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Accuracy-Related
Penalties:
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Introduction
Accuracy Related Penalty
Negligence of Rules
Substantial Understatement
Valuation Misstatement
Fraud Penalty
Reasonnable Cause
Annoucement 2002-2
Policy Statements
Audit Techniques
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Audit Techniques Guide
  
Chapter 9: Policy Statements
IRS Commissioner
Memorandum dated December 29, 2003
On December 29, 2003, the Commissioner
issued a memorandum outlining the Service’s penalty policy concerning
reliance on certain tax shelter opinions. The memorandum provides that
the Service will question the reasonableness and good faith of taxpayers
who know or have reason to know that the tax advisor has a financial
arrangement or a referral agreement with a tax shelter promoter.
Commissioner Memorandum dated December 29, 2003..
LMSB Commissioner
Memorandum dated December 20, 2001
On December 20, 2001, the LMSB
Commissioner issued a memorandum setting forth guidelines for the
consideration of penalties in listed transactions and other abusive tax
shelter cases. See LMSB Commissioner Memorandum dated December 20, 2001.
The memorandum establishes that:
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Examiners must consider the
accuracy-related penalty under IRC § 6662 for underpayments
attributable to a taxpayer’s participation in a listed
transaction.
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If an underpayment of tax is
attributable to a taxpayer’s participation in a listed
transaction, the examiner must develop the accuracy-related
penalty issue and prepare a written report supporting the
recommendation to impose or not to impose the penalty.
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The examiner must give the taxpayer
a chance to demonstrate that the penalty does not apply.
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The examiner must assess several
factors, including whether: the taxpayer has shown that the
transaction was not a tax shelter; the taxpayer was not negligent;
the taxpayer met the requirements of IRC §§ 6662(d)(2)(C); or
the taxpayer met the requirements of the reasonable cause and good
faith exception under IRC § 6664(c).
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In any case where there is an
underpayment attributable to a listed transaction, the Director of
Field Operations (“DFO”) must approve the decision to impose
or not to impose the accuracy-related penalty.
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To assist in determining whether a
corporate taxpayer satisfies the special rules for the reasonable
cause and good faith exception for a substantial understatement
attributable to a tax shelter, examiners should consult with LMSB
field counsel.
All cases involving potentially
abusive tax shelters must be coordinated with LMSB field counsel and the
Office of Tax Shelter Analysis (“OTSA”).
LMSB Commissioner
Memorandum dated July 10, 2003
On July 10, 2003, the LMSB Commissioner
issued a memorandum providing that examiners should not develop the
accuracy-related penalty in cases where the taxpayer filed and was
considered qualified under the terms of Announcement 2002-2. This
determination should be confirmed by the team manager, with no other
approval required. LMSB Commissioner Memorandum dated July 10, 2003.
The memorandum provides that, for
cases not qualifying for treatment under the Disclosure Initiative in
Announcement 2002-2, consideration of penalties remains mandatory.
If an underpayment of tax is attributable to a taxpayer’s
participation in a listed transaction, the examiner must develop the
accuracy-related penalty issue and prepare a written report supporting
the recommendation to impose or not to impose the penalty. The DFO
must approve the decision to impose or not to impose the
accuracy-related penalty. In any case involving a potentially
abusive tax shelter, the examiner should identify the facts regarding
the shelter and then contact LMSB field counsel and OTSA for
coordination. The DFO must approve the examiner’s decision to
impose the accuracy-related penalty in such circumstances.
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