CCA 1020020: Counsel clarified judicial review of a reportable-transaction penalty

Plain-English summary

In an internal Chief Counsel email, the sender forwarded a question to the office with jurisdiction over the regulations under IRC § 6011 concerning reportable-transaction disclosures by S corporations and their shareholders. The email corrected the view that a penalty under IRC § 6707A is not subject to judicial review. It explained that a court generally cannot review the Commissioner's decision on whether to rescind a penalty for failure to disclose a reportable transaction, other than a listed transaction, under § 6707A(d)(2). However, the penalty may be reviewable in a refund action, and possibly in a collection due process proceeding, where a court could consider whether the penalty's elements were satisfied, including whether a disclosure obligation existed.

Ruling snapshot

• Question: What judicial review is available for a penalty based on failure to disclose a reportable transaction?
• Outcome: Advice given
• Key authorities: IRC §§ 6011 and 6707A(d)(2)

Full text (IRS public release)

ID: CCA_2010042113225164 Number: 201020020
Release Date: 5/21/2010
Office: -------------
UILC: 6011.01-00

From: ------------------
Sent: Wednesday, April 21, 2010 1:23:03 PM
To: ---------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------

Subject: FW: 6707A

Two things:

1. I am forwarding this to --------------------in ----- because ----- has jurisdiction over the 6011 regs on
   reportable transactions. ----- can respond to how the regs require disclosure by both S Corporations and
   S Corp shareholders.

2. You are mistaken is stating that the penalty is not subject to judicial review. There is no judicial review
   of the Commissioner's decision regarding whether to rescind the penalty on failure to disclose reportable
   transactions other than listed transactions. See section 6707A(d)(2). However, the penalty is subject to
   review in a refund action (or, possibly, CDP proceeding) in which a court could consider whether all
   elements necessary for the penalty to apply are satisfied, including whether there was a disclosure
   obligation in the first place.