Source: http://oicattorney.blogspot.com/2012/06/updated-irm-on-6707a-reportable.html
Timestamp: 2017-07-28 11:02:35
Document Index: 137879549

Matched Legal Cases: ['§ 6707', '§ 6707', '§ 6707', '§ 6707', '§ 6707', '§ 6707', '§ 6707']

IRS Tax Attorney: Updated IRM on 6707A reportable transactions
The IRS update presents guidance in the application of the IRC 6707A penalty, including identification of reportable transactions,
Jobs Creation Act (AJCA). 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. 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.Subject to the maximum and minimum limits, the amount of the penalty is "75 percent of the decrease in tax shown on the return"
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.The minimum penalty for both listed transactions and non-listed reportable transactions is $5,000 for a natural person and
IRC 6707A(e) further provides that taxpayers that have U.S. Securities and Exchange Commission (SEC) filing
Sections 13 or 15(d) of the Securities Exchange Act of 1934 (for example, publicly traded companies)
are required to disclose
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.There is no reasonable cause exception to the IRC 6707A penalty. The Commissioner of Internal Revenue
(or the commissioner's
effective tax administration. This authority applies only to reportable transactions that are not listed transactions.If a penalty is rescinded, the commissioner (or the commissioner's delegate) must keep on file a record
including the facts and circumstances relating to the violation, the reasons for the decision to
rescind the penalty, and
See IRM 1.15.22.1, Description and Authorities, for appropriate retention standards and authorities.
6707A penalty and the rescission provision, as well as information about the application of certain other
4.32.4.1.2 (06-05-2012)Effective Date - IRC 6707A Penalty
4.32.4.1.3 (06-05-2012)General Application - IRC 6707A Penalty
Treas. Reg. 301-6707A-1, published on September 7, 2011, advises that the Service may assess a penalty under IRC 6707A with
respect to each failure to timely and adequately disclose a reportable transaction as required by IRC 6011
A taxpayer that fails to attach a reportable transaction disclosure statement to a return, including an amended return, and
also fails to provide a copy of a required disclosure statement to the Office of Tax Shelter Analysis (OTSA), will only be
subject to a single penalty under IRC 6707A. The penalty is also applicable if the taxpayer complies with only one of these
two requirements. See Treas. Reg. 301.6707A-1(c)(1) and IRM 4.32.4.2, IRC 6011 - Overview of Disclosure Requirements, for a discussion of when the Form 8886, Reportable Transaction Disclosure Statement, must be sent to OTSA.
to comply with the requirement to file a reportable transaction disclosure statement: Example 1 - Taxpayer T is required to attach a Form 8886 to its return for the 2008 taxable year and to send a copy of the
Form 8886 to OTSA at the time the return is filed. Taxpayer T fails to attach the Form 8886 to its return and fails to send
a copy of the Form 8886 to OTSA. Taxpayer T is subject to a single penalty under IRC 6707A for failure to disclose because
Taxpayer T failed to comply
with the disclosure requirements of IRC 6011 as described in Treas. Reg. 1.6011-4(d) and 1.6011-4(e)
of that chapter. A penalty under IRC 6707A also would apply if Taxpayer T had failed to comply with
only one of the two requirements
as stated in (3) above.
Example 2 - Same as Example
1, except that Taxpayer T also subsequently files an amended return for
2008 that reflects Taxpayer
Filing an amended return with a disclosure will not cure the failure to file a disclosure with the original return unless
the amended return is filed before the due date of the original return (including extensions). However, the regulations
IRS discovered his participation.
If, however, Taxpayer filed the amended return before August 15, the amended return would
with OTSA. See IRM 4.32.4.2, IRC 6011 - Overview of Disclosure Requirements, for a discussion of when the Form 8886 must be sent to OTSA.
files a return. In other words, where a disclosure is due with the return, an IRC 6707A penalty will not
be imposed where
IRC 6707A penalties must be approved by management. See IRM 4.32.4.4, IRC 6707A Penalty Approval Process. 4.32.4.1.4 (06-05-2012)Statute of Limitations - General Information
In general, the 30-day letter for the penalty case should be issued with at least nine months remaining on
receives the case file with six months remaining on the period of limitations on assessment. This also allows time for Appeals
If the 30-day letter cannot be issued with at least nine months remaining on the period of limitations, the examiner should
request an extension of the time to make the assessment from the taxpayer on Form 872, Consent to Extend the Time to Assess Tax. See IRM 4.32.4.1.4.4, Form 872.
IRM 25.6.22.2.1, Assessment,
provides that consent should be solicited at the 180-day time frame. For IRC 6707A penalties, Appeals has requested that
examiners solicit consent at the 9-month time frame to ensure that Appeals has additional time due to the
IRC 6707A cases,
to IRC 6501, Limitations on Assessment and Collection,
if disclosure is required with a return. As such, a period of limitations on assessment for the IRC 6707A penalty should
be treated as applying when disclosure is required with a return and begins to run from the date the
applies to assessment of the IRC 6707A penalty. See IRM 4.32.4.1.4.1, Statute of Limitations When Disclosure Is Required With a Return and IRM 4.32.4.1.4.2, Statute of Limitations When Disclosure Is Required Without a Return for further information. Because the IRC 6707A penalty can be
assessed at the entity level (distinct from the shareholder or partner level), the limitations
statutory notice of deficiency is issued, the statutory notice of deficiency suspends the time to assess a
deficiency (during
the 90-day period to file a petition
with the Tax Court, while the case is before the Tax Court, and an additional 60 days
after the court's decision is final)
but does not suspend the time to assess the IRC 6707A penalty.
4.32.4.1.4.1 (06-05-2012)Statute of Limitations When Disclosure Is Required with Return
General period of limitations: When the Form 8886 is required to be filed with a return, the assessment
of the IRC 6707A penalty
for a failure to timely and/or properly disclose a reportable transaction generally must, as a conservative measure, be made
within three years of the date of
filing the underlying return pursuant to IRC 6501, Limitations on Assessment and Collection.
An earlier version of Treas. Reg. 1.6011-4, applicable to transactions entered into from June 14, 2002 to August 2, 2007,
provides that when a return is filed reflecting a transaction that is not listed but becomes listed at a later time, a taxpayer
must attach a disclosure
form with respect to "open years"
extend the period limitations. There is an exception for listed transactions. For listed transactions only, IRC 6501(c)(10) provides additional time to make
an assessment of the penalty if the disclosure is not made with the return. IRC 6501(c)(10) provides that the period to assess
tax with respect to a listed transaction the taxpayer failed to disclose in accordance with IRC 6011 shall not expire before
one year after the earlier of:
After first following instructions in IRM 4.32.4.1.4.3, General Procedures Applicable to All Reportable Transactions,
see Rev. Proc. 2005-26, 2007-17 C.B. 965, for further guidance on IRC 6501(c)(10) and consult Counsel to determine the applicability
4.32.4.1.4.2 (06-05-2012)Statute of Limitations When Disclosure Is Required Without a Return
Treas. Reg. 1.6011-4(e)(2)(i) requires taxpayers to file a disclosure with OTSA within 90 calendar days of the date that a
transaction is listed or identified as a transaction of interest (TOI) by the Service, if the taxpayer participated in the
transaction and reported tax benefits from it on a previously filed return for which the period for assessing tax remains
limitations period to assess the IRC 6707A penalty should apply. 4.32.4.1.4.3 (06-05-2012)General Procedures Regarding the Statute of Limitations - Applicable to All Reportable Transactions
examiners solicit consent at the 9-month time frame to ensure that Appeals has additional time due to
If the taxpayer refuses to extend
the period of limitations on assessment for a case involving a listed transaction, and the
period in which to assess the tax
(and the penalty) is extended under IRC 6501(c)(10).
the period of limitations on assessment, the examiner may also consult with Counsel, as
4.32.4.1.4.4 (06-05-2012)Form 872
tax on the return associated with
the IRC 6707A penalty, the language of paragraph (1) of the Form 872 must be revised. See
Exhibit 4.32.4-1, Sample Form 872 IRC 6707A Penalty Only for a sample of the penalty only Form 872. See Exhibit 4.32.4-2, Sample Form 872 IRC 6707A Penalty and Income Tax, for a sample of Form 872 to use with both a penalty and income tax. Counsel approved sample Forms 872 for both situations
jointly files a Form 1040, U.S. Individual Income Tax Return,
provided each meets the legal criteria for the penalty. For these cases, the examiner should request that each spouse sign
a spouse for whom the examiner is
not considering an IRC 6707A penalty.
signed by the general partner and
not the tax matters partner. As there is no line on the Form 872 for a general partner to
write in "Partnership Name"
, strike through "Corporate Officer,"
If the taxpayer extends the statute of limitations with respect to the IRC 6707A penalty, ERCS should be updated to reflect
the new statute date. The examiner will need to validate that the statute has been updated in the ERCS system. The examiner
should secure a printout of the ERCS penalty case record to verify the updated statute.
4.32.4.2 (06-05-2012)IRC 6011 - Overview of Disclosure Requirements
as other requirements of the applicable
regulations described below.
The version of the regulations that applies to a transaction at the time the transaction was entered into by
will remain applicable to the taxpayer,
even if the regulations subsequently were modified. When the IRC 6011 regulations
do not impose a disclosure requirement,
the IRC 6707A penalty cannot apply. Therefore, as explained more fully below, even
Returns filed after February 28, 2000 and transactions entered into before
January 1, 2001: The disclosure regulations initially applied to federal corporate income tax returns filed after February
28, 2000. A listed transaction
is not treated as a reportable transaction if it has affected the taxpayer's federal income
only if it is entered into
after February 28, 2000. If a taxpayer entered into the transaction before 2001, it could be
subject to the disclosure regulations if it: (1) was a corporation and (2) the taxpayer reasonably
estimated that the transaction
would reduce the taxpayer's federal income tax liability by more than $1 million in any single taxable year or by a total
of more than $2 million for any combination of taxable years (the projected tax effect test - Treas.
Reg. 1.6011-4T(b)(4)).
See T.D. 8877, 2000-11, C.B. 747; T.D. 8896, 2000-36, C.B. 249 and T.D. 8961, 2001-2 C.B. 194. for more details.
Transactions entered into on or after January 1, 2001 and before
January 1, 2003: If the taxpayer entered into the transaction on or after January 1, 2001, and filed its tax return reporting
the transaction (i.e. reflecting the tax impact of that transaction) on or before June 14, 2002, the taxpayer was subject
to the old rule. In other words, the taxpayer was subject to the disclosure rules only if it was a
corporation and the transaction
reduced the taxpayer's federal
income tax liability by the threshold amounts listed under the old rule
above. See T.D. 9000,
Transactions entered into on or after
January 1, 2003: All taxpayers who are required to file a tax return are subject to the disclosure rules with respect to
all reportable transactions, including listed transactions. See T.D. 9017, 2002-2 C.B. 815, T.D. 9046, 2003-1 C,B 614, T.D.
9108, 2004-1 C.B. 429, T.D. 9295, 2006-2 C.B. 1030, and T.D. 9350, 2007-38 I.R.B. 607 for more details.
Since March 2003, the Form 8886, Reportable Transaction Disclosure Statement,
has been available to taxpayers for use as the disclosure statement required under IRC 6011 and the regulations. For transactions
The requirement to file Form 8886 arises with respect to a return for the taxable year in which participation in a reportable
transaction commences. The requirement to file a duplicate disclosure statement with OTSA applies only with respect to the
initial year the Form 8886 is filed. When a taxpayer fails to file a required Form 8886 in the year the participation in a reportable transaction commences, the
prior to filing of the Form 8886 with a
tax return. A failure by a taxpayer to submit the disclosure with its return or, when required, the duplicate of the disclosure with OTSA,
There are special rules relating to the
filing of a disclosure statement for transactions that become listed transactions
When a taxpayer participates in more than one reportable transaction, a separate Form 8886 must be filed with
4.32.4.2.1 (06-05-2012)Identifying Reportable Transactions
The definition of reportable transaction varies greatly depending on which version of the regulations
applies to the transaction,
Additionally, exceptions to the disclosure requirements under IRC 6011 have been created (for example, Notice 2006-16) and
additional exceptions may be created in the future.
4.32.4.2.2 (06-05-2012)Participation in Reportable Transactions
which version of the regulations is in effect for the transaction, so the actual language of the regulations
transaction he or she is reviewing. Examiners can consult SB/SE, TE/GE, and LB&I technical specialists for the issue (if applicable).
LB&I examiners can also consult the LB&I Domestic Penalties Advisor or the SB/SE Attorney-Advisor to
the Director, Abusive
Transactions and Technical Issues. LB&I examiners should also refer to IRM 4.51.6, Issue Management Process Guide, for further guidance if an Issue Management Team (IMT) regarding a tiered issue exists. SB/SE examiners should also refer
to IRM 4.32.1.5, Activities of an Issue Management Team, for further guidance where an IMT exists for an issue.
4.32.4.2.3 (06-05-2012)Miscellaneous Considerations - Tax Accrual Workpapers
When evaluating Forms 8886 filed by a
taxpayer, examiners should also consider whether a request for the taxpayer's tax accrual
transaction, a loss transaction, or a
contractual protection transaction should not necessarily lead the examiner to consider
For guidance in making this determination, examiners should refer to Announcement 2002-63, which sets forth the Service's
revised policy regarding when it will request, and, if necessary, summon tax accrual workpapers and other
4.32.4.3 (06-05-2012)Processing Procedures - IRC 6707A Penalty
4.32.4.3.1 (06-05-2012)General Information
The IRC 6707A penalty may be imposed
even if an income tax examination results in no change in tax liability
or if no income
If the timing is appropriate for
the income tax and IRC 6707A penalty cases, the 30-day letters for both
4.32.4.3.1.1 (06-05-2012)Case Handling and Time Reporting Procedures
Penalty cases involving a potential IRC 6707A penalty are established as penalty investigations on
the Examination Returns
Control System (ERCS) and include
the appropriate project and tracking codes. See IRM 4.32.2.5.5. SB/SE Tracking Codes,
or examiners may refer to the ATTI website on My SB/SE Examination or the LB&I Office of Tax Shelter Analysis (OTSA) website.
to a listed transaction and the SB/SE or LB&I examiner would analyze whether the taxpayer had a duty
to disclose the transaction
Indicate this in the remarks area. RGS cannot generate the actual penalty report. A manual Form 4549-A, Income Tax Discrepancy Adjustments,
will need to be completed using a supportive workpaper justifying the penalty amount. Because flow-through entities have
Although not required, examiners can use RGS to store and backup documents and workpapers associated with
the IRC 6707A penalty
case file. RGS uses the generic workcenter for miscellaneous civil penalty cases. See the RGS instructions posted to the IRC
6707A link on the SB/SE website for additional information. 4.32.4.3.2 (06-05-2012)Development of Penalty Case Files - Overview
was a reportable transaction. Minimum required documents are listed in IRM 4.32.4.3.2.3, Penalty Case File - Documents Required for All Listed and Non-Listed Reportable Transactions
below, but other documents may be required depending on the case (for example, transactional documents, e-mails, other correspondence,
transactions but the presence of reasonable cause and good faith will not necessarily be determinative of
whether the commissioner
or his delegate grants rescission.
facts related to any potential rescission request as explained in IRM 4.32.4.3, Processing Procedures - IRC 6707A Penalty, and IRM 4.32.4.10, Factors Weighing in Favor of Rescission.
to disclose a reportable transaction
because the IRC 6707A penalty is not a partnership item. Specifically, this penalty is
4.32.4.3.2.1 (06-05-2012)Opening an IRC 6707A Penalty Examination
When starting examination activities related to an IRC 6707A penalty, all examiners should contact
OTSA to determine whether
the taxpayer's name, TIN, year or
years of interest, type of transaction, and whether the disclosure was incomplete or not
attached to the return. Contacts at OTSA are listed at the OTSA website. LB&I examiners, when placing
a tax return under examination
that has a Form 8886 attached, must contact OTSA under certain conditions. Refer to IRM 4.32.2.3.3.1.2 (5), Taxpayer Disclosures, for further information. The examiner must order the original return if the original return is the only method available to confirm whether the Form
for the case file and attach the Form 5345-D to the return. The group secretary will transfer the return on ERCS to Centralized
filed, a graphic image of the return can be requested by the group secretary with command code TRPRT. If the return was filed
through Modernized E-File a PDF file of the return can be requested through your AIMS/ERCS staff.
Once an examiner determines that a
taxpayer either has failed to properly disclose a reportable transaction (whether listed
prepares a separate case file for
the penalty investigation. Examiners handling an IRC 6707A penalty investigation related
by the examiner. If the IRC 6707A
penalty is being considered as part of an income tax examination, a separate opening letter
link on the SB/SE website. Power of Attorney.
In general, when a taxpayer authorizes an individual to represent the taxpayer with respect to a particular form, the representation
also covers any penalties related
to the form. Thus, the IRC 6707A penalty is covered when the taxpayer authorizes the individual
or similar language only
when the Form 8886 was or should have been filed without being attached
to a return (i.e., when a transaction has been listed
after the taxpayer filed the return and the Form 8886 is required to be filed with OTSA separate from
the tax return).
4.32.4.3.2.2 (06-05-2012)Penalty Computation
amended the IRC 6707A penalty and is retroactive to penalties assessed after December 31, 2006. Because the Service assessed
formula. The application of the IRC 6707A penalty remains unchanged; only the calculation of the penalty
amount has been amended.
as a result of the reportable
transaction (or which would have resulted from such transaction if such
The minimum penalty for both listed transactions and non-listed reportable transactions is $5,000 for a natural person and
To determine how the IRC 6707A penalty applies to a married couple filing a joint return, refer to the August 4, 2010 Memorandum
from the Director, Examination, SB/SE, which is available on the SB/SE website.
solely by virtue of filing a joint return. The examiner will only impose the penalty against
the spouse who would remain
be attributed to the penalized spouse, and the penalty imposed will be 75% of that amount.
4.32.4.3.2.3 (06-05-2012)Penalty Case File - Documents Required for all Listed and Non-Listed Reportable Transactions
deficient. If the Form 8886 was not timely filed, include a statement of facts and explanation as to why
A printout of the ERCS penalty case record.
Information on associated flow-through entities (for example, Schedule K-1 ).
IRC 6707A Case Overview and Record of Approval. See Exhibit 4.32.4-4, Case Overview and Record of Approval of IRC 6707A Penalty. This form is also posted at the IRC 6707Apenalty link on the SB/SE website.
Completed Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.
Please ensure that you are using the most current Form 8278. The appropriate penalty reference number (PRN) to use on Form
8278 for the IRC 6707A penalty is
648. On page 1, complete column (c) and (d). Also complete page 8 listing the underlying
income tax return reference. The examiner and manager must sign the Form 8278. 4.32.4.3.2.4 (06-05-2012)Penalty Case File - Additional Documents Required for Non-Listed Reportable Transactions Only
which are listed in the following section.
4.32.4.4 (06-05-2012)IRC 6707A Penalty Approval Process
or her immediate supervisor for written
approval of the imposition of the penalty. See Exhibit 4.32.4-4, Case Overview and Record of Approval of IRC 6707A Penalty, for a sample of the approval form. The form is also posted at the IRC 6707A penalty link on the SB/SE website. If approved, the immediate supervisor records and dates his or her approval on the Case Overview and Record of Approval of IRC 6707A Penalty
form and forwards the file to the SB/SE or LB&I Territory Manager. In the case of a penalty, the amount of which is determined
under IRC 6707A(b)(2) (i.e., the proposed penalty is the maximum penalty allowable under IRC 6707A,) the immediate supervisor
should forward the file to the SB/SE Area Director or the LB&I Director of Field Operations for approval.
webpage under ATAT Portal, Procedures & Guidance.
If the Territory Manager (Area Director
or Director of Field Operations, as appropriate) approves the penalty, the file, including
4.32.4.5 (06-05-2012)Issuing the 30-Day Letter (Modified) - Letter 4143
The report to assert the IRC 6707A penalty cannot be prepared on RGS. (As noted previously, an examiner should use RGS to
calculate the deficiency attributable to the reportable transaction and then compute the penalty amount for individuals and
C corporations and may use RGS to store
workpapers, but RGS is not able to produce the report.)
If the taxpayer agrees with the proposed assessment, the examiner should request the taxpayer's signature on a Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment. If the taxpayer makes a payment regarding the penalty, see IRM 4.32.4.7 (2), 30-Day Letter Issued and Taxpayer Does Not Appeal, for processing instructions.
4.32.4.5.2 (06-05-2012)No-Change Letter
4.32.4.6 (06-05-2012)Timely Appeals Requests - Overview
If possible, taxpayers are offered pre-assessment Appeals consideration of any proposed IRC 6707A penalty. See IRM 4.32.4.6.2, Sending the Case to Appeals - Pre-Assessment Consideration, for more information.
is about to expire and the Government cannot obtain a consent to extend the period of limitations). A taxpayer
post-assessment Appeals consideration merely because he or she failed to timely request pre-assessment Appeals
See IRM 4.32.4.6.3, Sending the Case to Appeals - Post-Assessment Consideration, below for more information.
4.32.4.6.1 (06-05-2012)General Information - All Appeals Requests
To obtain Appeals consideration, the
taxpayer must submit a timely written request (regardless of the total amount of the
proposed assessment) in response to the 30-day letter or the post-assessment notice, and follow the standard
Upon receipt of a protest, the examiner will:
Examiners should consult Rev. Proc. 2012-18, 2012-10 I.R.B. 455, Ex Parte communications between Appeals and other Internal Revenue Service employees before contacting Appeals' employees or sending case information to Appeals' employees.
4.32.4.6.2 (06-05-2012)Sending the Case to Appeals - Pre-Assessment Consideration
To ensure sufficient time to allow a
taxpayer to file a protest and for Appeals to receive the case file with at least six
months remaining on the statute, the
examiner should issue the 30-day letter with at least nine months remaining on the statute.
the letter, the examiner should follow the steps listed below.
Prepare a Form 3198, Special Handling Notice for Examination Case Processing, listing Status Code 41 (PSP) and Disposal Code 07 (Appeals). The secretary or examiner will retain a copy of this Form 3198
until the case is closed to files. Caution:
These status updates will not be performed by the group, and statuses will not be confirmed as transferred to Appeals until
the signed confirmation receipt of the Form 3210 comes back from Appeals; see more below.
Ensure that the penalty case file contains all the documentation described in IRM 4.32.4.3.2.3, Penalty Case File - Documents Required for All Listed and Non-Listed Reportable Transactions and IRM 4.32.4.3.2.4, Penalty Case File - Additional Documents Required for Non-Listed Reportable Transactions Only, as well as a rebuttal to the taxpayer's protest, a copy of which must have been provided to the taxpayer and the taxpayer's
the examiner's post of duty). Attach
a Form 3210. For additional information about where to send the file, please refer to
the Appeals website. Do not send any
RGS files.
Update the ERCS record to suspense type 203, "6707A Penalty Case In-Transit to Appeals"
. The ERCS record will remain in Status Code 12.
Once the examiner or group secretary receives a signed Form 3210 from Appeals, the group secretary should:
Update the ERCS to Status Code 41, Disposal Code 07 and enter the penalty amount.
Send a copy of the signed Form 3210 received from Appeals to the local AIMS/ERCS analyst to close the case to Status Code
90 on ERCS. The local area AIMS/ERCS analyst may require additional documentation in order to close
the record. Appeals then
has jurisdiction over the case and is responsible for the statute, assessing the penalty, etc.
If the IRC 6707A penalty case is on the RGS generic folder system and is live in the inventory, the examiner will move it
and close the case, ensuring the file includes the Appeals case memorandum, closing letter, and agreement
4.32.4.6.3 (06-05-2012)Sending the Case to Appeals - Post-Assessment Consideration
of limitation, the examiner should request a quick assessment of the IRC 6707A penalty under the procedures
described in IRM 4.32.4.7.2, Less Than Nine Months Remain on Statute and Examiner Cannot Obtain Consent to Extend the Statute of Limitations. See IRM 4.32.4.1.4 (3) for additional discussion of taxpayer rights.
At the time the examiner submits the
assessment documents, he or she must also send a letter notifying the taxpayer of the
Automated Information Management System (AIMS). Prepare a Form 3198 listing Status Code 41 (PSP) and Disposal Code 07 (Appeals).
The secretary or examiner will retain a copy of this Form 3198. Note:
the confirmation receipt of the Form 3210 comes back from Appeals; see more below.
Ensure the penalty case file contains all the documentation described in IRM 4.32.4.3.2.3, Penalty Case File-Documents Required for All Listed and Non-Listed Reportable Transactions and IRM 4.32.4.3.2.4, Penalty Case File-Additional Documents Required for Non-Listed Reportable Transactions Only.
The case file should also include a rebuttal to the taxpayer's protest.
The examiner must provide the taxpayer and representative
with a copy of any rebuttal.
Update ERCS to Status Code 41, Disposal Code 07 and enter the penalty amount.
90 on ERCS. The local area may require additional documentation be sent to the AIMS/ERCS analyst when requesting the record
be closed. Appeals then has
jurisdiction over the case, and is responsible for the statute, assessing the penalty, etc.
If the IRC 6707A penalty case is on the RGS generic folder system, the examiner will move it to the server and the manager
the appropriate 6707A point of contact at http://mysbse.web.irs.gov/exam/tip/ajca/contacts/15242.aspx, who will work directly
with Collection to ensure that collection efforts are suspended appropriately during Appeals consideration.
If the penalty case file is missing relevant information, the Appeals Officer will prepare Form 10467, Appeals Division Feedback Report and Transmittal Memorandum,
and return the penalty case file as a premature referral to the examination group using Form 3210. Appeals will update Appeals
If Exam receives a premature referral back from Appeals, the group secretary will forward a copy of the Form 3210 received
from Appeals to the AIMS/ERCS analyst to reopen the case (reverse the Status Code 90 back to active exam group Status Code
12) and will give the case to the manager for re-assignment to an examiner.
The examiner will complete the development of the case and then re-close to Appeals using the procedures listed in IRM 4.32.4.6.2, Sending the Case to Appeals - Pre-Assessment Consideration, and IRM 4.32.4.6.3, Sending the Case to Appeals - Post-Assessment Consideration, above.
4.32.4.7 (06-05-2012)30-Day Letter Issued and Taxpayer Does Not Appeal
The group secretary will transfer the case on ERCS to CCP with Status Code 51, Disposal Code 12 and the penalty amount.
No penalty module exists until assessment is made. After agreed closure, once CCP makes the assessment,
the payment will associate
If the taxpayer has agreed by signing Form 870, the examiner will:
4.32.4.7.1 (06-05-2012)The 30-Day Report (L-4143) Issued and Taxpayer Appeals
Services. See IRM 4.32.4.6.2 (11), Sending the Case to Appeals - Pre-Assessment Consideration.
For instructions on the transmittal of the pre-assessment case from Exam to Appeals, see IRM 4.32.4.6.2, Sending the Case to Appeals - Pre-Assessment Consideration.
4.32.4.7.2 (06-05-2012)Less Than Nine Months Remain on Statute and Examiner Cannot Obtain Consent to Extend the Statute of Limitations
For cases where less than nine months remain on the statute of limitations and no extension can be secured, the examiner should
The examiner should request via fax a quick assessment from CCP. The assigned CCP Field Office Resource Team (FORT) will work
quick assessments within five business days of receipt in the FORT.
The examiner must fax to CCP a copy of the Form 8278, along with a Form 3210.
The examiner will receive an assessment (23C) document locator number (DLN) back in two weeks. The assessment DLN will be
associated in IDRS under the MFT 55 (individual) or MFT 13 (entity) modules and the Transaction Code (TC) 240 penalty reference
number (PRN) 648 will post to master
file in approximately four to six weeks.
the ERCS system will not reflect the
fact that the statute has been protected (i.e., that the penalty has been assessed).
the Form 3198, Special Handling Notice for Examination Case Processing: "Please use ADJ54 NOT Form 2859 to process this penalty"
. Fiscal year assessments take longer to process, so the examiner should expect to receive a copy of Form 3210 with the
assessment (23C) DLN approximately three weeks after the date that the examiner faxed the Form 8278 requesting assessment
To request a quick assessment, the examiner should alert the appropriate FORT manager and fax the documents listed below,
including the Form 8278 signed by the manager and the Form 3198:SB/SE: FORT Manager (Memphis, TN)Phone: 901-786-7019Fax: 901-786-7106 or 901-786-7105LB&I: FORT Manager (Ogden, UT)Phone: 801-620-2102Fax: 801-620-2103
Upon completion of the quick assessment, the CCP will:
Fax a copy of Form 8278 and
the Form 3210 with the assessment (23C) DLN back to the examiner for association with the original
) If the penalty relates to a non-listed reportable transaction, the examiner also completes the IRC 6707A Penalty Rescission Checklist and forwards the copy of the penalty file and Appeals case file to Large Business and International, Pre-Filing Technical
Guidance, Joint Committee (LB&I:PFTG:JC) for potential rescission request:
Internal Revenue Service LB&I:PFTG:JC, 5338 Montgomery Blvd. NE, MS4212:ALB:BH, Albuquerque, NM 87109
If the penalty relates to a non-listed reportable transaction and the taxpayer waives his/her rights
to go to Appeals, has
agreed in writing to the assessment of the penalty, and has agreed not to file or pursue a claim for refund or credit of the
penalty, administratively or through
litigation, other than by requesting rescission, then the examiner also
IRC 6707A Penalty Rescission Checklist and forwards the copy of the penalty file to LB&I:PFTG:JC. Attach information and documents that support responses.
In order to properly complete the IRC 6707A Penalty Rescission Checklist,
all questions should be answered by the examiner and LB&I:PFTG:JC. Attach information and documents that support responses.
Example 1 - In response to Question 5, an IDRS 10-year history showing whether the taxpayer was in compliance with other tax
laws, copies of other Forms
8886 filed and verification from OTSA of Forms 8886 filed should be attached.
Example 2 - Provide any information that would rebut any factors in favor of rescission. If the taxpayer did not cooperate
during the examination or impeded the examination, the examiner should provide details in response
Example 3 - Provide information/documents that support any factors in favor of rescission. If the examiner has information/documents
When the examiner faxes to CCP the request for a quick assessment, he or she will also mail to the taxpayer a "Notice of Assessment
and of Post-Assessment Appeal Rights"
letter with a copy of the penalty report, calculations and other items listed on the letter as
the procedures in IRM 4.32.4.6.3, Sending the Case to Appeals - Post-Assessment Consideration above.
4.32.4.8 (06-05-2012)Abatement Procedures
Exam can abate a penalty only if the penalty does not legally apply and was assessed in error.
may use the standard penalty approval form available within the RGS work center to record approval of
the abatement by the
Use Form 5345-D, Examination Request - ERCS, to establish the penalty on ERCS.
See IRM Exhibit 20.1.1-2, Penalty Reason Code Chart.for a list of appropriate penalty reason codes and explanations. Always use the most current version of the form.
box and write-in "6707A Penalty Claim Case - Send to CCP."
If Form 2363, Master File Entity Change,
was sent to CCP to update the person's address, notate the Form 3198 and include a copy of the form in the case file. Note
on the workpaper copy the date
the form was faxed or sent to CCP. If appropriate, also note that Form 3177, Notice of Action for Entry on Master File, was sent to CCP in the same box.
4.32.4.9 (06-05-2012)IRC 6707A Penalty Rescission Consideration
Non-listed reportable transactions are eligible for rescission (i.e., the penalty can be abated in whole or in part). Listed
The Deputy Commissioner for Services and Enforcement has been delegated the responsibility to determine for the commissioner
whether to rescind the penalty in part or in full.
The taxpayer must send the rescission request to LB&I:PFTG:JC for review.
After receiving the rescission request,
LB&I:PFTG:JC may make a written request seeking additional information and documents
relating to the transaction, such as marketing materials and tax opinions, from the person requesting rescission. Requested
information must be submitted to LB&I:PFTG:JC within 30 days of the date of mailing of the request for additional information
by LB&I:PFTG:JC.
LB&I:PFTG:JC may grant an extension
of time for good cause to persons who request additional time within the 30-day period.
Further, the examiner and other Service employees involved with the examination may be asked to review and comment on the
rescission request.
LB&I:PFTG:JC will coordinate with Examination and Appeals.
LB&I:PFTG:JC will compile the rescission request package and forward a recommendation to the Servicewide Compliance Strategy
Executive Steering Committee (SCS ESC) for review.
The rescission package will include:
Letters prepared for the Deputy Commissioner for Services and Enforcement to sign and send to the taxpayer.
what type of transaction), the
basis for the taxpayer's rescission request and recommendation.
Completed IRC 6707A Penalty Rescission Checklist and all attachments.
Copy of examiner's case file.
Copy of Appeals Officer's case file, if applicable.
Personnel designated by the SCS ESC (SCS ESC reviewers) will review the rescission request package.
SCS ESC reviewers may request additional information from the taxpayer. See Rev. Proc. 2007-21, 2007-9 I.R.B. 613.
SCS ESC reviewers will present their rescission recommendation to the SCS ESC.
The SCS ESC will review the recommendation and, if it agrees, will forward it to the office of the Deputy Commissioner for
Services and Enforcement to the attention of the Assistant Deputy Commissioner for Services and Enforcement.
If the Deputy Commissioner for Services and Enforcement agrees with the recommendation, he will sign the letter to the taxpayer
that was prepared by LB&I:PFTG:JC.
The Deputy Commissioner's office will retain a copy of the signed letter and executive summary sheet, and send the original
letter to the taxpayer.
The Deputy Commissioner's office will return the rescission package to LB&I:PFTG:JC and include a copy of the signed letter.
If the Deputy Commissioner's office does not agree with the recommendation or needs more information, it will contact LB&I:PFTG:JC.
LB&I:PFTG:JC will notify any function in the IRS that still has the taxpayer's return under consideration (e.g., Exam, Appeals,
The rescission determination is not reviewable by Appeals or by any court. Please note: Rev. Proc. 2007-21, 2007-9
I.R.B. 613, provides detailed information about how a taxpayer seeks rescission. See
Treas. Reg. 301-6707A-1(d) for the current list of factors that weigh for and against granting a rescission
request. 4.32.4.10 (06-05-2012)Factors Weighing in Favor of Rescission
The following non-exclusive list of factors, from Rev. Proc. 2007-21, Examination of Returns and Claims for Refund, Credit, or Abatement; Determination of Correct Tax Liability,
weighing in favor of granting rescission are relevant to the determination that rescission would promote compliance with
The commissioner, or his delegate, must
weigh all relevant factors, regardless of whether the factor is included in the list.
albeit untimely, Form 8886 or Form 8264, Application for Registration of a Tax Shelter, (or any successor form), as applicable. This factor will weigh strongly in favor of rescission, provided:
trust in which the taxpayer is
a beneficiary) concerning a tax examination for the tax period in which
the taxpayer participated
in the reportable transaction and
the Service had taken steps to
identify the taxpayer's participation in the reportable transaction in question.
there was reasonable cause for, and the
taxpayer acted in good faith with respect to, the failure to timely file or to include
In determining whether to grant rescission, the commissioner (or delegate) will not consider doubt as to
collectibility of
the penalties. 4.32.4.10.3 (06-05-2012)Effect of Rescission Request on Collection Action
of rescission that is set forth in Rev. Proc. 2007-21 is very similar to, but not identical to, the list of
4.32.4.11 (06-05-2012)Continuation of the Income Tax Examination and IRC 6662A Considerations
IRC 6662A, Imposition of Accuracy-Related Penalty on Understatements With Respect to Reportable Transactions, was added by section 812 of the American Jobs Creation Act (AJCA)
and imposes a 20-percent penalty on an understatement resulting from a reportable transaction that is properly disclosed
and a 30-percent penalty on an understatement resulting from a reportable transaction that is not properly disclosed. The
IRC 6662A penalty will not be imposed if the taxpayer adequately disclosed the reportable transaction, and meets other criteria
to establish reasonable cause and good faith.
AJCA Penalties, IRC 6662A Guidance.
In addition, for purposes of IRC 6662A,
a taxpayer is deemed to have properly disclosed the reportable transaction if the
penalty, the IRC 6662A penalty might not apply depending on whether the taxpayer meets the other criteria for
rescission determination is made if:
If the IRC 6707A penalty is rescinded, the taxpayer is deemed to have properly disclosed the transaction and if
can be secured from files using the DLN
of the TC 240 PRN 648.
4.32.4.12.1 (06-05-2012)Cases That Have Not Been Assessed or Appealed but Penalty Proposed
If the case has not been assessed (i.e., there was no request for a quick assessment) and the taxpayer has
not requested Appeals
consideration, follow normal closing
to CCP for assessment to be made using Form 8278. CCP will make the assessment, close
4.32.4.12.2 (06-05-2012)Closing Quick Assessment Cases
and include the language: IRC 6707A Penalty Case File - Associate with Penalty Assessment under DLN (and input the DLN identified from the transcript or 23C DLN in item 1). Use Status Code 41 (PSP) and disposal code 12 on
Ensure that the penalty case file includes the items identified in IRM 4.32.4.3.2.3, Penalty Case File - Documents Required for All Listed and Non-Listed Reportable Transactions, and IRM 4.32.4.3.2.4, Penalty Case File - Additional Documents Required for Non-Listed Reportable Transactions Only above.
The group secretary will transfer the record in ERCS to Status Code 41, Disposal Code 12, and enter the penalty amount. (Please
ensure the penalty amount is entered
under the penalty amount and not erroneously entered into the deficiency amount.)
The group secretary will send an e-mail to the AIMS/ERCS analyst requesting the penalty record be closed to Status Code 90
on ERCS. The AIMS/ERCS analyst will update the Status Code to 42 and verify the assessment has been made prior to closing
the ERCS record to Status Code 90.
The group secretary will ship the case to files. The closed case must be associated with the DLN of the quick assessment with
the TC 240 and PRN 648. The mailing of the closed case file must include a confirmation of receipt Form 3210
retains for three years. SB/SE closed case file is sent to:
4.32.4.12.3 (06-05-2012)No-Change Procedures
Form 8278 - Penalty Assessment (Page 1) - Complete Columns (c) and (d) for the applicable penalty amount of zero. The three
digit reference code is 648. Complete page eight referring to the income tax return. The examiner and the group manager must
sign Form 8278.
Attach Form 3198 indicating
MFT 13 for an entity or MFT 55 for an individual; reflect the penalty amount as "$0,"
instructions, insert directions for CCP to post a $0 assessment, and for all workpapers to be
kept with the closed case administrative
The group secretary will transfer the ERCS record to Status Code 51 (CCP), Disposal Code 02 and ship to CCP.
the contact and the manager
as signor, and place the letter in the case file. The letter will then be signed, dated and mailed
You may have someone represent you during any part of this investigation. If you want
someone to represent you, please provide
me with a complete Form, 2848, Power
of Attorney and Declaration of Representative that refers to “income taxes and civil
penalties.” (Emphasis added.) In addition, please ensure that information regarding the applicable years is complete, e.g.,
“Dec. 31, 2004” or “12/31/2004,” and
not merely “2004” or “04.”
You may mail or fax the form to me. You can get this form from our office or from our
web site at www.irs.gov, or by calling
1-800-829-3676. If you decide that you wish to get representation after the investigation has started, we will delay further
investigation activity until you can
secure representation.
We have enclosed the following publications: Publication 1, Your Rights
as a Taxpayer; Publication 5, Your Appeal Rights
and How to Prepare a Protest if You Don't Agree; and Publication 594, What You Should Know About the IRS Collection Process.
Please note that, as explained below, certain information contained in Publication 1 and Publication 5 is not applicable to
the IRC § 6707A penalty.
Section VIII states that the IRS will waive penalties when allowed by law if you can show you acted reasonably
Publication 5 states in the Section entitled "If You Do Not Agree" that if you decide to do nothing and your case involves
certain penalties; you will receive a
formal Notice of Deficiency. However, please note that you are not entitled to receive
a formal Notice of Deficiency for the IRC § 6707A penalty. This means that the Tax Court cannot consider your case. Instead,
if you do nothing, the IRS will send
you a bill for the penalty. If you do nothing, please disregard the information about
seeking Tax Court review of this penalty.
Under the section entitled "Protests," Publication 5 states that you may file a formal written protest or a small case request.
Publication 5 further states that a small case request is available where the total amount for any tax period is not more
than $25,000. Please disregard the Publication 5 information about filing a small case request. Please note
file a small case request for an IRC
§ 6707A penalty even if the penalty is less than $25,000. You must file
protest if you wish to dispute the penalty. If you have any questions, please contact me.
Privacy Act of 1974 and Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell
could happen if we do not receive it
and whether your response is voluntary, required to obtain a benefit or
mandatory under
the law. Our
legal right to ask for information is contained in Internal Revenue Code sections 6011 and 6707A and their regulations.
you to further penalties or criminal
uses of the information may include providing it to the Department of Justice to enforce the tax laws, both civil
and criminal, and to cities, states,
the District of Columbia, U.S. commonwealths or possessions, and certain foreign governments
INSERT APPLICABLE PARAGRAPH(S) ON SUMMARY SHEET I am proposing the assessment of a penalty under IRC § 6707A for failing to disclose one or
more reportable transactions described
Listed transactions: A listed transaction is a transaction that is the same as or substantially
similar to one of the types
notice, regulation, or other form of
published guidance as a listed transaction.
A confidential transaction is a transaction that is offered to a taxpayer under conditions of confidentiality
or a related party has the right to a
full or partial refund of fees if all or part of the intended tax consequences from
the transaction are not sustained. A
transaction with contractual protection also is a transaction for which
on the taxpayer's realization of tax
benefits from the transaction.
where the amount for tax purposes of
any item or items of income, gain, expense, or loss from the transaction differs by more
resulting in the taxpayer claiming a
tax credit exceeding $250,000 (including a foreign tax credit) if the underlying asset
giving rise to the credit is held by
the taxpayer for 45 days or less.
I am proposing the assessment of a penalty under IRC § 6707A(e) for failing to disclose in a
periodic report required under
to pay. Specifically, taxpayer was assessed a penalty under IRC § 6707A(e)(2) on INSERT DATE and has failed
to disclose that
for not adequately disclosing the reportable transaction described below: which affected the tax return(s) filed for the period(s) shown above. The I.R.C. § 6707A penalty will not be imposed with
your telephone number, the best time
for us to call you in case we need to contact you, and a copy of this letter.
in the envelope provided. Make your check or money order payable to the United States Treasury for the amount indicated on
the agreement form. If you agree but
cannot pay in full, pay what you can within 30 days from receipt of this notice and we
10. The following signed statement: "Under penalties of perjury, I declare that I
have examined the facts presented in this
A representative who submits a protest should substitute for this declaration a statement that he or she prepared the protest
and accompanying documents, and knows personally that the statement of facts contained in the protest and the documents are
true, correct and complete. The Commissioner may rescind the penalty under IRC section 6707A for transactions other than listed transactions, if rescission
would promote tax compliance and effective tax administration. If you would like to preserve your ability
to submit a rescission
(as set forth in the 10 steps above)
or waive in writing such consideration by signing and submitting the enclosed Form 870.
consideration of your case or fail to waive in writing such consideration or allow the 30-day response time
to lapse without
section 6707A penalty. Publication 1,
and in good faith. However, under law the IRS cannot waive the IRC section 6707A penalty. Instead, the IRC
promote tax compliance and effective
tax administration. The IRC section 6707A penalty for a listed transaction cannot be
rescinded. Publication 5 states (under the Section entitled "If You Do Not Agree") that if you decide to do nothing and your case involves
certain penalties, you will receive a
a formal Notice of Deficiency for the IRC section 6707A penalty and the information about seeking Tax Court review of this
penalty should be disregarded. The Tax Court cannot consider your case under the procedures explained in Publication 5. Under the section entitled "Protests," Publication 5 states that you may file a formal written protest or a small case request.
section 6707A penalty even if the penalty is less than $25,000. You must file a formal
written protest if you wish to dispute the penalty. If you have any questions, please contact the person identified at the top of the first page of this letter. Thank you for
We are assessing a penalty
under IRC section 6707A(e) for failing to disclose in a periodic report
to pay. The penalty is 75 percent of
the decrease in tax shown on your tax return as a result of such transaction (or which
would have resulted from such transaction if such transaction were respected for Federal tax purposes)
for each penalty that
and $50,000 in the case of any other
reportable transaction; and the minimum penalty shall not be less than $10,000.
transactions: A listed transaction is a transaction that is the same as
or substantially similar to one of the types
published guidance as a listed transaction. Subject to maximum and minimum limitations,
result of such transaction (or which
would have resulted from such transaction if such transaction were respected for Federal
tax purposes). The maximum penalty shall not exceed $100,000 for an individual and $200,000 for all others.
The minimum penalty
shall not be less that $5,000 for an
transactions: A confidential transaction is a transaction that is offered to a taxpayer under conditions of confidentiality
to disclose a transaction, the penalty is 75 percent of the decrease in tax shown on your tax return as
a result of such transaction
penalty shall not exceed $10,000 for
an individual and $50,000 for all others. The minimum penalty shall not
be less that
$5,000 for an individual and $10,000
with contractual protection: A transaction with contractual protection is a transaction for which the taxpayer
benefits from the transaction. Subject to maximum and minimum limitations, for each failure
transactions: A loss transaction is a transaction resulting in the taxpayer claiming certain minimum single year or cumulative
year losses under IRC section 165. Subject to maximum and minimum limitations, for each failure to disclose
the penalty is 75 percent of the decrease in tax shown on your tax return as a result of such transaction
(or which would
not exceed $10,000 for an individual
and $50,000 for all others. The minimum penalty shall not be less that $5,000 for an
with significant book-tax differences: A transaction with a significant
book-tax difference is a transaction
involving brief asset holding periods: A transaction involving a brief asset holding period is any transaction
the taxpayer for 45 days or less. Subject to maximum and minimum limitations, for each
The maximum penalty shall not exceed
$10,000 for an individual and $50,000 for all others. The minimum penalty shall not be
Transactions of Interest: A
transaction of interest is a transaction that is the same as or substantially similar to one of
of the decrease in tax shown on your
tax return as a result of such transaction (or which would have resulted from such transaction
if such transaction were respected for Federal tax purposes). The maximum penalty shall not exceed $100,000
and $200,000 for all others. The minimum penalty shall not be less that $5,000 for an individual and $10,000 for all others.