Tax Lawyer's Blog

From the TaxProf, Paul Caron:

Congressmen John Carter (R-TX) and Lynn Westmoreland (R-GA) yesterday introduced the Geithner Penalty Waiver Act, requiring that the IRS assess the same penalty against U.S. taxpayers that came forward in the UBS tax fraud investigation as paid by Treasury Secretary Timothy Geithner for failing to pay taxes on his IMF income — zero. 

The preamble to Congressman Carter’s press release states,

 [T]he Equal Protection Clause of the 14th Amendment to the U.S. Constitution mandates equal penalties for similar offenses, and that the failure of the IRS to assess any penalties against Geithner demands similar penalties for all taxpayers with substantially equivalent cases.

And this is from Carter,

This bill seeks to codify what is now established by the law of precedent. The Geithner case has established a legal precedent for the determination of penalties by the IRS, and that precedent can be cited in all federal tax courts. The penalty is now set at zero.

Taxpayers who willfully attempt to evade paying their fair taxes should pay a penalty, or our tax code becomes unenforceable. This bill is not to reward tax evaders, but to defend the Rule of Law itself. If we as a nation choose not to enforce the law against the politically privileged, then we cannot enforce the law against others without undermining respect for the law itself.

This is similar to the Rangel Rule Act that was introduced by Carter in September.

Without knowing more about why Charlie Rangel and Tim Geithner’s penalties were abated it is difficult to tell whether they have received special treatment from the IRS.

Here is what I would like to know:

1. Did the IRS assess the penalty first and then later, upon request, abate that penalty?
2. Did Rangel and Geithner file a written request for the abatement of penalties on reasonable cause grounds?
3. If so, what was that reasonable cause?

As a general rule, the IRS assesses accuracy-related penalties against taxpayers with tax deficiencies and considers abatement of the those penalties only after a written request is made showing that the underpayment of tax was due to reasonable cause and not willful neglect.

Consquently, if the IRS did not assess an accuracy-related penalty in the first instance, I think a good argument can be made that Rangel and Geithner did, in fact, receive special treatment.

If the IRS did assess the penalties and later granted Rangel’s and Geithner’s requests for abatement, we would have to know what “reasonable cause” arguments were made in order to determine whether the IRS treated those arguments in a manner similar to those of similarly situated taxpayers who lacked their political clout.

Related Posts:

•  “Turbo Tax Did It”: Obama Top Financial Man Blames the Software
• Why Shouldn’t Top Tax Writer Rangel Pay Penalties and Interest?
• H.R. 735: The Rangel Rule Act of 2009
• Egalitarians Unite: Demand Geithner Withdrawal from Treasury Consideration

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