The Treasury Department and the Internal Revenue Service issued interim guidance on two new penalty provisions enacted as part of the American Jobs Creation Act of 2004.
The AJCA creates a new penalty for the failure to disclose information about "reportable transactions" -- transactions that the Treasury and the IRS have determined to be potentially abusive. Notice 2005-11 provides interim guidance regarding application of this penalty to taxpayers who are required to disclose reportable transactions.
"Up to this point, there were no monetary penalties for failing, when required, to disclose these transactions," said IRS Commissioner Mark W. Everson. "This provision puts teeth in the regulatory scheme."
In addition, the act creates a new penalty if a taxpayer understates its tax liability relating to a reportable transaction. A higher penalty will apply if a taxpayer doesn't adequately disclose the facts of the reportable transaction. If the taxpayer discloses the transaction, the penalty may be avoided if the taxpayer had reasonable cause and acted in good faith. Notice 2005-12 provides interim guidance to taxpayers regarding these provisions, including when a taxpayer may rely on the advice of a tax advisor to establish reasonable cause and good faith.
Public comments on the new provisions may be submitted electronically by Feb. 28 to firstname.lastname@example.org.
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