PATH Act makes section 6676 deficiency question moot

Plain-English summary

Chief Counsel considered which form should extend the assessment period for a section 6676 penalty when the penalty was subject to deficiency procedures. The advice explains that the Tax Court's Rand decision had allowed disallowed refundable credits to create a deficiency without creating an underpayment, which could make section 6676 apply. The PATH Act amended section 6664 to eliminate that mismatch for applicable returns. Disallowed refundable credits on an original return therefore became subject to the accuracy-related and fraud penalties rather than section 6676. Because section 6676 was no longer subject to deficiency procedures in these circumstances, Chief Counsel concluded that the original question was moot and Form 872-EC could continue to extend the assessment period.

Ruling snapshot

• Question: Which form should extend the assessment period for a section 6676 penalty when deficiency procedures apply?
• Outcome: The statutory change made the question moot, and Form 872-EC may continue to be used.
• Key authorities: IRC §§ 6211, 6501, 6662, 6662A, 6663, 6664, and 6676; PATH Act § 209(a)

Full text (IRS public release)

ID:          CCA_2016011211034510
UILC:        6676.00-00

Number: 201607027
Release Date: 2/12/2016
From:
Sent: Tuesday, January 12, 2016 11:03:45 AM
To:
Cc:
Bcc:
Subject: RE: Statute of Limitations re: Section 6676 Civil Penalty Imposed for Filing a Claim for Refund
in an Excessive Amount without Reasonable Basis


Hi ------,

You submitted a question concerning the appropriate form for use in extending the
statute of limitations on assessment of the section 6676 penalty in situations where the
penalty is subject to deficiency procedures. We intended to respond to the question by
reviewing and revising the memo drafted by subject matter expert -----------------------------
------. However, an intervening statutory change has made the question moot.

In Rand v. Commissioner, 141 T.C. 376 (2013), the Tax Court considered whether the
disallowance of refundable credits listed in section 6211(b)(4) could give rise to an
underpayment, as defined in section 6664(a). The Tax Court held in that case that
disallowed refundable credits must be taken in to account when determining the amount
shown as tax on a return, but that the amount shown as tax cannot be reduced below
zero as a result of disallowed refundable credits. The Rand holding created a situation
in which the disallowance of a refundable credit gave rise to a deficiency, as defined in
section 6211, but not an underpayment, as defined in section 6664. Furthermore,
because no underpayment would arise from the disallowance of refundable credits, the
penalties under section 6662, 6662A, and 6663 were inapplicable to disallowed
refundable credits and the section 6676 penalty on erroneous claims for refund or credit
was applicable instead.

In determining whether a given penalty is subject to deficiency procedures, the Tax
Court has applied a rule that when a penalty is dependent on the determination of a
deficiency, then that penalty is subject to deficiency procedures; when a penalty is not
dependent on the determination of a deficiency, then the penalty is not subject to
deficiency procedures. See Smith v. Commissioner, 133 T.C. 424, 429 (2009). Prior to
the recent statutory change, the section 6676 penalty was dependent on the
determination of a deficiency in only one circumstance: when asserted with respect to
the disallowance of a refundable credit. The disallowance of a refundable credit on an
original tax return would give rise to a deficiency, but not an underpayment, such that
the section 6676 penalty could apply. Any section 6676 penalty asserted with respect


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to the disallowed refundable credit was dependent on the existence of a deficiency. If
the taxpayer correctly claimed the refundable credit, there would be no deficiency and,
accordingly, there would be no excessive claim to which the section 6676 penalty could
apply. If, on the other hand, the taxpayer did erroneously claim the refundable credit, a
deficiency would arise and the section 6676 penalty could apply. Because the section
6676 penalty was, under these circumstances, dependent on the determination of a
deficiency, deficiency procedures were applicable.

Section 209(a) of the PATH Act (Pub. L. 114-113) in effect overrules Rand and amends
section 6664(a) of the Code to provide that “a rule similar to the rule of section
6211(b)(4) shall apply for the purposes of this subsection.” Under section 6664, as
amended, disallowed refundable credits must be taken into account when determining
the amount shown as tax on the return and can reduce below zero the amount of tax
shown on the return. This change eliminates the discrepancy created by Rand between
how refundable credits are taken into account in calculating a deficiency under section
6211 and how they are taken into account in calculating an underpayment under section
6664. As a result of this change in calculating the amount of an underpayment,
disallowed refundable credits claimed on an original return will no longer be subject to
penalty under section 6676, but will instead be subject to penalty under sections 6662,
6662A, and 6663. This change also eliminates situations where determination of the
section 6676 penalty is dependent on the determination of a deficiency.

Section 6664(a), as revised, is effective with respect to all returns filed after December
18, 2015 and with respect to returns filed on or before December 18, 2015 for which the
section 6501 statute of limitations on assessment had not yet expired as of that date.

Because there are no longer any situations where the section 6676 penalty is subject to
deficiency procedures, the question posed by ------------------memo is moot. Moving
forward, the Form 872-EC can continue to be used to extend the statute of limitations
on assessment of the section 6676 penalty. If you have any questions or would like to
discuss these issues further, just let me know.

Best,
---------