IRC § 6656(a) provides, in the case of any failure to timely deposit employment taxes, unless the failure is due to “reasonable cause and not due to willful neglect,” a penalty shall be imposed. The penalty is a percentage of the amount of underpayment.
- 2% for failures of five (5) days or less;
- 5% for failures of more than five (5) days, but less than 15 days;
- 10% for failures of more than 15 days; and
- 15% for failures beyond the earlier of: (i) 10 days after receipt of the first delinquency notice under IRC § 6303; or (ii) the day on which notice and demand is made under IRC §§ 6861, 6862 or 6331(a)(last sentence)(jeopardy assessment).
In addition to the “reasonable cause” exception contained in IRC § 6656(a), there are two other means by which taxpayers may avoid the imposition of the penalty.
1. Secretary has authority under IRC § 6656(c) to waive the penalty if:
- The failure is inadvertent;
- The return was timely filed;
- The failure was the taxpayer’s first deposit obligation or the first deposit obligation after it was require to change the frequency of deposits; and
- The taxpayer meets the requirements of IRC § 7430(c)(4)(A)(ii) [submits a request within 30 days and comes within certain net worth parameters].
2. The Secretary has authority under IRC § 6656(d) to waive the penalty if:
- The taxpayer is a first time depositor; and
- The amount required to be deposited was inadvertently sent to the Secretary instead of the appropriate government depository.
As the exceptions are limited in application, most taxpayers seeking abatement of the penalty are required to pursue the “reasonable cause” exception.
Acts of dishonesty can cost a tax practitioner his or her ability to practice before the IRS. Charles M. Edgar (“Edgar”), formerly a licensed CPA and attorney in Massachusetts, recently learned this lesson.
On May 1, 2014, the Service issued a news release (“IR-2014-58”), announcing the disbarment of Edgar. While the saga of Edgar is long and somewhat convoluted, it illustrates a significant point—failure to act honestly in matters before the IRS constitutes a violation of Circular 230. It will cost you severely.
The Secretary of Treasury has express authority to regulate practice before the IRS, including the power to suspend or disbar an individual from practice before the Service for failing to comply with Circular 230. In such instances, the practitioner must be provided notice and an opportunity for a hearing before an administrative law judge.
Circular 230 grants the Director of the Office of Professional Responsibility authority to bring proceedings to suspend or disbar practitioners from practice before the Service. Generally, an administrative law judge, not the Office of Professional Responsibility, determines the appropriate sanction, if any, taking into consideration all relevant facts and circumstances.
Circular 230 specifically provides that a practitioner may be sanctioned for giving “false or misleading” information to the Treasury or any officer or employee thereof. For this purpose, “information” means any facts or statements made in testimony, on federal tax returns, financial statements, and other documents or statements (written or oral).
Circular 230 also provides that a practitioner may be sanctioned if he or she is disbarred or suspended from practice as an attorney, CPA, PA, or actuary.
On April 9, 2014, Oregon Governor John Kitzhaber signed into law House Bill 4138 (“HB 4138”). Effective June 8, 2014, the methodology by which an “Interstate Broadcaster” apportions its business income for purposes of the Oregon corporate excise tax changes in at least two (2) ways:
1. Method of Apportionment. Prior to June 8, 2014, an Interstate Broadcaster included in the numerator of the “sales factor” gross receipts from broadcasting in the ratio that its audience and subscribers located in Oregon bear to its total audience and subscribers located within and without Oregon. On or after June 8, 2014, Interstate Broadcasters will no longer use this method of apportionment. Rather, they will include in the numerator of the “sales factor” only those gross receipts from customers (i.e., advertisers and licensees) that have their commercial domicile in Oregon, or (in the case of individuals) who are residents of Oregon.
2. Definition of Interstate Broadcasters. HB 4138 amends the definition of “Interstate Broadcaster” to include anyone engaging in the for-profit business of broadcasting to persons located within and outside of Oregon. Prior law referred to broadcasting to subscribers or to an audience. I am not sure this change to the law is significant other than it reduces the verbiage by four (4) words.
Larry J. Brant
Larry J. Brant is a Shareholder in Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
Upcoming Speaking Engagements
- “The Road Between Subchapter C and Subchapter S – It May Be a Well-Traveled Two-Way Thoroughfare, But It Isn’t Free of Potholes and Obstacles,” Portland Tax ForumVirtual Event, 9.24.20
- “The Road Between Subchapter C and Subchapter S – It May Be a Well-Traveled Two-Way Thoroughfare, But It Isn’t Free of Potholes and Obstacles,” Oregon Association of Tax ConsultantsBeaverton, OR, To be rescheduled
- To be rescheduled