Tax News

CCH (cch.taxgroup.com) reports:

  The IRS issued identical temporary and proposed regulations regarding the imposition of penalties under Code Sec. 6707A for a failure to include on any return or statement any information required to be disclosed under Code Sec. 6011 with respect to a reportable transaction. The temporary regulations apply to disclosure statements that are due after September 11, 2008, and they are set to expire on or before September 9, 2011. Written or electronic comments on the proposed regulations and requests for a public hearing must be received by December 10, 2008. Notice 2005-11, 2005-1 CB 493, which provided interim guidance, is superseded.

  Under Code Sec. 6011 and its regulations, a taxpayer must file a disclosure statement on Form 8886, Reportable Transaction Disclosure Statement, for each reportable transaction in which the taxpayer participated. The taxpayer also must send a copy to the IRS Office of Tax Shelter Analysis (OTSA) at the same time. Under Code Sec. 6707A, the IRS can impose a penalty for failure to comply with these requirements. The penalty is $10,000 for an individual, and $50,000 in any other case. These amounts are increased to $100,000 and $200,000 if the failure relates to a listed transaction. In Rev. Proc. 2007-21, 2007-1 CB 613, the IRS provided a procedure under which a taxpayer can seek to have the IRS rescind a Code Sec. 6707A penalty.

Separate Penalty for Each Failure

  As under the interim guidance, Temporary Reg. §301.6707A-1T(c) and Proposed Reg. §301.6707A-1(c) provide that a taxpayer incurs a separate penalty with respect to each reportable transaction that the taxpayer was required, but failed, to disclose within the time and in the form and manner required. A taxpayer who is required to disclose a reportable transaction on a Form 8886 filed with a return, amended return or application for tentative refund and who also is required to disclose the transaction on a Form 8886 with OTSA, is subject to only a single penalty for failure to make either one or both of those disclosures.

Rescinding the Penalty

  As under the interim guidance, Temporary Reg. §301.6707A-1T(d) and Proposed Reg. §301.6707A-1(d) provide that the IRS may rescind the penalty if: (i) the violation relates to a reportable transaction that is not a listed transaction, and (ii) rescinding the penalty would promote compliance with the requirements of the IRC and effective tax administration. The regulations adopt the factors listed in Rev. Proc. 2007-21 that the IRS will consider in deciding to rescind. The factors include the following:

  (1) The taxpayer, upon becoming aware that it failed to disclose a reportable transaction properly, filed a complete and proper, although untimely, Form 8886.

  (2) The failure arose from events beyond the taxpayer's control.

  (3) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue.

  (4) The failure was due to an unintentional mistake of fact that existed despite the taxpayer's reasonable attempts to ascertain the correct facts with respect to the transaction.

  (5) The taxpayer has an established history of properly disclosing other reportable transactions and complying with other tax laws.

  (6) The penalty weighs against equity and good conscience, including whether the penalty is disproportionate to the tax benefit and whether the taxpayer demonstrates reasonable cause (such as that the taxpayer informed the individual who prepared its tax returns that the taxpayer participated in the reportable transactions).

SEC Reporting

  Temporary Reg. §301.6707A-1T(e) and Proposed Reg. §301.6707A-1(e) provide that a taxpayer who is required to file periodic reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) must disclose in periodic reports filed with the SEC the requirement to pay certain penalties in a manner to be prescribed by the IRS. The IRS has done so in Rev. Proc. 2005-51, 2005-2 CB 296, amplified by Rev. Proc. 2007-25, 2007-12 I.R.B. 761.

T.D. 9425, 2008FED ¶47,059

Proposed Regulations, NPRM REG-160868-04, 2008FED ¶49,834

Other References:

 
Code Sec. 6707A

  CCH Reference - 2008FED ¶40,092

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,252