Guidance on applying the Section 6707A penalty provisions

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, DC 20224
LARGE BUSINESS AND INTERNATIONAL DIVISION
LB&I Control No.: LB&I-20-0211-001 Impacted IRM: 20.1.1,20.1.5

January 19, 2011
MEMORANDUM FOR INDUSTRY DIRECTORS DIRECTOR, FIELD SPECIALISTS DIRECTOR, INTERNATIONAL BUSINESS COMPLIANCE DIRECTOR, INTERNATIONAL INDIVIDUAL COMPLIANCE
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FROM: Cheryl P. Claybaugh /s/ Cheryl P. Claybaugh
~ Director, Pre-Filing and Technical Guidance

SUBJECT: Amended IRC Section 6707A Penalty -Interim Procedures

The purpose of this memorandum is to provide guidance on applying the Section 6707A penalty provisions amended by the Small Business Jobs Act of 2010 that was enacted on September 27, 2010. The amount of the penalty was changed, but the application of the Section 6707A penalty did not change. The amendment applies to penalties assessed after December 31,2006.
Prior to the Act, the amount of the penalty was unrelated to the tax shown on the tax return as a result of the reportable transaction. Under the amendment, the penalty is "75 percent of the decrease in tax shown on the return" as a result of the reportable transaction. The maximum penalty in the case of a listed transaction is $100,000 for a natural person and $200,000 for all other taxpayers and in the case of a non-listed reportable transaction is $10,000 for a natural person and $50,000 for all other taxpayers. The minimum penalty for both listed transactions and non-listed reportable transactions is $5,000 for a natural person and $10,000 for all other taxpayers. Procedures are being developed to centralize processing of closed cases (i.e. calculation of new penalty amounts, processing of partial abatements, and notices to impacted taxpayers). Revised case processing procedures for open and future cases will be developed.