Portland, OR asked in Tax Law for Oregon

Q: Section 6662 penalty when no tax was underpaid.

In 2003, I finalized and adoption and have been carrying the adoption tax credit forward since then. On my 2010 tax return which I prepared myself with TurboTax, TurboTax said that I could request a refund from the IRS for the entire remainder of the credit carried forward, so I did for roughly $11,000. The IRS came back and said that I didn't qualify for the refund since it could only be carried forward for 5 years...OK. Then they said that I owed them $2,200 for a section 6662 penalty. The thing that I have the question about is can this penalty apply when I didn't underpay any tax? The IRS says that the only thing I owe is the penalty plus interest...no tax. My "corrected taxable Income" on the IRS 886-A is -$30,546...yes, minus.

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1 Lawyer Answer
Christopher M. Larson
Christopher M. Larson

A: I am not entirely sure on the facts. But if the amount created no tax liability, it would not be correct to have a corresponding penalty with interest. It all depends on when it was "paid." If they had the money they were owed at the time the return was filed, you should not owe any penalties or interest. However, if they were paid at some time after the filing due date, there can be penalties and interest despite the fact that the liability was paid.

Christopher Larson

Insight Law


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