The section 6662A penalty belongs in the FPAA for a TEFRA partnership proceeding

Plain-English summary

Counsel advised that the section 6662A penalty should be included in the FPAA because it relates to an adjustment to a partnership item. The partnership is not a party to a TEFRA proceeding, so penalties determined in that proceeding apply to the partners rather than the partnership. The proceeding determines the partnership-level components of the penalty, while the actual tax understatement is computed at the partner level afterward.

Ruling snapshot

• Question: Where should a section 6662A penalty be determined in a TEFRA proceeding?
• Outcome: Advice given
• Key authorities: IRC §§ 6221, 6226(f), and 6662A; Treas. Reg. § 301.6221-1(d); Chef's Choice and Stobie Creek

Full text (IRS public release)

ID: CCA_2009092409320937 Number: 200945066
Release Date: 11/6/2009
Office: ----------
UILC: 6662A.00-00

From: -------------------
Sent: Thursday, September 24, 2009 9:32:16 AM
To: ----------------
Cc: --------------------------------------------------------
Subject: RE: 6662A

The section 6662A penalty should go in the FPAA since it "relates to an adjustment to a partnership item." I.R.C. 6221 and 6226(f). The partnership is not a party to a TEFRA proceeding, so all penalties determined in a TEFRA proceeding apply to the partners, not the partnership. See Chef's Choice v. Commissioner (TEFRA proceeding is analogous to class action of partners). In this regard, section 6662A is really no different than the substantial understatement penalty which also goes in the FPAA. The TEFRA proceeding only determines the partnership level components of the penalty. The actual understatement of tax is a partner-level determination that is computed after the partnership proceeding. Treas. Reg. 301.6221-1(d); Stobie Creek v. U.S.