More tax mischief surfaces, once again, when the pending House health care bill is squeezed. This analysis by a tax lawyer at the law firm of Cleary Gottlieb shows that when various cross-referenced provisions are read together, the House bill limits the discretion of the IRS to waive penalties for honest taxpayer mistakes:

One [provision] would change the law to mandate that the Internal Revenue Service slap penalties on honest but errant taxpayers.

Under current law, taxpayers who lose an argument with the IRS can generally avoid penalties by showing they tried in good faith to comply with the tax law. In a broad range of circumstances, the health-care bill would change the law to impose strict liability penalties for income-tax underpayments, meaning that taxpayers will no longer have the luxury of making an honest mistake. The ability of even the IRS to waive penalties in sympathetic cases would be sharply curtailed.

The proposed changes in penalty rules have largely escaped notice because they are buried in a part of the bill that purports to deal with abusive tax shelters. They are barely mentioned in the Ways and Means Committee summary. Their inclusion in the bill underscores the need to read it closely. If anyone had doubts about the value of loading the text of the bill into a wheelbarrow and bringing it to the beach this August, the proposed changes to tax penalties should dispel them.

Sorry, but we should not have to load any piece of legislation into a wheelbarrow and take it to the beach, just to figure out what is in there. And to think that the President wanted this passed prior to the August recess.

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Taxing Your Mere Existence
Health Care Tax Insanity Chronicles, Part 3 (IRS To Decide Amount ofTaxation)

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