Washington, D.C. — Today, Congressman Joe Donnelly visited Zehner, Maloy, & Associates in Logansport to meet with Logansport small business owner Bob Mathew to discuss The Small Business Jobs and Credit Act of 2010, which was signed into law on Monday.

The Small Business Jobs and Credit Act makes 6707A tax penalties fair, an issue championed by Congressman Donnelly since Bob Mathew contacted Donnelly about a complicated tax penalty that threatened to bankrupt his business with excessive fines.   Bob owns an asphalt paving company employing eight people and was assessed $600,000 in penalties for unknowingly failing to alert the IRS of a transaction that resulted in a total tax savings of $38,000 over two years.  While he has since fully paid his back taxes to the IRS, these mandatory penalties, which the IRS was required by law to enforce without exception, threatened to bankrupt him for a simple filing error.

“Mr. Mathew came to me for help on a very complicated, very unfair, and also largely unknown problem,” said Donnelly.  “Even though it took an Act of Congress to fix, I’m proud to have led this effort on behalf of a Hoosier small business.  We’ve permanently fixed a tax penalty that is inherently unfair to small businesses that make honest mistakes.”  

“This has been a very long, drawn out, complicated situation that has also been mentally exhausting,” said Mathew.  “The original tax law was detrimental to the small business people and there was no way of fixing it without an ‘Act of Congress.’  It's been very comforting to know that Congressman Donnelly & his staff were right there by my side once I made a call to them.  During my lowest points, they answered my call or called back within a day, and every time was able to keep my spirits up.  I cannot thank Congressman Donnelly and his staff members enough for their time and effort on this issue.  Senator Lugar, Senator Bayh and their staff were of tremendous help too.  It's refreshing to know that both parties are able to work together for the benefit of us small business people.”

“I have been actively involved in tax preparation, compliance and planning for over 30 years,” said Don Zehner, Managing Partner of Zehner, Maloy & Associates.  “Mr. Mathew came to me to help him resolve a ‘tax compliance train wreck’ that was going to cost Mr. Mathew and his company $600,000.  A cost, that if not corrected, would put Bob and his employees on the unemployment lines.  I talked to Congressman Donnelly after a Rotary meeting in Logansport about the inequities of 6707A and Mr. Mathew’s situation.  From that day forward, Joe and his staff worked tirelessly to correct this terrible trap against small businesses.  Joe and his staff gained the support of others in the Indiana delegation in Washington, DC and the support of other members of Congress.  After almost 4 years of work in gaining support, Joe's commitment to correcting this unjust fine was signed into law this past week.  This was my first time in assisting in the drafting of legislation.  Joe Donnelly has proven to me that taxpayers can influence the laws that come out of Washington, DC:  it is not a one way street with laws just being written without input of the people.  Thanks, Joe.”

Congressman Donnelly was the first in the House to put forward a solution this Congress.  Congressman Donnelly introduced H.R. 2143 in the spring of 2009 to make 6707A penalties proportionate and fair.  His bill earned the support of the U.S. Chamber of Commerce, the National Federation of Independent Businesses, the Small Business Council of America, and 14 bipartisan co-sponsors.  After introducing his legislation, he worked with the House Ways and Means Committee to prioritize the issue and gain support for a fix based on Donnelly’s legislation.

The new law makes IRS Section 6707A penalties proportional to the amount of tax benefit accrued as a result of the activity “listed” by the IRS.  This brings 6707A penalties more in line with traditional IRS penalty structures.  Specifically, the penalty is now 75 percent of the tax benefit received, with a minimum penalty of $10,000 for corporations and $5,000 for individuals, and a maximum penalty of $200,000 for corporations and $100,000 for individuals.  This means the $600,000 penalty that would have closed Mr. Mathew’s business will be reduced approximately 95 percent to around $30,000, allowing him to keep his business open and his eight employees working.

To learn more about the 6707A IRS penalty, click here.