IRS addresses an accuracy-related penalty tied to a loss carryback or carryover

Plain-English summary

Chief Counsel Advice addresses when an accuracy-related penalty may apply to an underpayment connected with a loss, deduction, or credit carried to another year. It states that the loss must actually be attributable to conduct in the year the loss arose that can be penalized under IRC section 6662. The cited regulations apply the negligence or disregard penalty, and similarly the substantial-understatement penalty, to the relevant portion of the later year's underpayment when the underlying conduct occurred in the year the carryback or carryover arose.

Ruling snapshot

• Question: When may an accuracy-related penalty apply to an underpayment involving a carried loss, deduction, or credit?
• Outcome: Advice given
• Key authorities: IRC § 6662; Treas. Reg. §§ 1.6662-3(d) and 1.6662-4(c)

Full text (IRS public release)

ID: CCA_2011030113141950 Number: 201114027
Release Date: 4/8/2011
Office: --------------

UILC: 6662.00-00

From: -----------------------
Sent: Tuesday, March 01, 2011 1:14:24 PM
To: --------------------
Cc:
Subject: RE: Penalty question

Yes, as long as the loss is actually attributable to conduct in the year that the loss arises that can be penalized under section 6662. Treas. Reg. section 1.6662-3(d) provides that the penalty for negligence or disregard of rules or regulations applies to any portion of an underpayment for a year to which a loss, deduction or credit is carried, which portion is attributable to negligence or disregard of rules or regulations in the year in which the carryback or carryover of the loss, deduction or credit arises. See also Treas. Reg. section 1.6662-4(c) (providing a similar rule for the accuracy-related penalty on underpayments attributable to substantial understatement of income tax).