SECTION 2. BACKGROUND

.01 Section 6011 and the regulations thereunder require a taxpayer that has participated in a reportable transaction to disclose certain information with respect to the reportable transaction with its tax return. Section 1.6011–4(b) of the Income Tax Regulations enumerates and describes the categories of reportable transactions. One category of reportable transactions is a transaction that is the same as, or substantially similar to, one of the types of transactions that the Internal Revenue Service has determined to be a tax avoidance transaction and has identified by notice, regulation, or other form of published guidance as a “listed transaction.” Treas. Reg. § 1.6011–4(b)(2).

.02 The American Jobs Creation Act of 2004, Pub. L. No. 108–357, 118 Stat. 1418 (the Act), was enacted on October 22, 2004. Section 811 of the Act added section 6707A to the Code to provide a monetary penalty for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. Section 6707A(b)(1) provides that the penalty for failure to include information with respect to a reportable transaction, other than a listed transaction, is $10,000 in the case of a taxpayer that is a natural person, and $50,000 in any other case. Section 6707A(b)(2) provides that for a listed transaction, the penalty is increased to $100,000 in the case of a taxpayer that is a natural person, and $200,000 in any other case.

.03 Section 816 of the Act amended section 6707 to provide for the imposition of a penalty on a material advisor who is required to file a return under section 6111(a) with respect to any reportable transaction, and who fails to file a timely return or who files a false or incomplete return with respect to the reportable transaction. Section 6707(b)(1) provides that the penalty for failing to file a timely return or filing a false or incomplete return with respect to any reportable transaction other than a listed transaction is $50,000. Section 6707(b)(2) provides that the penalty with respect to any listed transaction equals the greater of (1) $200,000, or (2) 50 percent of the gross income derived by the material advisor with respect to aid, assistance, or advice that is provided with respect to the

listed transaction before the date the return is filed under section 6111. If the penalty is with respect to a listed transaction and the failure or action subject to the penalty was intentional, the penalty is the greater of (1) $200,000, or (2) 75 percent of the gross income derived by the material advisor with respect to aid, assistance, or advice that is provided with respect to the listed transaction before the date the return is filed under section 6111.

.04 Section 6707A(d)(1) grants the Commissioner authority to rescind all or a portion of any penalty imposed under section 6707A if (1) the violation relates to a reportable transaction that is not a listed transaction and (2) rescission of the penalty would promote compliance with the requirements of the Code and effective tax administration. Section 6707A(d)(2) provides that the Commissioner’s determination whether to rescind the penalty may not be reviewed in any judicial proceeding. The legislative history to section 6707A provides that “the IRS Commissioner or his delegate can rescind (or abate) the penalty.” H.R. Conf. Rep. No. 755, 108th Cong., 2d Sess. at 373 (2004). Section 6707(c) provides that the rescission provisions of section 6707A(d) shall also apply to any penalty imposed on a material advisor under section 6707.

.05 Section 6707A(e) requires a person that is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934, or is required to be consolidated with another person for purposes of those reports, to disclose in those reports for the periods specified by the Secretary, the requirement to pay the penalties set forth in section 6707A(e)(2) ( i.e., certain penalties under section 6662(h) and penalties under section 6662A(c), section 6707A(b)(2), or section 6707A(e)). If the person fails to disclose the requirement to pay the penalties, then section 6707A(e) requires that the failure be treated as a failure to disclose a listed transaction for which an additional section 6707A penalty applies. Because a penalty imposed under section 6707A(e) is treated as a penalty imposed with respect to a listed transaction, the penalty is not subject to rescission. See Rev. Proc. 2005–51, 2005–2 C.B. 296.

.06 Section 812 of the Act, which added section 6662A to the Code, provides that a 20-percent accuracy-related penalty may

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person had in place to ensure the proper filing of the return or statement, any remedial measures the person has taken to prevent future violations, and any other facts or circumstances relevant to how rescission would promote compliance with the requirements of the Code and effective tax administration, including the factors listed under section 4.04 of this revenue procedure; (7) a statement of the person’s history of compliance with the tax law over the past 10 years, including but not limited to, identification of any penalties that the Service assessed against the person with respect to any reportable transaction and compliance with any requirement to disclose a reportable transaction; (8) for a penalty assessed under section 6707A, copies of all offerings and promotional materials that the taxpayer received with respect to the reportable transaction involved in the rescission request; (9) a statement providing the identity of related parties (as defined in section 267(b)) to the transaction, the identity of tax exempt entities involved in the transaction, and parties to any designation agreement, if applicable; and (10) the following declaration signed by the person requesting rescission: “Under penalties of perjury, I declare that I have examined this rescission request, and to the best of my knowledge and belief the information in this rescission request is true, correct, and complete.”

.03 Information that will expedite the rescission request . Including some or all of the following information in a rescission request will expedite processing of the request: (1) a copy of the notice of proposed assessment ( e.g., 30-day letter and Form 4549, Income Tax Examination Changes ); (2) the name, telephone number, and address of the IRS revenue agent that examined the person with respect to the applicable penalty; and (3) the name, telephone number, and address of the IRS appeals officer that considered the proposed penalty assessment, if applicable.

.04 Factors that weigh in favor of grant- ing rescission . In determining whether rescission would promote compliance with the requirements of the Code and effective tax administration, the Commissioner (or the Commissioner’s delegate) will take into account the following list of factors that weigh in favor of granting rescission. This is not an exclusive list and no single factor will be determinative of

taxpayer did not disclose as required by regulations under section 6011. If the penalty imposed under section 6707A is rescinded under the provisions of section 6707A(d), then the taxpayer is treated as meeting the reportable transaction disclosure requirements of the regulations under section 6011 for purposes of section 6404(g)(2)(E). .09 Notice 2005–11, 2005–1 C.B. 493, provides that, in determining whether rescission of the penalty under 6707A would promote compliance with the requirements of the Code and effective tax administration, the Commissioner (or the Commissioner’s delegate) will take into account all of the relevant facts and circumstances, including: (1) whether the taxpayer has a history of complying with the tax laws; (2) whether the violation results from an unintentional mistake of fact; and (3) whether imposing the penalty would be against equity and good conscience. Further, Notice 2005–11 provides that the Commissioner’s determination whether to rescind a penalty in whole or in part is not reviewable by the IRS Office of Appeals or any court. Notice 2005–11 is effective until further guidance is issued in the form of regulations or other guidance that explicitly supersedes Notice 2005–11.