Negligence Penalty Imposed on Taxpayer Unable to Show Actual Consultation of Supporting Authorities

A recent ruling from a federal court in Minnesota presents the rare case in which the imposition of a penalty has warranted more attention than the holding on the underlying transaction - and for good reason. In Wells Fargo & Co. v. United States, the United States District Court for the District of Minnesota held that the taxpayer's failure to prove actual consultation of legal authorities providing a basis for its tax return position justified the IRS's assessment of a 20 percent negligence penalty under I.R.C. section 6662(b)(1). The decision highlights the importance of creating and preserving contemporaneous documentation establishing the actuarial and legal foundations for return positions that may be challenged. 


Kenan W. MullisL. Wright