PRIA, Government Policy, Made Personal

Summary

Anyone who helps set up or sells a tax-saving partnership, investment, or other plan and who makes or causes to be made false tax claims must pay a penalty for each separate scheme or sale. The penalty applies if they tell people a deduction, credit, exclusion of income, or other tax benefit is allowed when they know or should know that statement is false, or if they give a value that is a gross valuation overstatement. Normally the penalty is $1,000, unless the person proves their gross income from that activity is less, in which case the penalty is 100 percent of that gross income. If the false claim is about deductions, credits, or excluding income, the penalty is 50 percent of the gross income from the activity. A gross valuation overstatement means saying a value is more than 200 percent of the correct value when that value affects tax benefits; the IRS can waive a valuation penalty if there was a reasonable basis and good faith. These penalties are in addition to any other penalties by law.

Title 26, §6700

Internal Revenue Code, Source: USLM XML via OLRC

(a)Imposition of penalty

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,

shall pay, with respect to each activity described in paragraph (1), a penalty equal to $1,000 or, if the person establishes that it is lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity. For purposes of the preceding sentence, activities described in paragraph (1)(A) with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph (1)(B) shall be so treated. 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.

(b)Rules relating to penalty for gross valuation overstatements

(1)Gross valuation overstatement defined

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)Authority to waive

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)Penalty in addition to other penalties

The penalty imposed by this section shall be in addition to any other penalty provided by law.

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].”

§6700 Promoting Abusive Tax Shelters, Etc.

Summary

Title 26, §6700

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Amendments

Effective Date

Amendments

Citations & Metadata