Internal Revenue Service.Tax
Overview—IRC 6707A Penalty
1. IRC 6707A provides a monetary penalty for the failure to include on any return or statement any information required to be disclosed under IRC 6011 with respect to a reportable transaction. This penalty was enacted October 22, 2004 under the American Jobs Creation Act (AJCA).
2. Under Treas. Reg. 1.6011-4, Requirement of Statement Disclosing Participation in Certain Transactions by Taxpayers, taxpayers are required to disclose their participation in several categories of reportable transactions.
3. The IRC 6707A penalty is imposed in addition to any other penalty that may be imposed against a taxpayer. The penalty applies without regard to whether the underlying transaction is ultimately determined to result in an understatement of tax.
4. Subject to the maximum and minimum limits, the amount of the penalty is "75 percent of the decrease in tax shown on the return" as a result of the reportable transaction (or which would have resulted from such transaction if such transaction were respected for federal tax purposes).
A. The maximum penalty in the case of a listed transaction is $100,000 for a natural person and $200,000 for all other taxpayers. In the case of a non-listed reportable transaction, the maximum penalty is $10,000 for a natural person and $50,000 for all other taxpayers.
B. The minimum penalty for each reportable transaction (listed or non-listed) is $5,000 for a natural person and $10,000 for all other taxpayers.
5. IRC 6707A(e) further provides that taxpayers that have U.S. Securities and Exchange Commission (SEC) filing requirements under Sections 13 or 15(d) of the Securities Exchange Act of 1934 (for example, publicly traded companies) are required to disclose their liability for certain penalties under IRC 6707A, IRC 6662A(c) and IRC 6662(h) in public reports filed with the SEC. See Rev. Proc. 2005-51, 2005-2 C.B. 296, as well as Rev. Proc. 2007-25, 2007-1 C.B 761, for additional information.
6. There is no reasonable cause exception to the IRC 6707A penalty. The Commissioner of Internal Revenue (or the commissioner's delegate), however, may rescind the penalty in whole or in part if doing so would promote compliance with the tax code and effective tax administration. This authority applies only to reportable transactions that are not listed transactions.
7. If a penalty is rescinded, the commissioner (or the commissioner's delegate) must keep on file a record of the determination, including the facts and circumstances relating to the violation, the reasons for the decision to rescind the penalty, and the amount of the penalty rescinded. See IRM 188.8.131.52, Description and Authorities, for appropriate retention standards and authorities.
8. While a taxpayer may challenge an examiner's determination as to its participation in a reportable transaction or as to the adequacy or timeliness of its disclosure of any transaction in Appeals and in court, a taxpayer may not seek review (in Appeals or in court) of the commissioner's denial of a request to rescind the penalty.
9. The IRS is required to submit an annual report to Congress that includes information regarding the application of the IRC 6707A penalty and the rescission provision, as well as information about the application of certain other penalties.
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