Intermediate Sanctions

Tax Abatement

Tax abatement can be defined as a reduction of or exemption from taxes granted by the government for a specified period and may be applied in an excess benefit transaction situation. The intermediate sanctions regulations are meant mostly to correct excess benefit transactions, not to penalize disqualified persons and organization managers.

Thus, the regulations provide for abatement of the penalties if the disqualified person:

• has corrected the excess benefit within the correction period
• can establish that the excess benefit transaction with the organization was due to reasonable cause and not willful neglect

Correction period

The correction period begins when the excess benefit transaction occurs. The period ends 90 days after the IRS mails a notice of deficiency to the disqualified person. This 90-day period may be extended for various appeal reasons.

Willful neglect

Willful was defined in the previous section. For these purposes, negligence is defined as a failure to make a reasonable attempt to comply with the provisions. So, abatement is likely if the transaction was a product of the participants doing what they thought was proper, not intentionally engaging in a transaction that's known to be an excess benefit.

Organization managers

If the taxes are abated for the disqualified person, they are automatically abated for the organization managers who are associated with the excess benefit transaction.