CCA Finds That Information Reporting Penalties Are Divisable Taxes For The "Full Payment Rule" for a Refund Suit.

In Chief Counsel Advice 201315017, the IRS has determined that the penalties under Code Sec. 6721 for failure to file an information return and Code Sec. 6722 for failure to furnish a correct payee statement are divisible taxes for purposes of establishing refund suit jurisdiction.

 

The penalties are calculated on a per-transaction basis, and the penalties are waived on an individual basis if the failure at issue is due to reasonable cause and not willful neglect.

 

To meet the jurisdictional requirements of a refund suit, a taxpayer must generally make full payment of assessed taxes due before the matter may be adjudicated. See Flora, 362 U.S. at 177. In general, the partial payment of assessed taxes or a proposed deficiency is insufficient to support refund suit jurisdiction. Id. 

 

The majority opinion in Flora, however, noted that one possible exception to the full payment rule might exist where certain “tax assessments may be divisible into a tax on each transaction or event, so that the full-payment rule would probably require no more than payment of a small amount.” Flora, 362 U.S. at 175-78, n.38. The Court was referring at that time to excise taxes. The Court’s analysis, however, hinged divisibility on a tax being levied on each transaction or event.

 

The CCA found that the Code Sec. 6721 and Code Sec. 6722 penalties are divisible penalties. Therefore, Taxpayer was only required to pay the divisible amount of the penalty attributable to a single failure before filing a refund claim and instituting a refund suit under Code Sec. 7422.

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