Column: Tax code intentionally allowing the richest 1% to avoid declaring all income | Chroniclers
Failure to disclose also gives the IRS unlimited time to verify reports of listed transactions, not just the regular three years.
Sounds like a squeeze for shady declarers, doesn’t it? Those who engage in listed transactions may disclose their abusive transactions in their tax return, a decision that will almost certainly trigger an audit. Or they can omit the disclosure and risk a huge penalty.
But there is a catch. Section 6707A carries a maximum penalty. No person who fails to disclose a listed transaction can be fined more than $ 100,000.
Think about it for a moment. For a person who engages in a listed transaction to avoid paying millions of dollars in income tax, the penalty limit in Section 6707A essentially imposes no deterrent to tax evasion.
If you’re trying to avoid $ 50,000 in tax, the threat of a penalty of $ 37,500 on top of the tax owed will be intimidating. But if you’re trying to avoid $ 3 million in taxes, that threat of a $ 100,000 penalty is insignificant.
Without the possibility of a severe penalty, even the indefinite audit risk becomes much less threatening.
The bottom line: Section 6707A undoubtedly rigs our tax system in favor of the ultra-rich. What good policy could be served by intentionally limiting the exposure to penalties of very wealthy taxpayers and no one else? I can’t think of one.