Title 26 — Internal Revenue CodeRelease 119-73not60
§6662A Imposition of Accuracy-related Penalty on Understatements with Respect to Reportable Transactions
Title 26 › Subtitle Subtitle F— Procedure and Administration › Chapter 68— ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES › Subchapter A— Additions to the Tax and Additional Amounts › Part II— ACCURACY-RELATED AND FRAUD PENALTIES › § 6662A
Summary
Adds a penalty equal to 20% of the amount a taxpayer understates their tax because of a reportable transaction. A "reportable transaction understatement" is the extra tax that results when the taxpayer treated an item wrongly, calculated as the increase in taxable income times the highest tax rate in section 1 (or section 11 for a corporation), plus any loss of credits under subtitle A caused by the wrong treatment. The penalty for the part that fails a disclosure rule in section 6664(d)(3)(A) is 30% instead of 20%. "Reportable transaction" and "listed transaction" are defined in section 6707A(c). When checking for a substantial understatement, the reportable transaction amounts are added to the understatement total. The regular 6662(a) addition applies only to the excess after subtracting those reportable amounts. The rule does not apply to parts already penalized under section 6663 or parts subject to 6662 penalties set under subsections (h) or (i). Generally, a return amendment filed after the taxpayer is first contacted about an exam won’t reduce the reportable transaction understatement unless regulations say otherwise.
Full Legal Text
Title 26, §6662A
Internal Revenue Code — Source: USLM XML via OLRC
(a)If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20 percent of the amount of such understatement.
(b)For purposes of this section—
(1)The term “reportable transaction understatement” means the sum of—
(A)the product of—
(i)the amount of the increase (if any) in taxable income which results from a difference between the proper tax treatment of an item to which this section applies and the taxpayer’s treatment of such item (as shown on the taxpayer’s return of tax), and
(ii)the highest rate of tax imposed by section 1 (section 11 in the case of a taxpayer which is a corporation), and
(B)the amount of the decrease (if any) in the aggregate amount of credits determined under subtitle A which results from a difference between the taxpayer’s treatment of an item to which this section applies (as shown on the taxpayer’s return of tax) and the proper tax treatment of such item.
(2)This section shall apply to any item which is attributable to—
(A)any listed transaction, and
(B)any reportable transaction (other than a listed transaction) if a significant purpose of such transaction is the avoidance or evasion of Federal income tax.
(c)Subsection (a) shall be applied by substituting “30 percent” for “20 percent” with respect to the portion of any reportable transaction understatement with respect to which the requirement of section 6664(d)(3)(A) is not met.
(d)For purposes of this section, the terms “reportable transaction” and “listed transaction” have the respective meanings given to such terms by section 6707A(c).
(A)the amount of such understatement (determined without regard to this paragraph) shall be increased by the aggregate amount of reportable transaction understatements for purposes of determining whether such understatement is a substantial understatement under section 6662(d)(1), and
(B)the addition to tax under section 6662(a) shall apply only to the excess of the amount of the substantial understatement (if any) after the application of subparagraph (A) over the aggregate amount of reportable transaction understatements.
(2)(A)This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6663.
(B)This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6662 if the rate of the penalty is determined under subsections (h) or (i) of section 6662.
(3)Except as provided in regulations, in no event shall any tax treatment included with an amendment or supplement to a return of tax be taken into account in determining the amount of any reportable transaction understatement if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Codification section 1409(b)(3) of Pub. L. 111–152, which directed the amendment of section 6662A without specifying the act to be amended, was executed to this section, which is section 6662A of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2010 Amendment note below.
Amendments
2014—Subsec. (c). Pub. L. 113–295 substituted “section 6664(d)(3)(A)” for “section 6664(d)(2)(A)”. 2010—Subsec. (e)(2)(B). Pub. L. 111–152 substituted “certain increased underpayment penalties” for “gross valuation misstatement penalty” in heading and “subsections (h) or (i) of section 6662” for “section 6662(h)” in text. See Codification note above. 2005—Subsec. (e)(2). Pub. L. 109–135 reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “(A) Application of fraud penalty.—References to an underpayment in section 6663 shall be treated as including references to a reportable transaction understatement. “(B) No double penalty.—This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6663. “(C) Coordination with valuation penalties.— “(i) section 6662(e).—section 6662(e) shall not apply to any portion of an understatement on which a penalty is imposed under this section. “(ii) section 6662(h).—This section shall not apply to any portion of an understatement on which a penalty is imposed under section 6662(h).”
Statutory Notes and Related Subsidiaries
Effective Date
of 2010 AmendmentAmendment by Pub. L. 111–152 applicable to underpayments attributable to transactions entered into after Mar. 30, 2010, see section 1409(e)(2) of Pub. L. 111–152, set out as a note under section 6662 of this title.
Effective Date
of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective Date
Section applicable to taxable years ending after Oct. 22, 2004, see section 812(f) of Pub. L. 108–357, set out as an
Effective Date
of 2004 Amendment note under section 6662 of this title. Report on Tax Shelter Penalties and Certain Other
Enforcement
Actions Pub. L. 111–240, title II, § 2103, Sept. 27, 2010, 124 Stat. 2564, provided that: “(a) In General.—The Commissioner of Internal Revenue, in consultation with the Secretary of the Treasury, shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate an annual report on the penalties assessed by the Internal Revenue Service during the preceding year under each of the following provisions of the Internal Revenue Code of 1986:“(1) section 6662A (relating to accuracy-related penalty on understatements with respect to reportable transactions). “(2) section 6700(a) (relating to promoting abusive tax shelters). “(3) section 6707 (relating to failure to furnish information regarding reportable transactions). “(4) section 6707A (relating to failure to include reportable transaction information with return). “(5) section 6708 (relating to failure to maintain lists of advisees with respect to reportable transactions). “(b) Additional Information.—The report required under subsection (a) shall also include information on the following with respect to each year:“(1) Any action taken under section 330(b) [now 330(c)] of title 31, United States Code, with respect to any reportable transaction (as defined in section 6707A(c) of the Internal Revenue Code of 1986). “(2) Any extension of the time for assessment of tax enforced, or assessment of any amount under such an extension, under paragraph (10) of section 6501(c) of the Internal Revenue Code of 1986. “(c) Date of Report.—The first report required under subsection (a) shall be submitted not later than December 31, 2010.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 6662A
Title 26 — Internal Revenue Code
Last Updated
Apr 5, 2026
Release point: 119-73not60