Ezel / IRS Rulings / 201043033

Computational adjustments count toward the reportable-transaction penalty

Number
201043033
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Accuracy Related Penalty on Understatements with respect to Reportable Transactions
Topics
Procedure, penalties, and administration
Code sections
§ 6662A
Ruling dated
May 13, 2010
Publicly released
October 29, 2010
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2010, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2010
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel addressed whether the IRC § 6662A penalty calculation includes increases in income resulting from computational adjustments made after changing the treatment of a listed transaction. The advice answers yes because the reportable transaction understatement includes the difference between the proper tax treatment and the taxpayer’s treatment. It also notes that the flush language after § 6662A(b)(1)(A) through (D) can produce a highest tax rate above 35 percent, depending on the circumstances.

Ruling snapshot

  • Question: Do computational adjustments resulting from a changed listed-transaction treatment count in calculating the § 6662A penalty?
  • Outcome: Advice given
  • Key authorities: IRC § 6662A

Full text (IRS public release)

ID: CCA_2010051308190054 Number: 201043033
Release Date: 10/29/2010
Office: ----------------------------
UILC: 6662A.00-00

From: --------------------
Sent: Thursday, May 13, 2010 8:19:10 AM
To: ---------------------
Cc: ---------------------
Subject: Section 6662A and computational adjustments

----------

In your April 29, 2010 inquiry, you asked whether the calculation of the penalty under 6662A includes increases in income based on computational adjustments which are made as a result of the change in treatment of the listed transaction. Based on your review of the code section, it appears the answer is yes, but you have been unable to find anything specific, in the way of a written interpretation. You are reviewing a number of notices of deficiency pertaining to a particular listed transaction and need to make sure the IRS is taking a consistent position on how this penalty is being calculated.

Our response: Yes, the phrase "reportable transaction understatement," which includes as a component the difference between the proper tax treatment of an item and the taxpayer's treatment, takes into account computational adjustments made as a result of the change in treatment.

Also note that under section 11, the flush language after subsection (b)(1)(A)-(D) can make the highest tax rate more than 35%, depending upon the circumstances. At first glance, this provision appears to make 35% the highest rate. If you review page ix of Volume 1 of the Winter 2010 CCH edition of the IRC, this includes a table of how the rates apply to corporate taxpayers.

I hope that this is helpful.

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