When the statute of limitations runs on the § 6707A reportable-transaction penalty

Plain-English summary

This Chief Counsel email explains when the IRS must assess the section 6707A penalty for failing to disclose a reportable transaction. The general rule: when disclosure is required with a return (because the transaction is listed or otherwise reportable when the return is filed), the penalty must be assessed within three years of the date the underlying return was filed under section 6501(a). For listed transactions that the taxpayer failed to disclose, section 6501(c)(10) extends the period, keeping it open until one year after the earlier of the date the taxpayer provides the required section 6011 information or the date a material advisor satisfies section 6112. When disclosure is not required with a return, typically because the transaction was listed after the return's due date and disclosure is instead made to the Office of Tax Shelter Analysis (OTSA), no limitations period applies to the section 6707A penalty. The advice adds that a material advisor's Form 8918 is itself a return under section 6111, so a penalty tied to it must be assessed within three years of its due date or filing date, whichever is later; and it notes that under the pre-2004 (pre-AJCA) version of section 6707(a)(1), there is no applicable section 6501 limitations period for the penalty for failing to register a tax shelter. The email cites the Internal Revenue Manual throughout.

Ruling snapshot

• Question: What limitations period applies to assessing the section 6707A penalty for failure to disclose a reportable transaction?
• Outcome: advice (3 years under § 6501(a) when disclosure is due with a return, extended by § 6501(c)(10) for undisclosed listed transactions; no limitations period when disclosure is not required with a return)
• Key authorities: IRC §§ 6707A, 6501(a), 6501(c)(10), 6011, 6111, 6112; IRM 4.32.4, 20.1.6

Full text (IRS public release)

ID:        CCA_2019030613140943
UILC:      6707A.00-00, 6501.00-00

Number: 201916006
Release Date: 4/19/2019
From:
Sent: Wednesday, March 06, 2019 1:14:10 PM
To:
Cc:
Bcc:
Subject: RE: 6707 FTF Stature

I’ve run this by P&A Branches 1-2 and this is their response:

Question 1: Correct. When disclosure is required with a return, the assessment of the
section 6707A penalty for failure to timely or properly disclose a reportable transaction
must be made within 3 years of the date of the filing of the underlying return. See
section 6501(a). Disclosure is required with a return when the transaction is listed or
otherwise reportable at the time the return is filed. For listed transactions, section
6501(c)(10) provides additional time to make an assessment of the penalty if the
disclosure is not made with the return. Section 6501(c)(10) provides that the period to
assess tax with respect to a listed transaction the taxpayer failed to disclose in
accordance with section 6011 shall not expire before one year after the earlier of the
following: (1) the date the taxpayer provides the information required under section
6011, or (2) the date that a material advisor meets the requirements of section
6112. See, e.g., IRM 4.32.4.1.4.1 (12-12-2013).

When disclosure is not required with a return, no limitations period to assess the section
6707A penalty applies. This typically occurs in the case of transactions listed after the
due date of the return. In these cases disclosure is generally made to OTSA, rather
than with a return. See, e.g., IRM 4.32.4.1.4.2 (12-12-2013).

Question 2: Section 6501(a) provides that an assessment of tax must be made “within
3 years after the return was filed.” For purposes of section 6501, the term “return”
means the return required to be filed by the taxpayer. See section 6501(a). Per section
6111, Form 8918 is a return required to be filed by the material advisor. Therefore, the
penalty must be assessed within 3 years after the due date of the return or the date
filed, whichever is later. See IRM 20.1.6.21 (07-26-2017).

Please note that while the above is the general rule, there is no applicable statute of
limitations under section 6501 for the assessment of the penalty for failure to register a
tax shelter under the pre-American Jobs Creation Act of 2004 (AJCA) version of section
6707(a)(1). See, e.g., IRM 4.32.2.3.1 (06-04-2018).

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