CCA 200747020: Excessive refund claim penalty equals 20 percent of disallowed amount

Number

200747020

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Miscellaneous Issues

Topics

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2007, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

Chief Counsel explained how to calculate the penalty for an excessive income tax refund or credit claim under § 6676. The penalty is 20 percent of the amount claimed above the amount allowed. It can apply to an original or amended return or another form that claims a refund or credit. Claims relating to the earned income credit are excluded from this calculation. The memo illustrates a $200 penalty when a taxpayer claims a $2,000 refund but is allowed only $1,000. It also says the penalty does not apply when the taxpayer shows a reasonable basis for the claim or when the excessive amount is subject to a penalty under §§ 6662, 6662A, or 6663.

Ruling snapshot

Question: How is the § 6676 penalty for an excessive refund or credit claim calculated?
Outcome: Advice: 20 percent of the claimed amount above the allowed amount, subject to stated exclusions.
Key authorities: IRC §§ 6676, 32, 6662, 6662A, and 6663.

Full text (IRS public release)

Office of Chief Counsel

Memorandum
Internal Revenue Service

Number: 200747020
Release Date: 11/23/2007
CC:PA:B02:ALMielke
POSTN-131028-07

UILC: 9999.00-00

date: October 03, 2007
to: Laurie Tuzynski
Program Manager
SB/SE Exam Policy
Servicewide Penalties
Attn: Lorraine Byrd

from: Ashton P. Trice
Chief, Branch 2
(Procedure & Administration)

subject: Section 6676 Penalty

This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent.

This memorandum responds to your request for assistance dated July 5, 2007 in which you asked several questions regarding the application of the penalty under section 6676.

Issues

1. ---------------------------------------------------------------------------------

2. How is the section 6676 penalty calculated?

3. ------------------------------------------------------------------------------

Conclusions
POSTN-131028-07
2

1. ------------------------------------------------------------------------------------------------------------

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The manner by which the penalty is calculated is 20% of the excessive amount.
Excessive amount is defined in the statute as the amount by which the claim for refund or credit exceeds the allowable amount of the claim, but the earned income credit is not included in determining the excessive amount.
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Law and Analysis

A. ------------------------------

B. Calculation of the Section 6676 Penalty

Section 6676 applies to all excessive/erroneous claims for refund or credit with respect to income taxes. In addition, the penalty shall apply to any income tax return, whether original or amended, or other form, provided that the return or form presents a claim for refund or credit for an excessive amount.

The manner by which the penalty is calculated is 20% of the excessive amount. Excessive amount is defined in the statute as the amount by which the claim for refund or credit exceeds the allowable amount of the claim. Any claim for refund or credit relating to the Earned Income Credit under section 32 is excluded from the computation of the penalty. The following is a simple formula which can be used to understand the computation of the penalty:

X = amount of claim for refund or credit requested Y = amount of claim for refund or credit allowed X-Y = excessive amount
20%(X-Y) = Amount of the section 6676 penalty

For example, on March 8, 2008, taxpayer mails Form 1040, U.S. Individual Income Tax Return, along with a check for $400 to cover the amount due to the applicable Service
POSTN-131028-07
4

Center. On June 10, 2008, taxpayer files Form 1040X, Amended U.S. Individual Income Tax Return, as a result of changes in the amount of itemized deductions. Taxpayer claims a refund (line 23 of Form 1040X) in the amount of $2000. On consideration of the claim, it is determined that the taxpayer is not entitled to a refund in the amount of $2000, rather the amount of the refund allowed is only $1000. The disparity is not due to any argument having a reasonable basis. The excessive amount is $1000 ($2000-$1000). Taxpayer will be assessed a penalty in the amount of $200 (20%($2000-$1000)).

It is also important to note that the penalty will not apply if the taxpayer is able to show reasonable basis for the claim for refund or credit, or if any portion of the excessive amount of the claim for refund or credit is subject to a penalty under sections 6662, 6662A or 6663.

If the claim for refund or credit with respect to income tax originates with a credit offset for tax such as those listed on page 2 of the Form 1040, U.S. Individual Income Tax Return, then that credit offset is included in the computation of the penalty. As previously mentioned, the one exception to that general rule is that the Earned Income Credit is excluded from the penalty calculation.

C. --------------------------

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This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views.
POSTN-131028-07
5

Please call 622-4940 if you have any further questions.

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