Planning Potpourri

Abusive Tax Shelters - The government has never been fond of abusive tax shelters and to combat them has an array of penalty provisions. In a recent case, Reiserer v. U.S., 99 AFTR2d 2007-1438 (CA-9, 2007), the court held that the IRS could assess penalties under Code Section 6700 (100% of the gross income from the activity) and Section 6701 against the estate of a deceased promoter of abusive tax shelters involving offshore employee leasing. If the penalties were penal in nature, they would not have survived the promoter's death. Because the court held they were not, the penalties survived, and his estate was liable. The IRS had weighed in against these transactions in Notice 2003-22, 2003-1 CB 851.

Deferred Compensation - Code Section 409A, added by the 2004 Jobs Act, requires that amounts under a nonqualified deferred compensation plan are currently includible in income to the extent that they are not subject to a substantial risk of forfeiture, unless certain requirements are met. If compensation is deferred and the requirements not met, all deferred amounts under the plan must be included in income by the participant, interest is assessed at the underpayment rate plus 1%, and a 20% penalty will be incurred. The IRS issued final regulations addressing nonqualified deferred compensation plan rules T.D. 9321, 04/10/2007. Be sure to amend any plans prior to 12/31/07.