In the case of Gaskin v. Commissioner, TC Memo 2018-89, a taxpayer was fighting the imposition of the fraud penalty by the IRS on its assessment of taxes. The taxpayer admitted that he had originally filed a fraudulent return that lead to an IRS criminal investigation, indictment and plea agreement. However, he had filed amended returns during that process that reported virtually all the income he had fraudulently omitted—but the still computed the 75% penalty under IRC §6663 based on amounts reported on the originally filed returns and not based on the amended returns he later filed.
IRC §6663 provides the following:
(a) Imposition of penalty
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
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