Imputed underpayment used for penalty threshold

Plain-English summary

Chief Counsel advised that, when a partnership has an imputed underpayment under the centralized partnership audit rules, section 6233 treats that amount as the underpayment or understatement for calculating a penalty. For the section 6662 substantial-understatement penalty, the imputed underpayment must exceed the applicable threshold. The email states that the threshold is 10 percent of the tax required to be shown on the return or $5,000.

Ruling snapshot

• Question: What amount is tested to determine whether an understatement is substantial under the BBA partnership audit rules?
• Outcome: Advice given, use the imputed underpayment as the understatement
• Key authorities: IRC §§ 6233(a)(3), 6662(d)(1)(A); Treas. Reg. § 301.6233(a)-1(c)(2)(iv)(B)(2)

Full text (IRS public release)

ID: CCA_2024070119564248 [Third Party Communication:

UILC: 6233.01-00
Date of Communication: Month DD, YYYY]

Number: 202433013
Release Date: 8/16/2024
From: --------------------
Sent: Monday, November 13, 2023 7:40:07 AM
To: --------------------
Cc: ----------------------
Bcc:
Subject: RE: IRC 6662 Penalties Under BBA

Do you have an imputed underpayment? Under section 6233(a)(3), the imputed underpayment is the underpayment/understatement for purposes of calculating the penalty. Under section 6662(d)(1)(A), to determine whether the threshold for the penalty is met (i.e. is the understatement substantial), the understatement (i.e. the imputed underpayment) must exceed 10% of the tax required to be shown on the return (301.6233(a)-1(c)(2)(iv)(B)(2)) or $5,000.

If you have any questions, please feel free to give me a call.

Thanks,
Jenni

Jenni Black (she/her)
Senior Counsel
CC:PA:06
Phone: (202) 317-5216