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Where No Disclosure Is Required, There Is No Statute for Assessing Section 6707A Penalty

(Parker Tax Publishing May 2019)

When disclosure is not required with a return, the Chief Counsel's Office advised that no statute of limitations applies with respect to assessing a penalty under Code Sec. 6707A with respect to that return. This typically occurs in the case of transactions listed after the due date of the return, where disclosure is generally made to the IRS's Office of Tax Shelter Analysis, rather than with a return. CCA 201916006.


Under Code Sec. 6011, taxpayers are required to file returns and make disclosures in accordance with IRS regulations. The regulations under Code Sec. 6011 provide that any taxpayer, including an individual, trust, estate, partnership, S corporation, or other corporation, that participates in a reportable transaction and is required to file a federal tax return or information return must file Form 8886, Reportable Transaction Disclosure Statement, to disclose information for each reportable transaction in which the taxpayer participated. However, a regulated investment company (RIC) or an investment vehicle that is at least 95 percent owned by one or more RICs at all times during the course of a transaction is not required to file Form 8886 for any transaction other than a listed transaction or a transaction of interest.

Code Sec. 6707A provides for a penalty for any person who fails to include on any return or statement any information with respect to a reportable transaction which is required under Code Sec. 6011.

Generally, taxpayers must file a separate Form 8886 for each reportable transaction. However, Reg. Sec. 1.6011-4 provides that a taxpayer may report more than one transaction on one form if the transactions are the same or substantially similar. For listed transactions, Code Sec. 6501(c)(10) provides additional time for the IRS to assess a penalty if the disclosure is not made with the return. The statute of limitations for assessing a penalty with respect to a listed transaction the taxpayer failed to disclose in accordance with Code Sec. 6011 does not expire before one year after the earlier of the following: (1) the date the taxpayer provides the information required under Code Sec. 6011, or (2) the date that a material advisor meets the requirements of Code Sec. 6112. In U.S. v. May, 2017 PTC 141 (9th Cir. 2017), the Ninth Circuit held that a failure to provide the required information on a completed Form 8886 will prevent the statute of limitations from running.

Chief Counsel Weighs In on Statute for Section 6707A Penalty When No Disclosure Is Required

In CCA 201916006, the Office of Chief Counsel addressed a question about the statute of limitations for assessing a Code Sec. 6707A penalty where no disclosure is required. The Chief Counsel's Office began by citing Code Sec. 6501(a) for the proposition that, when disclosure is required with a return, the assessment of the Code Sec. 6707A penalty for failure to timely or properly disclose a reportable transaction must be made within three years of the date of the filing of the underlying return. Disclosure is required with a return, the Chief Counsel's Office noted, when the transaction is listed or otherwise reportable at the time the return is filed. Further, the Chief Counsel's Office noted that, under Code Sec. 6501(c)(10), the statute is extended if the disclosure is not made with the return.

However, when disclosure is not required with a return, the Chief Counsel's Office advised that no limitations period to assess the Code Sec. 6707A penalty applies. This typically occurs, the Chief Counsel's Office stated, in the case of transactions listed after the due date of the return. In these cases, disclosure is generally made to the IRS's Office of Tax Shelter Analysis (OTSA), rather than with a return.

In response to a second question, the Office of Chief Counsel noted that Code Sec. 6501(a) provides that an assessment of tax must be made "within 3 years after the return was filed." Citing Code Sec. 6501, the Chief Counsel's Office noted that, for purposes of Code Sec. 6501, the term "return" means the return required to be filed by the taxpayer. Per Code Sec. 6111, the Chief Counsel's Office stated, Form 8918 is a return required to be filed by the material advisor. Citing Internal Revenue Manual (IRM), the Chief Counsel's Office advised that a penalty must be assessed within three years after the due date of the return or the date filed, whichever is later.

Finally, citing IRM, the Office of Chief Counsel noted that, while the above is the general rule, there is no applicable statute of limitations under Code Sec. 6501 for the assessment of the penalty for a failure to register a tax shelter under the pre-American Jobs Creation Act of 2004 version of Code Sec. 6707(a)(1).

For a discussion of tax return disclosures, see Parker Tax ¶250,140.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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