I thought this blog post would be helpful because it involves a little-known IRS penalty section, IRC 6676. IRC 6676 imposes a 20% penalty to the extent that a claim for refund or credit with respect to income tax is made for an “excessive amount.” An “excessive amount” is defined as the difference between the amount of the claim for credit or refund sought and the amount that is actually allowable. To defend an IRS 6676 penalty assessment, a taxpayer must show “reasonable cause” for their tax position. In a recent case, Exxon v. USA, Exxon prevailed and overturned a $200M IRS 6676 penalty. The court agreed with Exxon that its position in the refund claim that its transactions were purchases was reasonable based on the relevant authorities. It further found that the company had “colorable support for its legal contention that a change that affects whether, not when, an item comes into income is not an impermissible change in accounting method,” and, accordingly, no penalty applied related to an impermissible change in accounting method. If you have a large refund claim, even if not $20M, it is good practice to have a “reasonable cause” argument in your hip pocket.