Tax Court - “Amount of tax” for accuracy-related penalty 

November 18: The U.S. Tax Court in a “reviewed opinion” today held that in a case of an underpayment of tax due to negligence or a substantial understatement of income tax, the term “underpayment” in part refers to the amount shown as tax by the taxpayer on the income tax return. Thus, for purposes of determining an accuracy-related penalty, the amount of tax on the return may take into account certain credits, but cannot be reduced below zero. Rand v. Commissioner, 141 T.C. No. 12 (November 18, 2013)

Read the Tax Court majority opinion and dissenting opinions: Rand [PDF 225 KB]

Summary

Individual taxpayers filed a joint return for 2008, but improperly claimed three refundable credits (an earned income credit, an additional child tax credit, and a recovery rebate credit). They claimed and received a tax refund of over $7,300; however, it was subsequently agreed that the correct tax liability was $144.


The IRS asserted the 20% penalty applied to $7,300. The dispute in this case was how was the accuracy-related penalty to be calculated—i.e., what would be the amount shown as the tax on the return?


The majority opinion concluded that the credits in this case may be taken into account to determine the amount of tax, but that the credits cannot reduce the amount shown as tax below zero.

KPMG observation

While this case concerns individual taxpayers and tax credits only available for individuals, it is conceivable that the IRS might consider that today’s opinion has applications for corporate taxpayers.


For instance, could the majority opinion be applied with respect to the penalty that is imposed under section 6676 for an erroneous claim for refund for a corporate taxpayer that receives a refundable credit in excess of its tax liability?




©2013 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.


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.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
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.

Share this

Share this

Subscribe

Current and future KPMG clients may subscribe to TaxNewsFlash email alerts.


Email your contact information.

TaxNewsFlash-United States by year