West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-10J - Abusive Tax Shelters
Section 110-10J-8 - Penalties

Universal Citation: 110 WV Code of State Rules 110-10J-8

Current through Register Vol. XLI, No. 38, September 20, 2024

8.1. Promoting tax shelters.

8.1.1. Any person:
8.1.1.1. Who organizes (or assists in the organization) of a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, or

8.1.1.2. Who participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in paragraph 8.1.1.1 of this rule, and

8.1.1.3. Who makes or furnishes or causes another person to make or furnish (in connection with the organization or sale) a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person does not know or does not have reason to know is false or fraudulent as to any material matter, or is a gross valuation overstatement as to any material matter, shall pay, with respect to each activity described in paragraph 8.1.1.1 of this rule, a penalty equal to the $ 1,000 or, if the person establishes that it is lesser, 100% of the gross income derived (or to be derived) by the person from the activity.

8.1.1.4. For purposes of the preceding sentence, the activities described paragraph 8.1.1.1 of this rule with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph 8.1.1.2 of this rule shall be treated in the same manner.

8.1.2. Any person:
8.1.2.1. Who organizes (or assists in the organization) of a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, or

8.1.2.2. Who participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in paragraph 8.1.2.1 of this rule, and

8.1.2.3. Who makes or furnishes or causes another person to make or furnish (in connection with the organization or sale) a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter, or a gross valuation overstatement as to any material matter, shall pay, with respect to each activity described in paragraph 8.1.2.1 of this rule, a penalty equal to the $ 1,000 or, if the person establishes that it is lesser, 100% of the gross income derived (or to be derived) by the person from the activity.

8.1.2.4. For purposes of the preceding paragraph, the activities described in paragraph 8.1.1.1 of this rule with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph 8.1.2.2 of this rule shall also be treated in the same manner.

8.1.2.5. Notwithstanding anything in subdivision 8.1.2 of this rule to the contrary, if an activity with respect to which a penalty imposed under this subsection involves a statement described in paragraph 8.1.2.3 of this rule, the amount of the penalty shall be equal to 50% of the gross income derived (or to be derived) from the activity by the person on which the penalty is imposed.

8.1.3. The Tax Commissioner may waive all or any part of the penalty provided by subdivision 8.1.1 or 8.1.2 of this rule with respect to any gross valuation overstatement on a showing that there was a reasonable basis for the valuation and that the valuation was made in good faith.

8.1.4. The penalty imposed by this subsection shall be in addition to any other penalty provided by law.

8.2. Failure to register tax shelter or maintain list.

8.2.1. Penalty imposed. -- Any person that fails to comply with the requirements of W. Va. Code § 11-10E-8 or W. Va. Code § 11-10E-9 shall incur a penalty as provided in subdivision 8.2.2 of this rule. A person is not in compliance with the requirements of W. Va. Code § 11-10E-8 unless and until the required registration has been filed and contains all of the information required to be included with the registration under W. Va. Code § 11-10E-8 or I.R.C. § 6111: Provided, That a person will be considered to be in compliance with W. Va. Code § 11-10E-8 if that person has filed with the Tax Commissioner all information required to be filed with the Internal Revenue Service. A person shall not be in compliance with the requirements of W. Va. Code § 11-10E-9 unless, at the time the required list is made available to the Tax Commissioner, the list contains all of the information required to be maintained under W. Va. § 11-10E-9 or I.R.C. § 6112.

8.2.2. Amount of penalty. -- The following penalties apply:
8.2.2.1. In the case of each failure to comply with the requirements of W. Va. Code § 11-10E-8(a), (b) or (d), the penalty is $10,000;

8.2.2.2. If the failure to comply with the requirements of W. Va. Code § 11-10E-8(a), (b) or (d) is with respect to a listed transaction described in W. Va. Code § 11-10E-8(c), the penalty is $100,000;

8.2.2.3. In the case of each failure to comply with the requirements of W. Va. Code § 11-10E-9(a) or (b), the penalty is $10,000; and

8.2.2.4. If the failure to comply with the requirements of W. Va. Code § 11-10E-9(a) or (b) is with respect to a listed transaction described in W. Va. Code § 11-10E-9(c), the penalty is $100,000.

8.2.3. Authority to rescind penalty. -- The Office of Tax Appeals, with the written approval of the Tax Commissioner, may rescind all or any portion of any penalty imposed by W. Va. Code § 11-10E-6 with respect to any violation only if one or more of the following apply:
8.2.3.1. It is determined that failure to comply did not jeopardize the best interests of the state and is not due to any willful neglect or any intent not to comply;

8.2.3.2. It is shown that the violation is due to an unintentional mistake of fact;

8.2.3.3. Rescinding the penalty would promote compliance with the requirements of W. Va. Code § 11-10E-1 et seq., and effective tax administration; or

8.2.3.4. The taxpayer can show that there was reasonable cause for the failure to disclose and that the taxpayer acted in good faith.

8.2.4. Coordination with other penalties. -- The penalty imposed by W. Va. Code § 11-10E-6 is in addition to any other penalty imposed by W. Va. Code § 11-10E-1 et seq., or W. Va. Code §11-10- et seq.

8.3. Reportable transaction understatement penalty. -- If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20% of the amount of that understatement. This penalty shall be considered assessed upon the assessment of the tax to which the penalty relates and shall be collected and paid on notice and demand in the same manner as the tax.

8.3.1. This subsection applies to any item which is attributable to either of the following:
8.3.1.1. Any listed transaction as defined in Treasury Regulations Section 1.6011-4 and section 3 of this rule; and

8.3.1.2. Any other reportable transaction as defined in Treasury Regulations Section 1.6011-4 and section 3 of this rule (other than a listed transaction) if a significant purpose of the transaction is the avoidance or evasion of federal income tax.

8.3.2. Failure to comply with this subsection will result in the reportable transaction understatement penalty being increased to 30% of the amount of that understatement.

8.3.3. Reasonable cause exception. -- No penalty shall be imposed under this subsection with respect to any portion of a reportable transaction understatement if it is shown by clear and convincing evidence that there was a reasonable cause for the portion and that the taxpayer acted in good faith with respect to the portion. Reasonable cause for failure to adequately disclose is to be demonstrated by the taxpayer satisfying all of the following:
8.3.3.1. If the penalty for that failure was rescinded;

8.3.3.2. There is or was substantial authority for the treatment; and

8.3.3.3. The taxpayer reasonably believed that the treatment was more likely than not the proper treatment.

8.4. Promoting tax shelters.

8.4.1. The provisions of I.R.C. § 6700 apply for purposes of W. Va. Code § 11-10E-1 et seq., as if the section applied to a West Virginia deduction, credit, exclusion from income, allocation or apportionment rule, or other West Virginia tax benefit: Provided, That if an activity with respect to which a penalty imposed under I.R.C. § 6700(a), as applied for purposes of W. Va. Code § 11-10E-1 et seq., involves a false or fraudulent statement as described in I.R.C. § 6700(a)(2)(A), the amount of the penalty shall be 50% fifty percent of the gross income derived (or to be derived) from the activity by the person upon which the penalty is imposed.

8.5. Failure to disclose listed transactions.

8.5.1. For audits of returns commencing on or after July 1, 2006, when it appears that any part of the deficiency for which an assessment is made is due to failure to disclose a listed transaction or a reportable transaction other than a listed transaction, as the terms are defined in I.R.C. § 6707A, or any subsequent corresponding provision of the Internal Revenue Code as from time to time amended, on the taxpayer's federal income tax return, there shall be imposed a penalty:
8.5.1.1. In the case of a listed transaction the amount of the penalty shall be equal to 70% of the amount of the deficiency; and

8.5.1.2. In the case of other reportable transactions the amount of the penalty shall be equal to 35% of the amount of the deficiency.

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