CCA 1042024: Carrybacks do not reduce the return-preparer understatement amount

Plain-English summary

Chief Counsel Advice addressed how to determine an understatement of liability for purposes of IRC § 6694. It stated that the net payable for the taxable year and return involved is not reduced by a carryback when the return preparer engaged in conduct proscribed by § 6694. The advice also noted that the Small Business and Work Opportunity Tax Act of 2007 increased the first-tier penalty under § 6694(a) for returns prepared after May 25, 2007.

Ruling snapshot

• Question: Does a carryback reduce the net payable used to determine an understatement for an IRC § 6694 penalty?
• Outcome: Advice given
• Key authorities: IRC §§ 6694 and 6694(a); Treas. Reg. § 1.6694-1(c); Small Business and Work Opportunity Tax Act of 2007

Full text (IRS public release)

ID: CCA_2010081211580250 Number: 201042024
Release Date: 10/22/2010
Office: --------------
UILC: 6694.00-00

From: -----------------------
Sent: Thursday, August 12, 2010 11:58:07 AM
To: --------------------
Cc:
Subject: RE: Questions

The regulations under section 6694 specifically discuss this situation for purposes of determining whether
an "understatement of liability" exists. Treas. Reg. section 1.6694-1(c) provides that the net payable in a
taxable year with respect to the return for which the preparer engaged in conduct proscribed by section
6694 is not reduced by any carryback.

Also, the Small Business and Work Opportunity Tax Act of 2007 increased the first-tier penalty under
section 6694(a) from $250 to the greater of $1,000 or 50 percent of the income derived (or to be derived)
by the preparer from the preparation of a return with respect to which the penalty was imposed. The
amendments made by the 2007 Act were effective for tax returns prepared after the date of enactment,
May 25, 2007.