26 U.S.C. § 6700 — Promoting abusive tax shelters, etc

Page 3805 TITLE 26—INTERNAL REVENUE CODE § 6700 tion 16(b) of Pub. L. 111–92, set out as a note under sec- tion 6698 of this title. EFFECTIVE DATE OF 2008 AMENDMENT Pub. L. 110–458, title I, § 128(b), Dec. 23, 2008, 122 Stat. 5116, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to re- turns required to be filed after December 31, 2008.’’ EFFECTIVE DATE Pub. L. 110–142, § 9(c), Dec. 20, 2007, 121 Stat. 1808, pro- vided that: ‘‘The amendments made by this section [en- acting this section] shall apply to returns required to be filed after the date of the enactment of this Act [Dec. 20, 2007].’’ § 6700. Promoting abusive tax shelters, etc. (a) Imposition of penalty Any person who— (1)(A) organizes (or assists in the organiza- tion 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 per- son to make or furnish (in connection with such organization or sale)— (A) a statement with respect to the allow- ability of any deduction or credit, the ex- cludability 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 de- scribed 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 de- rived) 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 activ- ity with respect to which a penalty imposed under this subsection involves a statement de- scribed 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 ac- tivity by the person on which the penalty is im- posed. (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 state- ment as to the value of any property or serv- ices 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 de- duction 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 re- spect 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. (Added Pub. L. 97–248, title III, § 320(a), Sept. 3, 1982, 96 Stat. 611; amended Pub. L. 98–369, div. A, title I, § 143(a), July 18, 1984, 98 Stat. 682; Pub. L. 101–239, title VII, § 7734(a), Dec. 19, 1989, 103 Stat. 2403; Pub. L. 108–357, title VIII, § 818(a), Oct. 22, 2004, 118 Stat. 1584; Pub. L. 115–141, div. U, title IV, § 401(a)(314), Mar. 23, 2018, 132 Stat. 1199.) 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 sen- tence, if an activity with respect to which a penalty imposed under this subsection involves a statement de- scribed 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 per- cent’’ 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 ac- tivities 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 sec- Page 3806 TITLE 26—INTERNAL REVENUE CODE § 6701 tion [enacting this section] shall take effect on the day after the date of the enactment of this Act [Sept. 3, 1982].’’ § 6701. Penalties for aiding and abetting under- statement of tax liability (a) Imposition of penalty Any person— (1) who aids or assists in, procures, or ad- vises with respect to, the preparation or pres- entation of any portion of a return, affidavit, claim, or other document, (2) who knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the inter- nal revenue laws, and (3) who knows that such portion (if so used) would result in an understatement of the li- ability for tax of another person, shall pay a penalty with respect to each such document in the amount determined under sub- section (b). (b) Amount of penalty (1) In general Except as provided in paragraph (2), the amount of the penalty imposed by subsection (a) shall be $1,000. (2) Corporations If the return, affidavit, claim, or other docu- ment relates to the tax liability of a corpora- tion, the amount of the penalty imposed by subsection (a) shall be $10,000. (3) Only 1 penalty per person per period If any person is subject to a penalty under subsection (a) with respect to any document relating to any taxpayer for any taxable pe- riod (or where there is no taxable period, any taxable event), such person shall not be sub- ject to a penalty under subsection (a) with re- spect to any other document relating to such taxpayer for such taxable period (or event). (c) Activities of subordinates (1) In general For purposes of subsection (a), the term ‘‘procures’’ includes— (A) ordering (or otherwise causing) a sub- ordinate to do an act, and (B) knowing of, and not attempting to pre- vent, participation by a subordinate in an act. (2) Subordinate For purposes of paragraph (1), the term ‘‘subordinate’’ means any other person (wheth- er or not a director, officer, employee, or agent of the taxpayer involved) over whose ac- tivities the person has direction, supervision, or control. (d) Taxpayer not required to have knowledge Subsection (a) shall apply whether or not the understatement is with the knowledge or con- sent of the persons authorized or required to present the return, affidavit, claim, or other document. (e) Certain actions not treated as aid or assist- ance For purposes of subsection (a)(1), a person fur- nishing typing, reproducing, or other mechan- ical assistance with respect to a document shall not be treated as having aided or assisted in the preparation of such document by reason of such assistance. (f) Penalty in addition to other penalties (1) In general Except as provided by paragraphs (2) and (3), the penalty imposed by this section shall be in addition to any other penalty provided by law. (2) Coordination with return preparer pen- alties No penalty shall be assessed under sub- section (a) or (b) of section 6694 on any person with respect to any document for which a pen- alty is assessed on such person under sub- section (a). (3) Coordination with section 6700 No penalty shall be assessed under section 6700 on any person with respect to any docu- ment for which a penalty is assessed on such person under subsection (a). (Added Pub. L. 97–248, title III, § 324(a), Sept. 3, 1982, 96 Stat. 615; amended Pub. L. 101–239, title VII, § 7735(a), (b), Dec. 19, 1989, 103 Stat. 2403.) Editorial Notes AMENDMENTS 1989—Subsec. (a)(1). Pub. L. 101–239, § 7735(a)(1), struck out ‘‘in connection with any matter arising under the internal revenue laws’’ after ‘‘other document’’. Subsec. (a)(2). Pub. L. 101–239, § 7735(a)(2), inserted ‘‘(or has reason to believe)’’ after ‘‘who knows’’. Subsec. (a)(3). Pub. L. 101–239, § 7735(a)(3), substituted ‘‘would result’’ for ‘‘will result’’. Subsec. (f)(1). Pub. L. 101–239, § 7735(b)(2), substituted ‘‘paragraphs (2) and (3)’’ for ‘‘paragraph (2)’’. Subsec. (f)(3). Pub. L. 101–239, § 7735(b)(1), added par. (3). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1989 AMENDMENT Pub. L. 101–239, title VII, § 7735(c), Dec. 19, 1989, 103 Stat. 2404, provided that: ‘‘The amendments made by this section [amending this section] shall take effect on December 31, 1989.’’ EFFECTIVE DATE Pub. L. 97–248, title III, § 324(c), Sept. 3, 1982, 96 Stat. 616, provided that: ‘‘The amendments made by this sec- tion [enacting this section] shall take effect on the day after the date of the enactment of this Act [Sept. 3, 1982].’’ § 6702. Frivolous tax submissions (a) Civil penalty for frivolous tax returns A person shall pay a penalty of $5,000 if— (1) such person files what purports to be a re- turn of a tax imposed by this title but which— (A) does not contain information on which the substantial correctness of the self-as- sessment may be judged, or (B) contains information that on its face indicates that the self-assessment is sub- stantially incorrect, and (2) the conduct referred to in paragraph (1)— (A) is based on a position which the Sec- retary has identified as frivolous under sub- section (c), or