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Del Wright Jr.

Abstract

This Article analyzes the problems with section 6676 as it currently applies and offers suggestions to change it. The Article begins by identifying the reasons section 6676 has been unable to accomplish its policy goals and then highlights problems on the horizon. It ends by suggesting legislative and regulatory changes that will ameliorate the problems with section 6676 and allow the law to accomplish the goals Congress sought to achieve through its enactment. Part II of this Article lays out the problems associated with erroneous claims for refund and past legislative attempts to deal with the problem, ultimately leading to the enactment of section 6676. Part II also explains generally how section 6676 differs from most other tax penalty provisions, and how those differences have hampered its implementation. Part III examines the problematic legal and policy issues the section 6676 penalty raises. Part III.A explores administrative problems with the section 6676 penalty, and begins with an examination of the issues that have arisen regarding the penalty’s procedure and implementation. Many of those problems were on the horizon when the law was passed, but, to date, have not been addressed. One issue, regarding how to properly calculate the section 6676 penalty, was recently addressed by the U.S. Tax Court (“Tax Court”), and not in the government’s favor. Using the Three Stooges as an example, the section demonstrates how that Tax Court decision increased exponentially the procedural and administrative complexity of implementing section 6676. Part IV analyzes a number of outstanding legal and policy issues raised by section 6676. The section begins by examining how imposing the section 6676 penalties may not pass constitutional muster. Briefly, requesting a tax refund is a well-established, constitutionally-recognized form of First Amendment petitioning activity, and any infringement upon that right must provide certain procedural safeguards. As currently implemented, section 6676 has no such safeguards. The section then explores other unresolved legal and policy issues on the horizon for section 6676. Part IV.C explains a more practical problem with section 6676: the penalty may be avoidable by well-represented taxpayers. The section demonstrates how taxpayers and their counsel, by skillfully navigating the sometimes Byzantine procedural aspects of tax litigation may structure their refund requests in such a way that could leave the IRS powerless to impose the penalty. Such tactics would make section 6676 a de facto poor people’s tax, applicable only to those who lacked the skill and sophistication to avoid it. That cannot be what Congress intended. Part V suggests legislative and regulatory changes to section 6676 that would not only ameliorate the procedural and administrative problems, but also satisfy the goals identified by TIGTA and the Joint Committee. Those changes seek to balance the government’s need to address the problem of bogus refund claims with both taxpayers’ and the IRS’s need for clear rules and procedures. Lastly, Part VI offers a conclusion, as well as a hope for a more effective law.

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