Professor John Plecnik  was quoted in Tax Notes on January 15, regarding Congress’s move to increase penalties for improperly claimed refundable tax credits.

Professor Plecnik’s quotes are reproduced below, and the full article is available here (Plecnik Quoted in Tax Notes 1.15.16).

Adding to those risks is the 2016 appropriations act’s overturning of the Tax Court’s decision in Rand v. Commissioner, 141 T.C. No. 12 (2013) (Doc 2013-26619), according to John Plecnik, a Cleveland State University law professor. In Rand, a divided court held that the determination under section 6664(a)(1)(A) of the amount shown as tax on the return by the taxpayer should account for refundable credits claimed on the return, but should not reduce the amount shown as tax to less than zero, Plecnik said. The IRS had taken the position that the amount shown as tax should be the tax after credits. (Prior coverage (Doc 2014-4830).)

The appropriations act applies accuracy-related and fraud penalties to the full amount of disallowed refundable credits, like the additional child tax credit, Plecnik said. As an example, he said if an income tax return showed a total tax due of $ 100, but improperly claimed a refundable credit of $ 1,000, only $ 100 of that credit would be treated as an underpayment subject to penalty under Rand, but under the law change the entire $ 1,000 credit is subject to penalty. And the IRS has already issued Chief Counsel Notice 2016-004 (Doc 2015-28551) to instruct its personnel to apply the accuracy-related and fraud penalties to the full amount of disallowed refundable credits, he noted.

Also, the legislation’s extension of section 32(k) penalties to improper claims of the child tax and American opportunity tax credits now means taxpayers are penalized twice for the same conduct, Plecnik said: the ban, plus significant monetary penalties under sections 6662 and 6663.

“As soon as Congress arms the IRS with a new tool, they are quick to use it,” he said. “There is no question that refundable credits are a bigger and bigger target for heightened tax penalties and enforcement. Congress and the IRS have made the apparent decision to crack down on improperly claimed refundable credits with more and more penalties, rather than looking to improved internal procedures for paying out these credits or taxpayer education.”