Section 6676 Unconstitutional?

[Cpt Banjo]

An interesting article to be published in The Tax Lawyer argues that the Section 6676 erroneous refund penalty violates the First Amendment's Petition Clause and is therefore unconstitutional.

Abstract:

In 2007, Congress enacted the so-called “erroneous refund penalty,” which imposes a 20% penalty on any taxpayer who submits a claim for tax refund that the IRS deems “inaccurate,” even if the taxpayer’s position is legally non-frivolous and asserted in good faith. In part because the IRS has rarely imposed the penalty since its enactment, the statute has thus far not been analyzed extensively by legal scholars or policymakers. However, the penalty continues to impose a significant chilling effect on tax refund claims, and the Treasury Department has now signaled the possibility of more aggressive application in the future. This article argues that the erroneous refund penalty is unconstitutional under the Petition Clause of the First Amendment. Penalizing taxpayers financially for asking their government to return money they believe is legally theirs strikes at the heart of the Petition Clause’s protections. Indeed, protecting citizens’ right to complain about abusive taxation by the national Government was one of the Framers’ core motivations for enacting the First Amendment. The article draws on the history of the First Amendment, the Supreme Court’s Petition Clause jurisprudence, and recent lower court decisions in exposing the constitutional infirmity of the penalty. The article also explains that the erroneous refund penalty is unjustified as a matter of tax policy, because it fails to promote voluntary compliance, is irrationally harsh and unfair to taxpayers, and is not necessary to solve the narrow, targeted problems that Congress intended to address in enacting the statute. Finally, the article suggests ways in which the penalty could be amended, if it is not repealed altogether, to avoid infringing on taxpayers’ First Amendment rights and ensure that refund claims are treated fairly.

http://papers.ssrn.com/sol3/papers.cfm? ... id=2498295

[Famspear]

Interesting. I don't think I had ever even looked at this code section. Slipped in, under the radar, I guess.

[operabuff]

This provision was enacted to address two fairly narrow problem areas in the Internal Revenue Code's penalty provisions. First, it appeared that inflated claims for some refundable credits on tax returns might not fit within the definition of underpayment appearing in section 6664 and thus might not be subject to the accuracy penalty. Second, large corporations typically would present "informal" refund claims during the course of an examination. In some cases this would require the examination team to spend a fair amount of time analyzing the claim before determining that the facts did not support it. The informal claim was not subject to penalty because no amended return was filed.

I don't think the author's constitutional argument has much merit - most refund requests by taxpayers were already subject to penalty. Are they also suggesting that the accuracy penalty is constitutionally infirm? Moreover, refund claims are not presented under the Petition clause of the Constitution - they are a statutory remedy spelled out in the IRC. The submission of a refund claim creates certain statutory rights - the taxpayer either gets his money back or is entitled to sue for a refund.