INSIGHTS AND RESOURCES

IRS Practice Unit provides steps for assessing section 6707A penalty

Practice Unit addresses failure to disclose reportable transactions

TAX ALERT  | 

Authored by RSM US LLP


The IRS Large Business and International Process Unit released a Practice Unit outlining steps to evaluate assessing a penalty on taxpayers who fail to include reportable transaction information with a return. 

Taxpayers who participate in a reportable transaction under Reg. section 1.6011-4 are required to file a Form 8886, Reportable Transaction Disclosure Statement, with their return and with the Office of Tax Shelter Analysis (OTSA). Taxpayers who fail to provide the required information are subject to a penalty under section 6707A.

Section 6707A, enacted as part of the American Jobs Creation Act of 2004, assesses a penalty for failure to disclose a reportable transaction in the amount of 75% of the decrease in tax shown on the return as a result of transaction, subject to a minimum and a maximum penalty. The maximum penalty is $200,000 for a listed transaction ($100,000 for individuals) and $50,000 for any other reportable transaction ($10,000 for individuals). The minimum penalty for failing to disclose is $10,000 ($5,000 for an individual). Final regulations under section 6707A were issued in early 2019 to clarify the calculation of the penalty and the effect of the statute of limitations. (See our prior alert.)

Section 6707A does not provide any exception to the penalty for reasonable cause or good faith. However, the IRS may rescind the penalty, except in the instances of listed transactions, if rescission would “promote tax compliance and effective tax administration.” Congress has explicitly denied taxpayers a judicial appeal of the commissioner’s denial of a request to rescind the penalty.

The new Practice Unit includes the following process steps: Determining whether the taxpayer has participated in a reportable transaction; if so, whether the taxpayer was required to file a Form 8886, and if it was done accurately and completely; determining whether the taxpayer was required to file a Form 8886 with the OTSA,  and whether it was done accurately and completely; and if the Forms 8886 where not filed or not filed accurately and completely, consider assessing the section 6707 penalty.

WNT considerations

Taxpayers should consult their tax advisers if they believe they have participated in a reportable transaction and have failed to file a Form 8886 disclosing their participation accurately and completely. The IRS has stepped up its efforts to enforce these disclosures and will be assessing penalties for failure to file either with a return or to the OTSA.

Let's Talk!

Call us at +1 213.873.1700, email us at solutions@vasquezcpa.com or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Evan Stone, Trina Pinneau and originally appeared on 2021-08-06.
2021 RSM US LLP. All rights reserved.
https://rsmus.com/what-we-do/services/tax/federal-tax/tax-controversy/irs-practice-unit-provides-steps-for-assessing-section-6707a-pen.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.

Subscribe to receive important updates from our Insights and Resources.

  • Should be Empty: