IRS Publication 550 — Investment Income and Expenses

the maximum is $10,000 (or $100,000 for a listed transaction). This penalty is in addition to any other penalty that may be imposed.

The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. See Revenue Procedure 2007-21, as updated by Treasury Decision 9686 and Announcement 2016 -1 for information on rescission. Announcement 2016 -1 is available at IRS.gov/irb/ 2016-03_IRB#ANN-2016-01.

Accuracy-related penalty for a reportable transaction understatement. If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. Penalty for improper claims for the employee retention credit (ERC). A promoter of the ERC who provides aid, assistance, or advice related to the ERC may be subject to a penalty. If the promoter fails to comply with the due diligence requirements to claim the ERC, the promoter will be subject to a $1,000 penalty for each failure. Extension of time to audit claim for credit. The IRS will have 6 years to review and audit claims for the ERC for accuracy. During this time period, the IRS can disallow any or all of an ERC claim and charge penalties to the promoters and taxpayers. The statute of limitations is usually 3 years.

Deadline to file for employee retention credit. A claim for an ERC or refund will not be processed unless it was filed by the taxpayer on or before January 31, 2024. The IRS will not accept and process any new claims for credit or refunds for the ERC after that date. Civil fraud penalty. If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. Joint return. The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse.

Failure to pay tax. If a deficiency is assessed and is not paid within 10 days of the demand for payment, you may be penalized with up to a 25% addition to tax if the failure to pay continues.

Whether To Invest Take into account the risks, benefits, and source of every financial transaction before investing. You may wish to consider professional legal and financial advice for help in evaluating the transaction. 3.

Investment Expenses Terms you may need to know (see Glossary): At-risk rules Passive activity Portfolio income