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:: Accuracy - Policy Statements
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. See
Exhibit 10
, 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
Exhibit 2,
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. See
Exhibit 3,
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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