rocket
Orbitax subscribers can now easily follow the latest COVID-19-related tax measures being implemented worldwide. New to Orbitax? Create a free account to access your dashboard and latest tax news.
News Share

The Tax Hub

Daily Tax Newsletter

United States

Responsive image

U.S. IRS Releases Practice Unit Providing an Overview of Accuracy-Related Penalties

The U.S. IRS has released an international practice unit, Overview of Accuracy-Related Penalties. The general overview of the practice unit is provided as follows:

Taxpayers who do not use reasonable care in complying with federal income tax laws may be subject to penalties. Penalties are used to encourage taxpayers to voluntarily comply. If a taxpayer underpays and has no valid defense, penalties will apply.

IRC 6662 summarizes penalties related to return accuracy. An accuracy-related penalty can apply to an income, estate or gift tax return. IRC 6751(b)(1) requires that the examiner's immediate supervisor approve the penalty assertion. The supervisory approval must be documented in the workpaper or lead sheet and must be obtained prior to issuing any written communication of the penalty to the taxpayer that offers an opportunity to sign agreeing to the proposal or assessment of it. Refer to IRM 20.1.1 for additional guidance.

The Service applies accuracy-related penalties to tax underpayments caused by one or more of the prohibited acts described in this Unit. Generally, the penalty is 20%, but may be 40% in certain situations. Accuracy-related penalties are not cumulative; the penalty cannot be imposed more than once, even if the underpayment is attributable to several types of misconduct. If two penalties could apply to the same underpayment, you must only impose the penalty with the highest rate or broadest applicability

An accuracy-related penalty does not apply in three instances:

  1. The penalty does not apply if the Internal Revenue Service files the return under IRC 6020(b), Substitute for Return procedures. The return must have been filed by the taxpayer to apply.
  2. The accuracy-related penalty does not apply to any portion of an underpayment associated with a fraud penalty under IRC 6663.
  3. The penalty does not apply to any portion of an underpayment subject to the reportable transaction penalty under IRC 6662A.

Before imposing an accuracy-related penalty, carefully consider if the taxpayer can rely on any exceptions and defenses. The general rule is an accuracy-related penalty does not apply to any portion of an underpayment if the taxpayer has reasonable cause and acted in good faith. Additionally, the taxpayer may be able to rely on other defenses for some of the accuracy-related penalties, such as adequate disclosure, reasonable basis, and substantial authority. These taxpayer defenses will be discussed in this Unit.

Deficiency procedures under IRC 6665 allow a taxpayer to challenge penalty assertion in Tax Court before it is assessed.

Click the following link for the International Practice Units page on the IRS website.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

FX Rates

Global FX Rates including Tax year Average FX Rates and Spot Rates for all Reporting Currencies.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More