CCA 200920042: Amended-return disclosure did not cure a late Form 8886 but could support penalty rescission

Plain-English summary

Chief Counsel addressed a taxpayer who omitted a required transaction disclosure from a timely return and later attached it to an amended return. The later filing did not cure the original failure to meet section 6011’s disclosure requirements. For a transaction that was not listed, however, the amended-return disclosure would weigh heavily in favor of rescinding the section 6707A penalty. That favorable factor applied if the taxpayer disclosed before the IRS first made examination contact and did not delay until the IRS had taken steps to identify the participation. Rescission was unavailable if the transaction was a listed transaction.

Ruling snapshot

• Question: Does a transaction disclosure filed with an amended return cure the original omission, or support rescission of the resulting penalty?
• Outcome: Advice given: it does not cure the omission, but a prompt pre-contact disclosure can strongly support rescission for a non-listed transaction.
• Key authorities: IRC §§ 6011, 6707A; Temp. Treas. Reg. § 301.6707A-1T(c)(2), (d); Rev. Proc. 2007-21.

Full text (IRS public release)

ID: CCA_2009040111483726 Number: 200920042
Release Date: 5/15/2009
Office: --------------
UILC: 6707.00-00

From: ----------------------------
Sent: Wednesday, April 01, 2009 11:48:40 AM
To: ---------------
Cc: -----------------------------------------------------------
Subject: RE: 6707A question

---------

----- asked that I address the question you posed below.

Example 4 of Treas. Reg. 301.6707A-1T(c)(2) addresses the situation described below where the taxpayer participates in a non-listed transaction. In the example, the taxpayer did not file a disclosure with his timely return, but filed a disclosure with an amended return. As stated in the example, our position is that the amended return with the attached disclosure statement does not cure an earlier failure satisfying the disclosure requirements of section 6011. The example goes on, however, to state that the filing of the disclosure statement with an amended return is a factor that will weigh heavily in favor of rescission of the penalty, should the taxpayer make a request for rescission under Rev. Proc. 2007-21. Note, however, if the transaction is a listed transaction rescission is not available. Treas. Reg. 301.6707A-1T(d)(1).

Section 301.6707A-1T(d) addresses the Secretary's rescission authority and sets out factors that will be considered. One of the factors, section 301.6707A-1T(d)(3)(i) is whether the taxpayer upon learning of the disclosure obligation filed Form 8886. This untimely disclosure will weigh heavily in favor of rescission provided that (1) the taxpayer disclosed the transaction before the date the IRS first contacts the taxpayer concerning an examination of the tax period to which the transaction relates, and (2) the taxpayer did not unnecessarily delay in reporting the transaction until the IRS had taken steps to identify the taxpayer's participation in the reportable transaction in question.

Please let me know if you have any further questions.

------------

-----------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------
---------------------
----------------------------