of 1986 to limit 
the penalty for failure to disclose reportable transactions based on 
resulting tax benefits, and for other purposes; to the Committee on 
Finance.
  Mr. BAUCUS. Today, I am pleased to introduce the Small Business 
Penalty Relief Act of 2009 with my good friend and Ranking Member of 
the Finance Committee, Chuck Grassley.
  The bill provides much needed penalty relief to small businesses 
across America that are being assessed large penalties by the Internal 
Revenue Service because they unknowingly invested in something called a 
``listed tax shelter transaction.''
  Many of these businesses thought they were putting their money into 
sound investments for the benefit of their employees and learned only 
after they were audited by the IRS that they instead had invested in 
something the IRS considers to be a tax shelter.
  Most small businesses do not have the resources to pay sophisticated 
tax lawyers and accountants to review all their business decisions. 
They have to do the best they can on their own. And that is how they 
ended up in the middle of a nightmare with the IRS.
  When a business invests in a listed tax shelter, the law requires 
that business to attach a form to the tax return telling the IRS about 
the shelter. If the business doesn't attach the form, it can be subject 
to a penalty of $200,000 per year. If the business has elected 
Subchapter S status, an additional $100,000 penalty applies at the 
individual level. Total penalties can add up to $300,000 each year. 
Multiply that by several years, and you can easily approach $1 million 
or more in penalties for a tax shelter you didn't even know you had.
  In the case of many small businesses, the annual tax benefit from 
their investment is quite minor--perhaps as small as $15,000. The 
$300,000 penalty plainly is out of whack.
  Just to be clear, Senator Grassley and I are not soft on tax 
shelters. We spearheaded legislation in 2004 that gave the IRS better 
tools to stop individuals and big companies from cleverly manipulating 
the tax code to avoid paying the taxes they owed. Our efforts were 
focused on egregious deals that cheated the U.S. Government out of 
millions and billions of dollars. Our efforts have made a serious dent 
in the proliferation of abusive tax scams and schemes.
  But we didn't intend that the 2004 legislation would end up 
threatening the existence of small businesses in Montana and across 
America, and the livelihoods of their employees who risk losing their 
jobs if the business goes under.
  Small businesses are struggling already. They don't need the added 
and unfair burden of a penalty that can be as much as 20 times larger 
than the taxes they saved.
  This bill changes the way the penalty is calculated. The penalty is 
based on a percentage of the tax benefit resulting from the investment. 
It is fairer and won't drive these companies out of business.
  Small businesses are the backbone of our Nation. Particularly in 
these tough economic times, we must make sure the tax laws reflect the 
important role that small business plays in our Nation's economic 
health and our citizens' economic security.
                                 ______