Under pressure from Congress, the IRS has agreed to temporarily stop collecting excessive penalties from small businesses that inadvertently invested in questionable tax shelters.

In a June 15 letter to IRS Commissioner Doug Shulman, a group of bipartisan lawmakers from the Senate Finance Committee and House Committee on Ways and Means noted that "many small business owners who thought they were investing in legitimate benefits plans unknowingly have invested in listed tax shelter transactions." The lawmakers called on Shulman to delay collection of penalties that are disproportionate to the tax benefits resulting from the transactions while Congress works to modify the 2004 statute that established the penalties. 

Shulman accommodated the lawmakers' request, saying his agency will delay collection of penalties until September 30 in cases where the annual tax benefit is less than $100,000 for individuals and $200,000 for businesses. Shulman conceded that "many of the transactions now under examination involve tax benefits that are minor when compared to the statutory penalty amounts."

Read the IRS letter (PDF).