Rev. Proc. 2005-51, Aug. 15, 2005
The IRS has provided guidance to "public entities" that are required, under Code Sec. 6707A(e), to disclose the payment of certain tax shelter disclosure penalties on reports filed with the Securities and Exchange Commission (SEC). The guidance is effective for any such penalty that relates to a return or statement for which the due date is after October 22, 2004.
Background
"Public entities" are entities that are required to file SEC Form 10-K, Annual Report, pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 and are subject to additional disclosure requirements on Form 10-K. These requirement apply if the entity:
(1) is required to pay the Code Sec. 6707A(a) penalty (as determined under Code Sec. 6707A(b)(2)) for failing to disclose a listed transaction;
(2) is required to pay the 30-percent accuracy-related penalty imposed by Code Sec. 6662A (as determined under Code Sec. 6662A(c)) on understatements attributable to undisclosed reportable transactions;
(3) would have had to pay the 30-percent accuracy-related penalty with respect to an undisclosed reportable transaction, but was subject instead to the 40-percent Code Sec. 6662(h) penalty for gross valuation understatements; or
(4) is required to pay the Code Sec. 6707A(e) penalty for failure to disclose any of the enumerated penalties in (1)-(3), above, which is treated as an additional failure to disclose a listed transaction and, thus, is subject to an additional failure-to-disclose penalty.
Administrative Appeals
The guidance describes administrative appeal rights (if any) for the four penalties listed above. Regarding the penalties determined under Code Sec. 6662A(c) and Code Sec. 6662(h) (penalties (2) and (3), above), administrative appeal rights are the same as those provided with respect to the deficiency determination (or proposed deficiency determination) with which those penalties are linked. There are no administrative appeal rights with respect to the Code Sec. 6707A(e) penalty (penalty (4), above). Further guidance will be issued by the IRS providing administrative appeal rights regarding the penalty determined under Code Sec. 6707A(b)(2) (penalty (1), above).
Information Disclosed
A public entity must disclose in the Form 10-K:
(1) the amount of any imposed penalty to which the new procedure applies;
(2) whether the penalty has been paid in full;
(3) the specific Code provision under which the penalty was determined (i.e., Code Sec. 6662(h), Code Sec. 6662A(c), Code Sec. 6707A(b)(2) or Code Sec. 6707A(e); and
(4) a description of the penalty.
Special rules govern whether disclosure of the 40-percent accuracy-related penalty under Code Sec. 6662(h) is required.
Timing
A public entity that is required to pay a penalty to which this procedure applies must disclose the penalty on the Form 10-K that relates to (a) the fiscal year (as defined in 17 C.F.R. §240.12b-2) in which the IRS sends the entity notice and demand for payment of the penalty, or (b) if the entity pays the penalty in full (not including interest) prior to being sent notice and demand, the fiscal year in which the penalty is paid. If the entity fails to make the required disclosures, disclosure must be made on the next Form 10-K filed with the SEC after the failure to disclose has occurred. The requirement to disclose on each successive Form 10-K filed will continue until the necessary disclosure is made. Each failure to disclose will give rise to a new, separate penalty under Code Sec. 6707A(e) that must also be disclosed on Form 10-K.
In the event that an entity brings a refund action pursuing recovery of a 40-percent accuracy-related penalty under Code Sec. 6662(h) and the government alternatively raises the 30-percent penalty under Code Sec. 6662A(c) in any pleading filed in the action without having previously raised the 30-percent penalty in a 30-day letter or a deficiency notice, the requirement to disclose the penalty will only apply if the 30-percent penalty is upheld. Special rules are provided with respect to disclosure on Form 10-K in that instance.
Rev. Proc. 2005-51, 2005FED ¶46,571
