Final Regs Deny Interest and Penalty Suspension

The IRS issued final regulations under IRC § 6404(g)(2)(E) regarding an exception to interest and penalty suspension if the amounts are related to listed transactions and undisclosed reportable transactions.

Section 6404(g) generally provides for the suspension of interest and penalties if the IRS does not contact the taxpayer regarding the reason for the interest and penalties within a specified period. Section 6404(g)(2)(E) denies this suspension for interest and penalties that are related to listed transactions or undisclosed reportable transactions.

The regulations add new Treas. Reg. § 301.6404-4 to reflect this exception and several statutory modifications enacted between 2004 and 2006. The suspension does not apply to any interest accruing on undisclosed reportable or listed transactions after Oct. 3, 2004. More generous rules apply to interest or penalties accruing before Oct. 4, 2004, for a participant in a settlement initiative, a taxpayer acting reasonably and in good faith, or a closed transaction.

  TD 9488 (6/16/2010)

By Karyn Bybee Friske, CPA, Ph.D., Pickens Professor of Business and associate professor of accounting, and Darlene Pulliam, CPA, Ph.D., McCray Professor of Business and professor of accounting, both of the College of Business, West Texas A&M University, Canyon, Texas.

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