CCA 1036015: One section 6701 penalty applies per person and tax period

Plain-English summary

Chief Counsel advised that when the same person prepares two documents relating to the same taxpayer and the same taxable period, section 6701 permits only one penalty against that person for the period. The advice explains that section 6701(a) refers to a penalty for each document, but section 6701(b)(3) limits the result to one penalty per person per period. If different people prepared the documents, a penalty may be asserted against each person, assuming the other statutory requirements are satisfied. The release notes that the available facts did not establish whether the two documents were prepared by the same person.

Ruling snapshot

• Question: How many section 6701 penalties may be asserted when two documents relate to the same taxpayer and taxable period?
• Outcome: Advice given
• Key authorities: IRC § 6701(a), (b)(3); Mullikin v. Commissioner, 952 F.2d 920, 930 (6th Cir. 1991)

Full text (IRS public release)

ID: CCA-528120-10 Number: 201036015
Release Date: 9/10/2010
Office:
UILC: 6701.02-00

From: ---------------------
Sent: Fri 5/28/2010 12:00 PM
To: ----------------
Cc: ----------------------------
Subject: RE: 6701 Penalty Calculation

I’m answering your question relating to asserting the section 6701 penalty when there
are two documents that could potentially give rise to the penalty. If you have other
questions, let us know.

As you point out, section 6701(a) provides that any person who meets the requirements
of the section “pay a penalty with respect to each such document in the amount
determined under subsection (b).” The “respect to each document” language plainly
reads as though a penalty may be asserted for each document prepared by a person
who meets the requirements under subsection (a).

Section 6701(b)(3), however, provides:

ONLY 1 PENALTY PER PERSON PER PERIOD.- If any person is subject to a penalty
under subsection (a) with respect to any document relating to any taxpayer for any
taxable period (or where there is no taxable period, any taxable event), such person
shall not be subject to a penalty under subsection (a) with respect to any other
document relating to such taxpayer for such taxable period (or event).

Therefore, if two documents are prepared by the same person and relate to the same
period, there is only one section 6701 penalty asserted against that person. See
generally Mullikin v. Commissioner, 952 F. 2d 920, 930 (6th Cir. 1991). Whether the
two documents in your case were prepared by the same person is unclear. If each
document was prepared by a separate person, then the section 6701 penalty may be
asserted against both persons, assuming all other requirements are met.

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