The U.S. Tax Court today issued an opinion concluding that it had jurisdiction to review an IRS notice of determination in a “collection due process” case when the sole issue was an accuracy-related penalty that flowed from an adjustment of a partnership item that was excluded from deficiency procedures.
The case is: McNeill v. Commissioner, 148 T.C. No. 23 (June 19, 2017). Read the Tax Court’s opinion [PDF 67 KB]
The taxpayers invested in a tax shelter, and for 2003, claimed deductions for losses from the tax shelter. Following the issuance of a final partnership administrative adjustment (FPAA) that disallowed the losses and asserted an accuracy-related penalty under section 6662, the taxpayers made an estimated deposit of approximately $4.88 million to satisfy the deficiency and interest liability, but this did not include any amount for a penalty asserted under section 6662. The IRS asserted the taxpayers owed a penalty of over $1.5 million plus interest, and the IRS sent the taxpayers a notice and demand for payment.
The taxpayers challenged the penalty assessment, however, the IRS determined that the taxpayers could not raise the issue of their underlying tax liability. The taxpayers filed a petition with the Tax Court, seeking review of the IRS notice of determination to sustain the notice of federal tax lien filing and a proposed levy for the penalty amount. The only issue was whether the taxpayers were liable for the section 6662 penalty.
The Tax Court today concluded that under legislative changes made in 2006 to the appeal of collection due process determinations, there was jurisdiction for the court to review a determination as it relates to the asserted section 6662(a) penalty in this case. The court held that it has jurisdiction to review an IRS notice of determination when the underlying tax liability consists solely of a penalty that relates to an adjustment to a partnership item excluded from deficiency procedures by section 6230(a)(2)(A)(i).
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.