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Title 26, Internal Revenue CodeRelease 119-73

§6700 Promoting Abusive Tax Shelters, Etc.

Title 26 › Subtitle Subtitle F— Procedure and Administration › Chapter 68— ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES › Subchapter B— Assessable Penalties › Part I— GENERAL PROVISIONS › § 6700

Last updated Apr 6, 2026|Official source

Summary

Anyone who sets up or helps sell a tax shelter, investment plan, or similar arrangement faces a penalty for pitching it with false claims. The penalty applies to a person who makes or furnishes statements about deductions, credits, excluded income, or other tax benefits that the person knows or has reason to know are false or fraudulent on a material point. It also applies to a "gross valuation overstatement," meaning a claimed value more than 200 percent of the correct value, where that value drives a deduction or credit for participants. The IRS can waive the penalty for a valuation overstatement if there was a reasonable basis for the value and it was made in good faith. This penalty stacks on top of any other penalty the law provides.

Full Legal Text

Title 26, §6700

Internal Revenue Code, Source: USLM XML via OLRC

(a)Any person who—
(1)(A)organizes (or assists in the organization of)—
(i)a partnership or other entity,
(ii)any investment plan or arrangement, or
(iii)any other plan or arrangement, or
(B)participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in subparagraph (A), and
(2)makes or furnishes or causes another person to make or furnish (in connection with such organization or sale)—
(A)a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter, or
(B)a gross valuation overstatement as to any material matter,
(b)(1)For purposes of this section, the term “gross valuation overstatement” means any statement as to the value of any property or services if—
(A)the value so stated exceeds 200 percent of the amount determined to be the correct valuation, and
(B)the value of such property or services is directly related to the amount of any deduction or credit allowable under chapter 1 to any participant.
(2)The Secretary may waive all or any part of the penalty provided by subsection (a) with respect to any gross valuation overstatement on a showing that there was a reasonable basis for the valuation and that such valuation was made in good faith.
(c)The penalty imposed by this section shall be in addition to any other penalty provided by law.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (a). Pub. L. 115–141 substituted “$1,000” for “the $1,000” in concluding provisions. 2004—Subsec. (a). Pub. L. 108–357 inserted at end of concluding provisions “Notwithstanding the first sentence, if an activity with respect to which a penalty imposed under this subsection involves a statement described in paragraph (2)(A), the amount of the penalty shall be equal to 50 percent of the gross income derived (or to be derived) from such activity by the person on which the penalty is imposed.” 1989—Subsec. (a). Pub. L. 101–239, § 7734(a)(3), added concluding provision and struck out former concluding provision which read as follows: “shall pay a penalty equal to the greater of $1,000 or 20 percent of the gross income derived or to be derived by such person from such activity.” Subsec. (a)(1)(B). Pub. L. 101–239, § 7734(a)(1), inserted “(directly or indirectly)” after “participates”. Subsec. (a)(2). Pub. L. 101–239, § 7734(a)(2), inserted “or causes another person to make or furnish” after “makes or furnishes” in introductory provisions. 1984—Subsec. (a). Pub. L. 98–369 substituted “20 percent” for “10 percent”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2004 Amendment Pub. L. 108–357, title VIII, § 818(b), Oct. 22, 2004, 118 Stat. 1584, provided that: “The amendment made by this section [amending this section] shall apply to activities after the date of the enactment of this Act [Oct. 22, 2004].”

Effective Date

of 1989 Amendment Pub. L. 101–239, title VII, § 7734(b), Dec. 19, 1989, 103 Stat. 2403, provided that: “The amendment made by subsection (a) [amending this section] shall apply to activities after December 31, 1989.”

Effective Date

of 1984 Amendment Pub. L. 98–369, div. A, title I, § 143(c), July 18, 1984, 98 Stat. 682, provided that: “The

Amendments

made by this section [amending this section and section 7408 of this title] shall take effect on the day after the date of the enactment of this Act [July 18, 1984].”

Effective Date

Pub. L. 97–248, title III, § 320(c), Sept. 3, 1982, 96 Stat. 612, provided that: “The

Amendments

made by this section [enacting this section] shall take effect on the day after the date of the enactment of this Act [Sept. 3, 1982].”

Reference

Citations & Metadata

Citation

26 U.S.C. § 6700

Title 26, Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73