UNDERSTANDING RECENT DEVELOPMENTS ABOUT IRS ABUSIVE TAX ISSUES, 419 PLANS, 412i PLANS.
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What attracted the most attention with respect to it, until very recently, were the penalties for failure to file, which were $100,000 annually for individuals and $200,000 annually for corporations. Recent legislation has reduced those penalties in most cases. However, there is still a minimum penalty of $5,000 annually for an individual and $10,000 annually for a corporation for failure to file. And those are the MINIMUM penalties. If the minimum penalties do not apply, the annual penalty becomes 75 percent of whatever tax benefit was derived from participation in the listed transaction, and the penalty is applied both to the business and to the individual business owners. Since the form must be filed for every year of participation in the transaction, the penalties can be cumulative; i.e., applied in more than one year. For example, a corporation that participated in five consecutive years could find itself, depending on the amount of claimed tax deductions, looking at several hundred thousand dollars in fines, even under the recently enacted legislation, before even thinking about back taxes, penalties, interest, etc., that could result from an audit. Even the minimum fine would be $15,000 per year, again in addition to all other applicable taxes and penalties, etc. So even the minimum fines could mount up fast.