Q1. What is the 6707A penalty?
A1. The 6707A penalty (also referred to as the “non-reporting penalty”) is a civil penalty that applies to any taxpayer who participates in a “listed transaction” for a year and fails to file IRS Form 8886.
Q2. What is the amount of the penalty?
A2. The 6707A penalty is the greater of 75% of the tax reduction as shown on the return and the minimum penalty ($5,000 for individuals and $10,000 for other taxpayers).
Q3. What is a “listed transaction”?
A3. A “listed transaction” is a transaction that is identified by the IRS as potentially tax abusive. The IRS publishes a list of listed transactions and adds and subtracts to that list on a periodic basis. You may research transactions that are considered abusive by the IRS by reviewing the IRS web site.
Q4. How do I file the IRS Form 8886?
A4. For the first year of filing, a taxpayer must file the Form 8886 with both the tax return and also with the Office of Tax Shelter Analysis (OTSA). See Form 8886 instructions.
Q5. Who has to file Form 8886?
A5. Any taxpayer who participates in a listed transaction for a taxable year has to file Form 8886. For S Corporations and Partnerships, the Form 8886 should be filed with both the business return and the personal return. If there is any doubt about whether to file, the taxpayer should file Form 8886.