CCA 200935030: Reportable-transaction understatement penalty language

Plain-English summary

This Chief Counsel Advice proposes language for assessing penalties in a reportable-transaction understatement. Except where the 40-percent gross-valuation-misstatement penalty applies, it says the IRC § 6662A penalty should be primary and the § 6662 penalty secondary. The proposed determination states that the penalty is generally 20 percent, rising to 30 percent for the portion tied to an unmet disclosure requirement under IRC § 6664(d)(2)(A). It also states that the taxpayer had not shown reasonable cause and good faith or another applicable exception.

Ruling snapshot

• Question: What penalty language should apply to a reportable-transaction understatement?
• Outcome: Advice given
• Key authorities: IRC §§ 6662, 6662A, 6664(d)(2)(A).

Full text (IRS public release)

ID: CCA_2009033113033064 Number: 200935030
Release Date: 8/28/2009
Office: -------------
UILC: 6662.00-00

From: ------------------
Sent: Tuesday, March 31, 2009 1:03:32 PM
To: ------------------------
Cc:
Subject: RE: DATS Shelter Project ---------

How about the below? Note that, except where the 40% gross valuation misstatement penalty applies, section 6662A should be the primary penalty and section 6662 the secondary position. I have not tried to integrate the language for the two penalties to accomplish that, as I think you can readily do so.

It is determined that you are liable for a penalty under IRC § 6662A for a reportable transaction understatement. Generally, the penalty is 20 percent of the reportable transaction understatement; however, the penalty is 30 percent of the portion of any reportable transaction understatement with respect to which the disclosure requirement in IRC § 6664(d)(2)(A) was not met. You have not shown there was reasonable cause, and that you acted in good faith, with respect to the reportable transaction understatement or that any other exception to the penalty applies