One of the best policies instituted by the Republican Congress that came to power in the 1994 election was dialing back the Internal Revenue Service’s auditing capacity and giving taxpayers a break for honest mistakes.
However, as James M. Peaslee explained in the Wall Street Journal, the Democrat Congress has inexplicably put a bullseye on taxpayers, even for good-faith mistakes, and taken away the IRS’ ability to waive penalties, making the tax collectors look like nice guys compared to hatchet-wielding Democrats:
Last June, the Small Business Council of America sent some compelling tales of woe to Congress, including one in which a 72-year-old owner of a coin operated car wash set up retirement plans for his seven employees and got socked for his good deed with a $900,000 penalty for not reporting the plans properly. The company and its owner are now headed for bankruptcy. In another case, a penalty of $100,000 each was imposed on the six minor children of an owner of a small business in Utah for not filing the right tax forms.
In another example of bad lawmaking, in 2007, Congress stuck into a supplemental appropriations bill a major change in the way penalties are computed for people in the business of preparing tax returns. Congress acted without consulting with the IRS. The IRS chief counsel at the time, Donald Korb, said publicly that the service had been “blindsided” by the change.
Worse still, the health-care bill considered by the House Ways and Means Committee includes a strict-liability penalty on taxpayers who lose an appeal to the IRS. Under current law, Peaslee writes, “taxpayers can avoid penalties by showing they tried in good faith to comply with the law.” But under the new bill, “taxpayers will no longer have the luxury of making an honest mistake. The abilit of even the IRS to waive penalties in sympathetic cases would be sharply curtailed.”
Next time a Congressman claims to have read the bill, ask them about this provision.