Excessive refund claims may trigger section 6676 penalty

Plain-English summary

During an examination, a taxpayer submitted refund claims based on the section 45O agricultural chemicals security credit, although the original returns had not claimed refunds. Counsel advised that the examination team could determine a section 6676 penalty after disallowing the claims, whether the submissions were formal amended returns or informal refund claims. The penalty would equal 20 percent of the excessive claim amounts. Counsel also advised that the penalty did not depend on a deficiency determination and could be assessed without the deficiency procedures.

Ruling snapshot

• Question: Could the examination team impose section 6676 penalties on excessive refund claims submitted during an audit?
• Outcome: Advice given
• Key authorities: IRC § 6676

Full text (IRS public release)

ID: CCA_2015082010042618
UILC: 6676.00-00

Number: 201538019
Release Date: 9/18/2015
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From:
Sent: Thursday, August 20, 2015 10:04:26 AM
To:
Cc:
Bcc:
Subject: ------------------------------------------------------

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You indicated that the Exam Team wishes to assert a section 6676 penalty. The tax returns for taxable years ------ and ------ of -----------------------------. (“taxpayer”) are under examination. In the course of the examination, the taxpayer’s representatives submitted a claim for refund based upon the IRC sec. 45O agricultural chemicals security credit. While it is unclear from the factual description you sent to our office whether the refund claims were included on completed amended returns, e.g. Form 1120X, or on some other document, i.e. as informal refund claims, we know that the taxpayer’s returns under examination did not claim refunds. The taxpayer’s subsidiary,
---------------------, manufactures and leases railroad tank cars that may carry, among other things, specified agricultural chemicals; therefore, the taxpayer claimed, it constituted an eligible agricultural business, its activity consisting of distributing specified agricultural chemicals. The Exam Team determined that the taxpayer does not qualify for the credit, and a Technical Advice Memorandum from ACC (------) supported this determination. The examination will result in other adjustments which, if upheld, will generate a tax deficiency.

Our responses: Exam may determine the penalty under section 6676 against the taxpayer for making claims for refund in excessive amounts for the above-mentioned taxable years. The penalty will be 20% times the amount of the disallowed refund claims. The penalty is not dependent upon a deficiency determination and the Service may immediately assess the penalties, without using the Code’s deficiency procedures.

Please let me know if you have any questions.

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