Reducing or Eliminating IRS and State Tax Penalties and Interests with a Penalty Abatement Reducing or Eliminating IRS and State Penalties and Interest with a Penalty Abatement | Genesis Tax Consultants, LLC
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Reducing or Eliminating Tax Penalties and Interest through Penalty Abatements

Reducing or eliminating IRS and/or State tax penalties and interest with a penalty abatement request

Reducing or Eliminating IRS Penalties and Interest with Penalty Abatements

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IRS & State

 

Penalty Abatements

The IRS and States are allowed to reduce or eliminate penalties and interest if you meet the criteria of reasonable cause or qualify for penalty relief due to being a first time offender. The IRS calls these reductions/eliminations of penalties an abatement.  Interestingly, the IRS says that around one-third of their imposed penalties are later abated.

According to the latest IRS Data Book, last year the IRS abated almost $9 billion in civil penalties during the year, including $3.9 billion in abatements for individual and estate and trust income tax returns. 

Between 20-25% of all the penalties assessed by the IRS on taxpayers are abated on request.  

The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy.

You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service's First Time Penalty Abatement policy if the following are true:

  • You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
  • You filed all currently required returns or filed an extension of time to file.
  • You have paid, or arranged to pay, any tax due.

The failure-to-pay penalty will continue to accrue, until the tax is paid in full. It may be to your advantage to wait until you fully pay the tax due prior to requesting penalty relief under the Service's first time penalty abatement policy.

Other administrative relief: If you received incorrect oral advice from the IRS, you may qualify for administrative relief.

Is Interest Relief Available?

Interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. If an unpaid balance remains on your account, interest will continue to accrue until the account is full paid. 

Contact Nick today or simply fill out the form on the right column to see how he can help you with your penalty abatement. 




 

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an example of what genesis can do for you

irs penalty abatement

If you would rather try to tackle this yourself, please enjoy reading some IRS classic literature on the subject. 

Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 1. Introduction and Penalty Relief

20.1.1 Introduction and Penalty Relief

Manual Transmittal

November 21, 2017

Purpose

(1) This transmits revised IRM 20.1.1, Penalty Handbook, Introduction and Penalty Relief.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Web site addresses, legal references, and IRM references were reviewed and updated as necessary. In addition, references to ‘penalty(s)’ and ‘penalty(ies)’ were changed to ‘penalty or penalties’ throughout.

(2) IRM 20.1.1.1Program Scope and Objectives - Changed subsection title from Overview and revised content to conform with new guidelines in IRM 1.11.2 , Internal Revenue Manual (IRM) Process. In addition, existing subsections were rearranged or new subsections added to conform with new internal control rules applicable to this program as follows:

  1. IRM 20.1.1.1.1Background

  2. IRM 20.1.1.1.2Authority

  3. IRM 20.1.1.1.3Responsibilities

  4. IRM 20.1.1.1.4Program Management and Review

  5. IRM 20.1.1.1.5Terms/Definitions/Acronyms

  6. IRM 20.1.1.1.6Related Resources

  7. IRM 20.1.1.1.6.1Security Standards

  8. IRM 20.1.1.1.6.2Taxpayer Advocate Service (TAS) Guidelines

  9. IRM 20.1.1.1.6.3Form 911 - Request for Taxpayer Advocate Service Assistance

(3) IRM 20.1.1.2, Purpose of Penalties - At the end of (3), removed ‘the following’.

(4) IRM 20.1.1.2.3Managerial Approval of Penalties - The entire subsection was rewritten based on Counsel recommendations. In addition, the following general changes were made:

  1. Added reference to IRM 20.1.2.2.7.5 for IRC 6651(f) information.

  2. Removed (9) which was in reference to LB&I Directive LMSB-20-0910-024.

  3. Changed reference from IRM 4.10.12.5.2 to IRM 25.25.10.8.1.

(5) IRM 20.1.1.2.3.3IDRS Command Code FTDPN - Added note to (1) that managerial approval is required when assessing a 10% or 15% FTD penalty with an additional tax assessment.

(6) IRM 20.1.1.3Criteria for Relief from Penalties:

  1. Specified the order for considering and applying penalty relief provisions.

  2. Added a caution to refer to the applicable IRM 20.1 section depending on the penalty being considered.

  3. Changed the Caution and Reminder text that was previously under paragraph (3) to paragraphs (4) and (5).

(7) IRM 20.1.1.3.1Unsigned or Oral Requests for Penalty Relief - Incorporated changes previously implemented with SERP IPU 15U0527.

(8) IRM 20.1.1.3.2Reasonable Cause - In (1), changed ‘be assessed’ to ‘apply’ and ‘but nevertheless failed’ to ‘but was nevertheless unable’.

(9) IRM 20.1.1.3.2.1Standards and Authorities:

  1. Removed references to Treas. Regs. 301.6723-1A(d) and 301.6707-1T Q&A (4).

  2. Changed ‘Preparer/Promoter Penalties’ to ‘Tax Return Preparer Penalties’.

  3. Added Treas. Reg. 301.6707-1(e)(3)

(10) IRM 20.1.1.3.2.2.2Fire, Casualty, Natural Disaster, or Other Disturbance - Reasonable Cause - In (1), changed IRM reference from 25.16.1.1, Disaster Assistance and Emergency Relief, to 25.16.1.2, Identification of Covered Disaster Area and Affected Taxpayers.

(11) IRM 20.1.1.3.2.2.5, Erroneous Advice or Reliance - In (4), removed ‘or that another party provided erroneous advice’.

(12) IRM 20.1.1.3.3.1Statutory and Regulatory Exceptions - In (1):

  1. Removed reference to IRC 6724(a) and changed IRM reference from 20.1.7 to 20.1.7.12.

  2. Changed IRM reference from 25.16 to 25.16.1.

(13) IRM 20.1.1.3.3.2.1First Time Abate (FTA) - New subsection added under Administrative Waivers. FTA policy was previously contained in IRM 20.1.1.3.6.1 under Reasonable Cause Assistant (RCA) content. Also restructured and reworded content for clarity.

(14) IRM 20.1.1.3.3.4.3Advice From a Tax Advisor - Changed IRM reference from 20.1.5 to 20.1.5.6.4.

(15) IRM 20.1.1.3.3.5, Fire, Casualty, Natural Disaster, or other Disturbance-Major Disasters:

  1. In (1), added IRM 25.16.1.2 title of Identification of Covered Disaster Area and Affected Taxpayers.

  2. In (2), changed IRM references from 25.16.1.6.2 to 25.16.1.7.2, and 25.16.1.6.1 to 25.16.1.7.1.

(16) IRM 20.1.1.3.5Evaluating Penalty Relief Requests:

  1. Changed subsection title from Requesting Penalty Relief.

  2. In (2), changed ‘determine if penalty relief is warranted’ to ‘determine if penalty relief can be considered and is warranted’.

  3. Added new paragraph (3) and renumbered subsequent paragraphs.

  4. In (6)(b) (previously (5)(b)), added a Note to first determine if FTA criteria are met, if applicable, prior to requesting additional information from the taxpayer.

  5. In (7)(b) (previously (6)(b), changed IRM reference from 20.1.1.3.6.1 to 20.1.1.3.3.2.1.

(17) IRM 20.1.1.3.5.1Subsequent Requests for Penalty Relief:

  1. In (4), clarified that not all appeals requests are forwarded to the Ogden Appeals Campus Office.

  2. In (6), changed ‘Appeals Campus Case Routing Guide’ to ‘Appeals Campus Case Routing Spreadsheet Tool’ and changed the url to that for the new spreadsheet tool.

  3. In (6), added a Caution as a reminder to select the appropriate case type in the spreadsheet tool.

(18) IRM 20.1.1.3.5.3Taxpayer Not Entitled to Relief - At the end of (8), added ‘on each module for which penalty relief was requested and denied.

(19) IRM 20.1.1.3.6Reasonable Cause Assistant (RCA):

  1. In (1), added ‘where available’.

  2. In (1) (a) and (b), clarified the types of returns RCA is used for.

  3. Added a new (5) to clarify that OSP has not approved the use of any other tools for reasonable cause nor FTA determinations.

(20) IRM 20.1.1.3.6.1RCA and First Time Abate (FTA) Consideration:

  1. Changed title from First Time Abate (FTA). All FTA policy has been moved to new IRM 20.1.1.3.3.2.1.

  2. Rewrote entire subsection to only contain policy guidelines for FTA determinations when RCA is used.

(21) IRM 20.1.1.3.6.2Penalty Reason Codes - Rewrote entire section to provide policy guidelines for the use of PRCs when RCA is used. Subsection previously provided guidelines only for FTA PRCs 018 and 020, but these guidelines have been moved to new IRM 20.1.1.3.3.2.1.

(22) IRM 20.1.1.3.6.7Reasonable Cause Penalty Relief Request Prior to Penalty Assessment:

  1. Rewrote content applicable to modules that do not contain a positive FTP penalty amount. RCA was updated in Jan. 2017 to determine if ‘accrued FTP’ is present on the module and, if so, to function in the same manner as it has for modules containing ‘assessed FTP’ greater than zero.

  2. Added and clarified policy guidelines for BMF modules that do not contain an FTD penalty amount greater than zero.

(23) IRM 20.1.1.3.6.8RCA Letter Generation - Removed reference to the option that ‘No Review/Manual Transmit’ can be selected as this option was removed from RCA. Some content was also rewritten to clarify that RCA does not automatically issue a letter but rather assists with preparation and generation of a letter.

(24) IRM 20.1.1.3.6.9RCA for BMF - Added a Note to clarify that deposits that are subject to an FTD penalty are due earlier than the tax and return that are subject to FTP and FTF penalties and therefore RCA’s FTD penalty determination may not always apply to the FTP and/or FTF penalties.

(25) IRM 20.1.1.3.6.10RCA Conclusions/Determinations:

  1. Removed FTP penalty references. References no longer apply due to RCA programming changes implemented in Jan. 2017.

  2. Clarified Note for Suspend conclusions that it may apply to revenue officer (RO) users on some BMF modules.

(26) IRM 20.1.1.4Methods of Appealing Penalties - Updated and added IRM references.

(27) IRM 20.1.1.4.1.1Pre-assessment Appeals - Updated and added IRM references.

(28) IRM 20.1.1.4.2.1Non-Deficiency Procedures - Added content clarifying when some employment taxes are subject to deficiency procedures.

(29) IRM 20.1.1.5.3Penalty Reference Numbers (PRNs):

  1. In (3), added reference to PRNs 786-790 and 792 which were activated in 2015 to replace PRN 680 for most IRC 6662 assessments.

  2. In (4), added titles to Exhibit 20.1.1-4 and Exhibit 20.1.1-5 references and also added reference toExhibit 20.1.1-6.

  3. In (5), clarified that PRN 511 is not used for IRC 6721 assessments for tax years later than 2008.

(30) Exhibit 20.1.1-2Penalty Reason Code Chart:

  1. Added content at the beginning of the exhibit to clarify that penalty relief guidelines contained throughout IRM 20.1 must first be followed and relief criteria met prior to selecting a penalty abatement PRC.

  2. Clarified some definitions and added IRM references where applicable.

(31) Exhibit 20.1.1-3Penalty Transaction Codes

  1. Added a note to the opening overview to explain when an IMF penalty TC may carry a ‘3’ as the 3rd digit and when a BMF penalty TC may carry a ‘R’.

  2. Added a number of IRM references and updated the descriptions for many of the TCs.

  3. The penalty rates for some of the TCs are subject to an annual inflationary adjustment and this information was added where applicable.

(32) Exhibit 20.1.1-4Penalty Reference Numbers (500 Series):

  1. Updated the general PRN 500-514 information at the beginning of the exhibit. The penalty rates vary depending on the due date of the information returns, and the rates and maximum penalties are subject to annual inflationary adjustments. References to current rates were added.

  2. Added an asterisk ‘*’ to each PRN and dollar reference that are subject to an annual inflationary adjustment. At the end of the exhibit, added references to the Revenue Procedures where penalty rates adjusted for inflation are contained.

  3. The following PRNs were added - 519, 552, 562, 583, 584, 585, and 586.

(33) Exhibit 20.1.1-5Penalty Reference Numbers (600 Series):

  1. Changes similar to those for Exhibit 20.1.1-4 were made in regard to inflationary adjustments.

  2. The following PRNs were added - 677, 688 (previously reflected as a Note at the end of the exhibit), 690, 691, 692, 697, and 699.

(34) Exhibit 20.1.1-6Penalty Reference Numbers (700 Series) - Added the following PRNs - 706, 708, 709, 711, 712, 713, 786, 787, 788, 789, 790, and 792.

(35) Exhibit 20.1.1-7Table of Abbreviations and Acronyms:

  1. Added an overview of the exhibit at the beginning, including a link to the Acronym Database.

  2. Added ANMF, EA, IRP, and OSI; deleted CCD, MARS, and PNP; and changed URB to URP.

(36) Exhibit 20.1.1-8Dictionary of Key Terms:

  1. For the term "Advice of Credit (AOC)" , updated the definition to reflect Form 2284 is obsolete and updated the IRM reference from 20.1.4 to 20.1.4.24.4.1.

  2. Added the term "Module" and a definition for it.

  3. For the term "OFFER-IN-COMPROMISE" , updated the definition.

Effect on Other Documents

IRM 20.1.1 dated August 5, 2014 is superseded. The following Servicewide Electronic Research Program (SERP) IRM Procedural Updates (IPUs), issued between March 23, 2015 through April 6, 2017, have been incorporated into this IRM: 15U0527, 16U0537, 16U0561, 16U0583, and 17U0643.

Audience

All IRS employees who work with penalties.

Effective Date

(11-21-2017)

Adina Leach
SE:S:OS:BSO
Director, Business Support
Small Business/Self-Employed

20.1.1.1 (11-21-2017)

Program Scope and Objectives

  1. Purpose: This IRM section discusses the purpose of civil penalties and provides the legal authorities, criteria for relief, and other general information about civil penalties.

    Note:

    All penalties referenced throughout IRM 20.1 are considered civil penalties. Refer to IRM 9.1.3, Criminal Statutory Provisions and Common Law, for criminal penalty provisions.

  2. Audience. This information is for all employees and managers who work with civil penalties when examining returns, collecting taxes, managing accounts, and other compliance activities, including employees and managers in:

    • Small Business Self-Employed (SB/SE) Division,

    • Large Business and International (LB&I) Division,

    • Tax Exempt and Government Entities (TE/GE) Division,

    • Wage and Investment (W&I) Division,

    • Appeals,

    • Criminal Investigation, and

    • Other IRS functions

  3. Policy Owner: The Business Support Office (BSO) is under Operations Support (OS). SB/SE is responsible for overseeing civil penalties.

  4. Program Owner: The Office of Servicewide Penalties (OSP) is responsible for civil penalty policy and IRM 20.1, Penalty Handbook. OSP’s role is to ensure fairness and consistency in civil penalty administration and has overall responsibility for coordinating and approving any update to IRM 20.1.

  5. Contact Information: To recommend changes or make any other suggestions to this IRM section, email OSP at *Servicewide Penalties Team. Also see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

20.1.1.1.1 (11-25-2011)

Background

  1. In 1955, there were approximately 14 penalty provisions in the Internal Revenue Code. There are now more than ten times that number. With the increasing number of penalty provisions, the IRS recognized the need to develop a fair, consistent, and comprehensive approach to penalty administration.

  2. In November 1987, the Commissioner of IRS established a task force to study civil penalties and develop a fair, consistent, and comprehensive approach to penalty administration. In February 1989, the Commissioner’s Executive Task Force issued a Report on Civil Tax Penalties. The report established a philosophy concerning penalties, provided a statutory analysis of the three broad categories of penalties (filing of returns, payment of tax, and accuracy of information), and made recommendations where warranted to resolve the inconsistencies. Those recommendations were, in part, that the IRS should take the following actions:

    1. Develop and adopt a single penalty policy statement emphasizing that civil tax penalties exist for the purpose of encouraging voluntary compliance.

    2. Develop a single consolidated handbook on penalties for all employees (the handbook should be sufficiently detailed to serve as a practical everyday guide for most issues of penalty administration and provide clear guidance on computing penalties).

    3. Revise existing training programs to ensure consistent administration of penalties in all functions for the purpose of encouraging voluntary compliance.

    4. Examine its communications with taxpayers (including penalty notices and publications) to determine whether these communications do the best possible job of explaining why the penalty was imposed and how to avoid the penalty in the future.

    5. Finalize its review and analysis of the quality and clarity of machine-generated letters and notices used in various areas within the IRS.

    6. Consider ways to develop better information concerning the administration and effects of penalties.

    7. Develop a Master File database to provide statistical information regarding the administration of penalties. The information in this database should be continuously reviewed for the purpose of suggesting changes in compliance programs, educational programs, penalty design, and penalty administration.

  3. In keeping with the Commissioner’s Executive Task Force Report and Congressional recommendations, the consolidated penalty IRM was developed.

20.1.1.1.2 (11-21-2017)

Authority

  1. IRM 20.1 is the primary source of authority for the administration of civil penalties by the IRS and serves as the foundation for addressing administration of civil penalties by various IRS functions. By providing one source of authority for the administration of civil penalties, the IRS greatly reduces inconsistencies regarding civil penalty application.

  2. IRM 20.1 provides guidance to all areas of the IRS for all civil penalties imposed by the Internal Revenue Code (IRC). It sets forth general policy and procedural requirements for assessing and abating penalties, and it contains discussions on topics such as criteria for relief from certain penalties. The sections in IRM 20.1 are as follows:

    IRMTitleCode Reference(s)

    IRM 20.1.1Introduction and Penalty Relief 

    IRM 20.1.2Failure to File/Failure to Pay PenaltiesIRC 6651, IRC 6698, and IRC 6699

    IRM 20.1.3Estimated Tax Penalties (ES)Individual-IRC 6654 and Corporate-IRC 6655

    IRM 20.1.4Failure to Deposit Penalty (FTD)IRC 6656

    IRM 20.1.5Return Related PenaltiesIRC 6662, IRC 6662A, IRC 6663, and IRC 6676

    IRM 20.1.6Preparer, Promoter, Material Advisor PenaltiesIRC 6694, IRC 6695, IRC 6700, IRC 6701, IRC 6707, IRC 6707A, IRC 6708, IRC 6713,

    IRM 20.1.7Information Return PenaltiesIRC 6011, IRC 6721, IRC 6722, IRC 6723, and IRC 6724

    IRM 20.1.8Employee Plans and Exempt Organizations Miscellaneous Civil PenaltiesIRC 6652, IRC 6684, IRC 6685, IRC 6690, IRC 6692, IRC 6693, IRC 6704, IRC 6710, IRC 6711, and IRC 6714

    IRM 20.1.9International PenaltiesIRC 6038, IRC 6038A, IRC 6038D, IRC 6039E, IRC 6039G, IRC 6039F, IRC 6652(f), IRC 6677, IRC 6679, IRC 6683, IRC 6686, IRC 6688, IRC 6689, and IRC 6712

    IRM 20.1.10Miscellaneous PenaltiesIRC 856(g)(5), IRC 6652(a)/(b)/(j)-(l), IRC 6657, IRC 6672, IRC 6673, IRC 6674, IRC 6682, IRC 6697, IRC 6702, IRC 6705, IRC 6706, IRC 6709, IRC 6720B, IRC 6720C, IRC 7268, IRC 7519, and IRC 9707

    IRM 20.1.11Excise Tax and Estate and Gift Tax PenaltiesIRC 4103, IRC 6166, IRC 6653, IRC 6675, IRC 6715, IRC 6715A, IRC 6717, IRC 6718, IRC 6719, IRC 6720A, IRC 6725, IRC 7270, IRC 7271IRC 7272, IRC 7273, IRC 7275, IRC 7304, and IRC 7342

    IRM 20.1.12Penalties Applicable to Incorrect AppraisalsIRC 6695A

20.1.1.1.3 (11-21-2017)

Responsibilities

  1. The Director, Business Support, is the director responsible for the servicewide civil penalty program.

  2. Overall responsibility for civil penalty programs is assigned to OSP. OSP is a matrix organization residing in the Business Support (Small Business/Self Employed) Function. OSP is charged with coordinating policy and procedures concerning the administration of civil penalty programs, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance.

  3. Each IRS organization is responsible for establishing an internal process for managing their procedures based upon these Servicewide policies and may develop additional guidance or reference materials for their specific functional administrative needs. However, such reference material must receive approval from OSP prior to distribution and must remain consistent with the policies and general procedural requirements set forth in IRM 20.1, Policy Statement 20-1 (i.e., Penalty Policy Statement) in IRM 1.2.20.1.1, and any other guidance relating to civil penalties.

  4. All employees should keep the following objectives in mind when handling each penalty case:

    1. Similar cases and similarly-situated taxpayers should be treated alike.

    2. Each taxpayer should have the opportunity to have his or her interests heard and considered.

    3. Strive to make a good decision in the first instance. A wrong decision, even though eventually corrected, has a negative impact on voluntary compliance.

    4. Provide adequate opportunity for incorrect decisions to be corrected.

    5. Treat each case in an impartial and honest way (i.e., approach the job, not from the government’s or the taxpayer’s perspective, but in the interest of fair and impartial enforcement of the tax laws).

    6. Use each penalty case as an opportunity to educate the taxpayer, help the taxpayer understand his or her legal obligations and rights, assist the taxpayer in understanding his or her appeal rights, and in all cases, observe the taxpayer’s procedural rights.

    7. Endeavor to promptly process and resolve each taxpayer’s case.

    8. Resolve each penalty case in a manner which promotes voluntary compliance.

  5. Each and every taxpayer has a set of fundamental rights when dealing with IRS as provided in the Taxpayer Bill of Rights (TBOR). All employees handling penalty cases must do so in accordance with the TBOR as listed in IRC 7803(a)(3). The TBOR can also be found at Taxpayer Bill of Rights on irs.gov.

20.1.1.1.4 (11-21-2017)

Program Management and Review

  1. Every function in the IRS has a role in proper penalty administration. It is essential that each function conduct its operations with an emphasis on promoting voluntary compliance. Appropriate business reviews should be conducted to ensure consistency with the penalty policy statement (Policy Statement 20-1) and philosophy. Attention should be directed to the coordination of penalty programs between offices and functions to make sure that approaches are consistent and penalty information is used for identifying and responding to compliance problems.

  2. Managers should continuously review information for trends that may suggest changes in compliance programs, training courses, educational programs, penalty design, and penalty administration. Managers should institute, on an ongoing basis, a quality review system that evaluates the timely and correct disposition of penalty cases and encourages consistent administration of penalties.

20.1.1.1.5 (11-21-2017)

Terms/Definitions/Acronyms

  1. Refer to the following exhibits at the end of this IRM section:

    • Exhibit 20.1.1-7Table of Abbreviations and Acronyms, and

    • Exhibit 20.1.1-8Dictionary of Key Terms

20.1.1.1.6 (11-21-2017)

Related Resources

  1. In addition to the exhibits referenced in IRM 20.1.1.1.5, this IRM contains the following exhibits to assist the user in researching penalty issues:

    • Exhibit 20.1.1-1Penalty Relief Application Chart

    • Exhibit 20.1.1-2Penalty Reason Code Chart

    • Exhibit 20.1.1-3Penalty Transaction Codes

    • Exhibit 20.1.1-4Penalty Reference Numbers-500 Series

    • Exhibit 20.1.1-5Penalty Reference Numbers-600 Series

    • Exhibit 20.1.1-6Penalty Reference Numbers-700 Series

20.1.1.1.6.1 (11-21-2017)

Security Standards

  1. IRS officials and managers must communicate security standards contained in IRM 1.4.6,Managers Security Handbook, to subordinate employees and establish methods to enforce them.

  2. Employees are responsible for taking required precautions to provide security for the documents, information, and property that they handle in performing official duties.

  3. Employees using Integrated Data Retrieval System (IDRS) should only access those accounts required to accomplish their official duties. Any unauthorized access or browsing of tax accounts by employees is prohibited by the IRS. IRM 10.8.1, Policy and Guidance, provides the authority and standards for information technology security. Also see IRM 10.5.5, IRS Unauthorized Access, Attempted Access or Inspection of Taxpayer Records (UNAX) Program Policy, Guidance and Requirements.

20.1.1.1.6.2 (11-21-2017)

Taxpayer Advocate Service (TAS) Guidelines

  1. While the IRS is always striving to improve its systems and provide better service, some taxpayers still have difficulty obtaining a solution to a problem or a timely and appropriate response to an inquiry. The purpose of TAS is to give taxpayers someone to speak for them within the IRS-an advocate. An advocate conducts an independent and impartial analysis of all information relevant to the taxpayer's problem. TAS guarantees that taxpayers will have someone to make sure their rights are protected and someone to turn to when the system is not responsive to their needs. TAS steps in and takes action on behalf of taxpayers when their complaints or inquiries meet TAS criteria. See IRM 13.1.1, Taxpayer Advocate Case Procedures, Legislative History and Organizational Structure.

  2. The purpose of the criteria is to ensure that problems and complaints that have not been handled properly through normal channels are reviewed in TAS. See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria.

20.1.1.1.6.3 (11-21-2017)

Form 911 - Request for Taxpayer Advocate Service Assistance

  1. Refer taxpayers to TAS (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7, TAS Case Criteria) and you cannot resolve the taxpayer's issue the same day. The definition of same day is within 24 hours. Same day cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer these cases to TAS unless they meet TAS criteria and after you have informed the taxpayer regarding the existence and role of TAS, the taxpayer asks to be transferred to TAS. See IRM 13.1.7.4, Same Day Resolution by Operations.

  2. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

20.1.1.2 (11-21-2017)

Purpose of Penalties

  1. Penalties exist to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code.

  2. For most taxpayers, voluntary compliance consists of preparing an accurate return, filing it timely, and paying any tax due. Efforts made to fulfill these obligations constitute compliant behavior. Most penalties apply to behavior that fails to meet any or all of these obligations.

  3. The following factors support the public conviction that the tax system is fair and the penalty is in proportion to the severity of the noncompliance. Penalties encourage voluntary compliance by:

    • Defining standards of compliant behavior,

    • Defining consequences for noncompliance, and

    • Providing monetary sanctions against taxpayers who do not meet the standard.

20.1.1.2.1 (11-25-2011)

Encouraging Voluntary Compliance

  1. Taxpayers in the United States assess their tax liabilities against themselves and pay them voluntarily. This system of self-assessment and payment is based on the principle of voluntary compliance. Voluntary compliance exists when taxpayers conform to the law without compulsion or threat.

  2. Compliant self-assessment requires a taxpayer to know the rules for filing returns and paying taxes. The IRS is responsible for providing information to taxpayers, which includes the following:

    • Written materials that clearly explain the rules, and

    • Forms that permit the self-computation of tax liability.

  3. In addition to (2) above, the IRS must also provide a means to preserve and enhance our voluntary compliance by fairly, consistently, and accurately administering a system of penalties.

  4. Although penalties support and encourage voluntary compliance, they also serve to bring additional revenues into the Treasury and indirectly fund enforcement costs. However, these results are not reasons for creating or imposing penalties.

  5. Penalties advance the mission of the IRS when they encourage voluntary compliance. The IRS has formalized this obligation to the public in its mission statement.

  6. Voluntary compliance is achieved when a taxpayer makes a good faith effort to meet the tax obligations defined by the Internal Revenue Code.

  7. Penalties support voluntary compliance by assuring compliant taxpayers that tax offenders are identified and penalized.

  8. The IRS has the obligation to advance the fairness and effectiveness of the tax system. Penalties should do the following:

    • Be severe enough to deter noncompliance,

    • Encourage noncompliant taxpayers to comply,

    • Be objectively proportioned to the offense, and

    • Be used as an opportunity to educate taxpayers and encourage their future compliance.

  9. IRS personnel may educate taxpayers and encourage their future compliance by doing the following:

    1. Discussing causes for the delinquency and listening to taxpayers' reasons and concerns for noncompliance,

    2. Ensuring that taxpayers understand their filing and paying responsibilities, and

    3. Being alert to information received in discussions with taxpayers that indicate possible reasons for abatement of a penalty.

  10. Penalties should relate to the standards of behavior they encourage. Penalties best aid voluntary compliance if they support belief in the fairness and effectiveness of the tax system. This belief encourages compliance in areas that cannot be reached through audits or other programs. The IRS’s approach to penalties is embodied in Penalty Policy Statement 20-1. See IRM 1.2.20.1.1,Policy Statement 20-1 (Formerly P–1–18), at http://irm.web.irs.gov/link.asp?link=1.2.20.1.1.

20.1.1.2.2 (11-25-2011)

Fair and Consistent Approach to Penalty Administration

  1. The IRS’s approach to penalty administration must ensure the following:

    1. Consistency: The IRS should apply penalties equally in similar situations. Taxpayers base their perceptions about the fairness of the system on their own experience and the information they receive from the media and others. If the IRS does not administer penalties uniformly (guided by the applicable statutes, regulations, policies, and procedures), overall confidence in the tax system is jeopardized.

    2. Accuracy: The IRS must arrive at the correct penalty decision. Accuracy is essential. Erroneous penalty assessments and incorrect calculations confuse taxpayers and misrepresent the overall competency of the IRS.

    3. Impartiality: IRS employees are responsible for administering the penalty statutes and regulations in an even-handed manner that is fair and impartial to both the government and the taxpayer.

    4. Representation: Taxpayers must be given the opportunity to have their interests heard and considered. Employees need to take an active and objective role in case resolution so that all factors are considered.

20.1.1.2.3 (11-21-2017)

Managerial Approval for Penalty Assessments

  1. IRC 6751(b)(1) states, in general, that no penalty under the IRC shall be assessed unless the initialdetermination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. At this time, the Secretary has not designated any higher level official to approve initial determinations.

  2. Notwithstanding the exception noted in paragraph 3 below, this approval requirement will also apply to the imposition of any fraud penalty including the fraudulent failure to file penalty under IRC 6651(f) (see IRM 20.1.2.2.7.5, Fraudulent Failure to File -IRC 6651(f)).

  3. IRC 6751(b)(2) provides an exception to the managerial approval requirement for the following penalties:

    • IRC 6651, Failure to File Tax Return or to Pay Tax,

    • IRC 6654, Failure by Individual to Pay Estimated Income Tax,

    • IRC 6655, Failure by Corporation to Pay Estimated Income Tax, and

    • Any other penalties automatically calculated through electronic means (see paragraph 5 below).

  4. For purposes of this section, the term "penalty" includes any addition to tax or any additional amount (IRC 6751(c)).

  5. Penalties that are automatically calculated through electronic means. A penalty is only considered to be “automatically calculated through electronic means” if no Service human employee makes an independent judgment with respect to the applicability of the penalty.

  6. The approval, in writing, of the initial determination that is made by the immediate supervisor of the individual who made the initial determination must be documented and retained in the case file. The immediate supervisor must indicate the decision reached, sign, and date the case history document.

  7. IRC 6751(b) does not require the IRS to provide the taxpayer with a copy of the immediate supervisor’s approval of penalties assessed against the taxpayer. However, the IRS may wish to provide the taxpayer with a courtesy copy of the document showing that the immediate supervisor approved the initial determination. Taxpayers are entitled to request these documents under the Freedom of Information Act (FOIA).

  8. IRC 6751(b) provides that the initial determination of a penalty assessment shall be approved (in writing) by the immediate supervisor of the individual making such determination.

  9. In addition to the information provided in IRM 20.1.1.2.3.1IRM 20.1.1.2.3.2, and IRM 20.1.1.2.3.3, additional information pertaining to the requirements for specific penalties includes, but is not limited to the following:

    • IRM 20.1.2.2.7.5.1, FFTF Penalty Assessment-Procedural Requirements, fraudulent failure to file penalty.

    • IRM 20.1.5.1.4, Managerial Approval of Penalties, return related penalties.

    • IRM 20.1.6.1.1.2, Managerial Approval for Assessment of Penalties, preparer, promoter and material advisor penalties.

    • IRM 20.1.12.6, Field Examination Procedures, appraisal penalties.

    • IRM 25.25.10.8.1, Penalty Case Creation, IRC 6702, frivolous return penalties.

20.1.1.2.3.1 (11-25-2011)

Examination Change Reports Assessing Penalties

  1. A tax examination change report (e.g., Form 4549, Income Tax Examination Changes) that includes penalties may be approved by a manager in writing after the report is presented to a taxpayer for signature. The report does not have to be reviewed by a manager prior to discussions with the taxpayer regarding the penalties. Nor does the report have to be reviewed before the taxpayer agrees to the penalties. However, the manager must perform a meaningful review of the employee's penalty determination prior to assessment.

  2. The manager should verify the following:

    1. The penalties were fairly imposed and accurately computed.

    2. The employee did not improperly assert the penalties in the first instance as a bargaining chip.

    3. The employee's conclusions regarding "reasonable cause" (or the lack thereof) were proper.

20.1.1.2.3.2 (08-05-2014)

Automated Underreporter Program

  1. When the IRC 6662 accuracy-related penalties for negligence and substantial understatement are assessed under the Automated Underreporter Program (AUR) without an employee independently determining the appropriateness of the penalty, the penalty is automatically calculated through electronic means and may be assessed without written managerial approval of the penalty.

  2. However, if a taxpayer responds either to the initial letter proposing a penalty or to the notice of deficiency that the program automatically issues, an IRS employee must consider the response.

  3. When considering the response, the employee must make an independent determination as to whether the response provides a basis upon which the taxpayer may avoid the penalty. Whether the employee decides to apply the penalty or not, the employee's independent determination of whether the penalty is appropriate means that the penalty is not automatically calculated through electronic means. Accordingly, IRC 6751(b)(1) requires written managerial approval of an employee's determination to assert the penalty.

  4. Also see IRM 20.1.5.1.4, Managerial Approval of Penalties.

20.1.1.2.3.3 (11-21-2017)

IDRS Command Code FTDPN

  1. IRC 6751(b) applies, and managerial approval is required, when an IRS employee does not useIDRS Command Code (CC) FTDPN to determine whether the failure to deposit (FTD) penalty applies (IRC 6656). This determination is not free of any independent determination by an IRS employee as to whether the penalty should be imposed against a taxpayer.

    Note:

    This includes situations where tax is manually assessed and a 10% and/or 15% FTD penalty is computed and assessed on the tax assessment. Examples include tax assessments reported on an amended return or Form 94X-X and an FTD penalty applies in accordance with IRM 20.1.4.21.5 and CAWR and FUTA assessments in accordance with IRM 20.1.4.21.6.1.

  2. Managerial approval is not required when CC FTDPN is used to determine an FTD penalty. For example, managerial approval is not required if CC FTDPN was used to determine the penalty on the following types of cases:

    1. CP 194, Data for Computation of Possible FTD Penalty on Forms 941, CT-1, 720, 940, 943, 944, 945

    2. CP 207, Proposed averaged FTD Penalty (amounts less than $75,000), Request for Correct ROFTL Information

    3. CP 207L, Proposed Averaged FTD Penalty (>= $75,000), Request for Correct ROFTL Information

    4. CP 193, Duplicate Filing Condition

    Note:

    The FTDPN print-out becomes part of the case source document.

20.1.1.3 (11-21-2017)

Criteria for Relief From Penalties

  1. Generally, relief from penalties falls into four separate categories. Unless otherwise specified in IRM 20.1, penalty relief will be considered and applied, if criteria are met, in the following order:

    1. Correction of IRS error

    2. Statutory and Regulatory exceptions

    3. Administrative waivers

    4. Reasonable cause

    Caution:

    These penalty relief categories do not apply equally to all civil penalties referenced throughout IRM 20.1, Penalty Handbook, nor do the relief provisions referenced in IRM 20.1.1 apply to all penalties referenced in IRM 20.1. Always refer to the specific relief provision in the applicable IRM 20.1 section depending on the penalty for which relief is being considered (see IRM 20.1.1.1.2).

  2. Appeals may recommend the abatement or non-assertion of a penalty based on these four criteria as well as "hazards of litigation."

  3. In the interest of fairness, the IRS will consider requests for penalty relief received from third parties, including requests from representatives without an authorized power of attorney. While information may be accepted, no taxpayer information may be discussed with a third party unless a valid power of attorney or other acceptable authorization is secured in writing from the taxpayer. See IRM 20.1.1.3.1.

    1. If additional information is needed, contact the taxpayer or the taxpayer's authorized representative.

    2. If the validity of the request is questionable, contact the taxpayer.

    3. In all cases involving third party requests for penalty relief, advise the taxpayer of the request and the action taken.

  4. All information contained within IRM 20.1.1.3 only applies after the account to be considered for penalty relief has been thoroughly analyzed and corrected, if necessary, in accordance with procedural requirements contained in the IRM to ensure the account properly reflects all acts of compliance. In addition, refer to IRM 20.1.2.1.3.1, Extension of Time to File, for information and procedures to follow in cases where the taxpayer believes an extension was requested but one is not reflected on his or her account.

  5. When penalty relief is warranted (including a determination not to assert a penalty that is otherwise warranted), a penalty reason code (PRC) is required to indicate the reason a penalty is being removed or suppressed. See IRM 20.1.1.5.1Master File Penalty Reason Codes. Also, seeExhibit 20.1.1-2Penalty Reason Code Chart.

20.1.1.3.1 (11-21-2017)

Unsigned or Oral Requests for Penalty Relief

  1. When considering requests for relief from the failure to file (FTF), failure to pay (FTP), and/or failure to deposit (FTD) penalties, determine if the taxpayer is eligible for the first time abate (FTA) administrative waiver using the Reasonable Cause Assistant (RCA), when applicable. See IRM 20.1.1.3.6Reasonable Cause Assistant (RCA), for RCA use and IRM 20.1.1.3.3.2.1First Time Abate (FTA), for all FTA policy and criteria.

  2. If the taxpayer does not meet FTA criteria, unsigned or oral requests for relief from the FTF, FTP and/or FTD penalties may be considered if the following are true:

    1. The request is received either orally or in writing, but is unsigned, AND

    2. The request is received from the taxpayer, the taxpayer's authorized representative or a third party, AND

    3. The penalties do not exceed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (e.g., tax period), AND

    4. Reasonable cause criterion is met.

      Exception:

      If RCA is used, the oral statement authority (OSA) threshold in paragraph (2)(c) is increased to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and/or ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . RCA will be used, where available. If an employee cannot use RCA, he or she should seek managerial approval to consider oral and unsigned requests at the ≡ ≡ ≡ ≡ ≡ ≡ ≡ levels.

  3. When an unsigned or oral request for relief is received, the IRS employee must document the case file or adjustment document clearly restating the information provided by the taxpayer.

    1. If the relief criteria are clearly established, abate or request the abatement of the penalty or penalties following functional guidelines. See IRM 20.1.1.3.5.2.

    2. If the relief criteria are not clearly established, do not abate the penalty or penalties. Follow functional guidelines for disallowing the request. See IRM 20.1.1.3.5.3.

  4. When an unsigned or oral request for penalty relief is received for two or more penalties, ask the taxpayer to submit a signed written request for relief from all penalties if either of the following is true:

    1. Any penalty exceeds the amount that can be considered, or

    2. The penalty is a penalty other than the FTF, FTP, or FTD penalties.

    Example: Suppose on the same module the taxpayer was assessed the following penalties:

    • FTF and FTP penalties that totaled less than ≡ ≡ ≡ ≡ ≡ , but more than ≡ ≡ ≡ , and

    • A FTD penalty greater than ≡ ≡ ≡ , and

    • RCA was not used and managerial approval for higher level OSA threshold was not obtained.

    In such a case, do not take action to abate any of the penalties. Ask the taxpayer to submit a signed written statement requesting relief from all penalties.

  5. The OSA thresholds in this subsection allow for consideration of the facts provided to establish penalty relief without a signed written statement for the FTF, FTP, and/or FTD penalties only.

  6. The taxpayer must provide a written statement, signed under the penalty of perjury, requesting penalty relief for all other penalties. For example, requests for relief received either orally or without an authorized signature may NOT be considered for the following:

    • TIN penalties,

    • Information return penalties, or

    • Penalties assessed by a compliance program.

    Note:

    Refer to IRM 21.5.2.4.9.2 if considering relief for the daily delinquency penalty (DDP) assessed on an employee plan (EP) return or Form 8955–SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits.

20.1.1.3.2 (11-21-2017)

Reasonable Cause

  1. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise apply. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but was nevertheless unable to comply with those obligations.

  2. In the interest of equitable treatment of the taxpayer and effective tax administration, the non-assertion or abatement of certain civil penalties based on reasonable cause or other relief provisions provided in this IRM must be made in a consistent manner and should conform with the considerations specified in the IRC, Treasury Regulations (Treas. Regs.), policy statements, and IRM Part 20.1, Penalty Handbook.

  3. Reasonable cause relief is not available for all penalties; however, other exceptions may apply.

    1. For those penalties where reasonable cause can be considered, any reason which establishes that the taxpayer exercised ordinary business care and prudence, but nevertheless was unable to comply with a prescribed duty within the prescribed time, will be considered.

    2. If a reasonable cause provision applies only to a specific IRC section, that reasonable cause provision will be discussed in the IRM 20.1 section relating to that specific IRC section. See IRM 20.1.1.1.2 and Exhibit 20.1.1-1Penalty Relief Application Chart.

    3. When considering the information provided in the following subsections, remember that an acceptable explanation is not limited to those given in IRM 20.1. Penalty relief may be warranted based on an "other acceptable explanation," provided the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time. See IRM 20.1.1.3.2.2Ordinary Business Care and Prudence.

  4. The wording used to describe reasonable cause provisions varies. Some IRC penalty sections also require evidence that the taxpayer acted in good faith or that the taxpayer's failure to comply with the law was not due to willful neglect. See specific IRM 20.1 sections for the rules that apply to a specific IRC penalty section. See IRM 20.1.1.1.2Organization of IRM 20.1.

  5. Taxpayers have reasonable cause when their conduct justifies the non-assertion or abatement of a penalty. Each case must be judged individually based on the facts and circumstances at hand. Consider the following in conjunction with specific criteria identified in the remainder of this subsection:

    1. What happened and when did it happen?

    2. During the period of time the taxpayer was non-compliant, what facts and circumstances prevented the taxpayer from filing a return, paying a tax, and/or otherwise complying with the law?

    3. How did the facts and circumstances result in the taxpayer not complying?

    4. How did the taxpayer handle the remainder of his or her affairs during this time?

    5. Once the facts and circumstances changed, what attempt did the taxpayer make to comply?

  6. Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time.

20.1.1.3.2.1 (11-21-2017)

Standards and Authorities

  1. Any reason that establishes a taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with the tax law may be considered for penalty relief.

  2. The following Treas. Regs. contain examples of circumstances that may be helpful in determining if a taxpayer has established reasonable cause:

    RegulationDescription

    Treas. Reg. 1.6664–4Accuracy-Related Penalties (see IRM 20.1.5)

    Treas. Reg. 301.6651–1(c)Failure to File a Tax Return and/or Failure to Pay tax Penalties (see IRM 20.1.2)

    Treas. Reg. 301.6724–1Information Returns Penalties (see IRM 20.1.7 )

    Treas. Reg. 1.6694–2(e)(1)-(6)Tax Return Preparer Penalties (see IRM 20.1.6)

    Treas. Reg. 301.6707-1(e)(3)Material Advisor Penalties (see IRM 20.1.12)

  3. The following Internal Revenue Service policy statements contain specific criteria that may affect the imposition of penalties:

    • Policy Statement 20–2, Penalties and Interest Not Asserted Against Federal Agencies. See IRM 1.2.20.1.2.

    • Policy Statement 3–2, Reasonable Cause for Late Filing of Return or Failure to Deposit or Pay Tax When Due. See IRM 1.2.12.1.2.

    • Policy Statement 3–3, Timely Mailed Returns Bearing Foreign Postmarks to Be Accepted. See IRM 1.2.12.1.3.

    • Policy Statement 3–5, Unsigned Income Tax Returns Will Not Be Accepted for Processing; Delinquency Penalty Generally Will Not Be Imposed on Timely Filed Unsigned Income Tax Returns. See IRM 1.2.12.1.5.


    See IRM 1.2.1, Servicewide Policies and Authorities-Policies of the Internal Revenue Service.

20.1.1.3.2.2 (02-22-2008)

Ordinary Business Care and Prudence

  1. Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that he or she exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.

  2. In determining if the taxpayer exercised ordinary business care and prudence, review available information including the following:

    1. Taxpayer’s Reason: The taxpayer’s reason should address the penalty imposed. To show reasonable cause, the dates and explanations should clearly correspond with events on which the penalties are based. If the dates and explanations do not correspond to the events on which the penalties are based, request additional information from the taxpayer that may clarify the explanation. See IRM 20.1.1.3.2Reasonable Cause.

    2. Compliance History: Check the preceding tax years (at least three) for payment patterns and the taxpayer’s overall compliance history. The same penalty, previously assessed or abated, may indicate that the taxpayer is not exercising ordinary business care. If this is the taxpayer’s first incident of noncompliant behavior, weigh this factor with other reasons the taxpayer gives for reasonable cause, since a first- time failure to comply does not by itself establish reasonable cause.

    3. Length of Time: Consider the length of time between the event cited as a reason for the noncompliance and subsequent compliance. See IRM 20.1.1.3.2Reasonable Cause. Consider: (1) when the act was required by law, (2) the period of time during which the taxpayer was unable to comply with the law due to circumstances beyond the taxpayer’s control, and (3) when the taxpayer complied with the law.

    4. Circumstances Beyond the Taxpayer’s Control: Consider whether or not the taxpayer could have anticipated the event that caused the noncompliance. Reasonable cause is generallyestablished when the taxpayer exercises ordinary business care and prudence, but, due to circumstances beyond the taxpayer’s control, the taxpayer was unable to timely meet the tax obligation. The taxpayer’s obligation to meet the tax law requirements is ongoing. Ordinary business care and prudence requires that the taxpayer continue to attempt to meet the requirements, even though late.

20.1.1.3.2.2.1 (11-25-2011)

Death, Serious Illness, or Unavoidable Absence

  1. Death, serious illness, or unavoidable absence of the taxpayer, or a death or serious illness in the taxpayer's immediate family, may establish reasonable cause for filing, paying, or depositing late for the following:

    1. Individual: If there was a death, serious illness, or unavoidable absence of the taxpayer or a death or serious illness in the taxpayer’s immediate family (i.e., spouse, sibling, parents, grandparents, children).

    2. Corporation, estate, trust, etc.: If there was a death, serious illness, or other unavoidable absence of the taxpayer (person responsible), or a member of such taxpayer’s immediate family, and that taxpayer had sole authority to execute the return, make the deposit, or pay the tax.

  2. If someone other than the taxpayer, or the person responsible, is authorized to meet the obligation, consider the reasons why that person did not meet the obligation when evaluating the request for relief. In the case of a business, if only one person was authorized, determine whether this was in keeping with ordinary business care and prudence.

  3. Information to consider when evaluating a request for penalty relief based on reasonable cause due to death, serious illness, or unavoidable absence includes, but is not limited to, the following:

    1. The relationship of the taxpayer to the other parties involved.

    2. The date of death.

    3. The dates, duration, and severity of illness.

    4. The dates and reasons for absence.

    5. How the event prevented compliance.

    6. If other business obligations were impaired.

    7. If tax duties were attended to promptly when the illness passed, or within a reasonable period of time after a death or return from an unavoidable absence.

20.1.1.3.2.2.2 (11-21-2017)

Fire, Casualty, Natural Disaster, or Other Disturbance-Reasonable Cause

  1. Determine if the taxpayer could not comply timely because the taxpayer was an "affected person" eligible for disaster relief as provided for in IRM 25.16.1.2, Identification of Covered Disaster Area and Affected Taxpayers. Also see IRM 20.1.1.3.3.6Official Disaster Area.

  2. For taxpayers not considered an "affected person," reasonable cause relief from a penalty may be requested if there was a failure to timely comply with a requirement to file a return or pay a tax as the result of a fire, casualty, natural disaster, or other disturbance. However, one of these circumstances by itself does not necessarily provide penalty relief.

  3. Penalty relief may be appropriate if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, he or she was unable to comply with the law.

  4. Factors to consider include the following:

    • Timing

    • Effect on the taxpayer’s business

    • Steps taken to attempt to comply

    • If the taxpayer complied when it became possible

  5. The determination to grant relief from each penalty must be based on the facts and circumstances surrounding each individual case. Determine if the event resulted in a circumstance for which other penalty relief criteria may apply. For example, if the taxpayer was unable to access his or her records as the result of a fire. See IRM 20.1.1.3.2.2.3Unable to Obtain Records. If the taxpayer, or responsible party, was unable to comply because he or she was hospitalized as the result of an accident. See IRM 20.1.1.3.2.2.1Death, Serious Illness, or Unavoidable Absence.

20.1.1.3.2.2.3 (12-11-2009)

Unable to Obtain Records

  1. Explanations relating to the inability to obtain the necessary records may constitute reasonable cause in some instances, but may not in others.

  2. Consider the facts and circumstances relevant to each case and evaluate the request for penalty relief.

  3. If the taxpayer was unable to obtain records necessary to comply with a tax obligation, the taxpayer may or may not be able to establish reasonable cause. Reasonable cause may be established if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, he or she was unable to comply.

  4. Information to consider when evaluating such a request includes, but is not limited to, an explanation as to the following:

    • Why the records were needed to comply.

    • Why the records were unavailable and what steps were taken to secure the records.

    • When and how the taxpayer became aware that he or she did not have the necessary records.

    • If other means were explored to secure needed information.

    • Why the taxpayer did not estimate the information.

    • If the taxpayer contacted the IRS for instructions on what to do about missing information.

    • If the taxpayer promptly complied once the missing information was received.

    • Supporting documentation such as copies of letters written and responses received in an effort to get the needed information.

20.1.1.3.2.2.4 (12-11-2009)

Mistake Was Made

  1. The taxpayer may try to establish reasonable cause by claiming that a mistake was made. Generally, this is not in keeping with the ordinary business care and prudence standard and does not provide a basis for reasonable cause.

  2. However, the reason for the mistake may be a supporting factor if additional facts and circumstances support the determination that the taxpayer exercised ordinary business care and prudence but nevertheless was unable to comply within the prescribed time.

  3. Information to consider when evaluating a request for an abatement or non-assertion of a penalty based on a mistake or a claim of ignorance of the law includes, but is not limited to the following:

    1. When and how the taxpayer became aware of the mistake.

    2. The extent to which the taxpayer corrected the mistake.

    3. The relationship between the taxpayer and the subordinate (if the taxpayer delegated the duty).

    4. If the taxpayer took timely steps to correct the failure after it was discovered.

    5. The supporting documentation.

20.1.1.3.2.2.5 (11-21-2017)

Erroneous Advice or Reliance

  1. Each request for penalty relief should be reviewed thoroughly to determine the exact basis of the taxpayer's request.

    1. Is the taxpayer claiming he or she did not comply due to specific advice he or she received from someone, whether orally or in writing, or

    2. Is the taxpayer claiming he or she relied on someone else to comply on his or her behalf?

  2. Certain sections of the IRC and treasury regulations provide relief from certain penalties based on erroneous advice. See IRM 20.1.1.3.3.4Advice, to first determine if a statutory exception or administrative waiver applies.

  3. If the taxpayer states he or she relied on written or oral advice from the IRS but does not qualify for relief in accordance with the criteria in IRM 20.1.1.3.3.4.1Written Advice From the IRS, or IRM 20.1.1.3.3.4.2Oral Advice From the IRS, refer to IRM 20.1.1.3.2.2Ordinary Business Care and Prudence, to determine if the taxpayer exercised ordinary business care and prudence in relying on the IRS's advice.

  4. The taxpayer may try to establish reasonable cause by claiming he or she relied on another party to comply on his or her behalf. Generally, this is not a basis for reasonable cause, particularly for filing or paying obligations, since the taxpayer is responsible for meeting his or her tax obligations and that responsibility cannot be delegated. However, other factors to consider include:

    1. Was the taxpayer unable to comply because he or she did not have access to his or her own records? See IRM 20.1.1.3.2.2.3Unable to Obtain Records.

    2. Was the failure to comply due to a change in the tax law the taxpayer could not reasonably be expected to know? See IRM 20.1.1.3.2.2.6Ignorance of the Law.

  5. Consider all facts and circumstances presented by the taxpayer to determine if, despite the exercise of ordinary business care and prudence, the taxpayer nevertheless was unable to comply.

20.1.1.3.2.2.6 (11-25-2011)

Ignorance of the Law

  1. In some instances taxpayers may not be aware of specific obligations to file and/or pay taxes. Theordinary business care and prudence standard requires that taxpayers make reasonable efforts to determine their tax obligations. See IRM 20.1.1.3.2.2Ordinary Business Care and Prudence.

  2. Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider the following:

    1. The taxpayer’s education.

    2. If the taxpayer has previously been subject to the tax.

    3. If the taxpayer has been penalized before.

    4. If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know.

    5. The level of complexity of a tax or compliance issue.

  3. Reasonable cause should never be presumed, even in cases where ignorance of the law is claimed.

  4. The taxpayer may have reasonable cause for noncompliance due to ignorance of the law if the following are true:

    1. A reasonable and good faith effort was made to comply with the law, or

    2. The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement.

20.1.1.3.2.2.7 (08-05-2014)

Forgetfulness

  1. The taxpayer may try to establish reasonable cause by claiming forgetfulness or an oversight by the taxpayer, or another party, caused the noncompliance. Generally, this is not in keeping with the ordinary business care and prudence standard and does not provide a basis for reasonable cause. See IRM 20.1.1.3.2.2Ordinary Business Care and Prudence.

  2. If the taxpayer claims forgetfulness or an oversight by another party, consider the following:

    1. Relying on another person to perform a required act is generally not sufficient for establishing reasonable cause.

    2. It is the taxpayer’s responsibility to file a timely return and to make timely deposits or payments. This responsibility cannot be delegated.

20.1.1.3.3 (11-25-2011)

Statutory Exceptions and Administrative Waivers

  1. This subsection addresses statutory exceptions and administrative waivers. These two very separate categories are placed together because in many instances an administrative waiver is an extension of rules that were provided for by statute.

20.1.1.3.3.1 (11-21-2017)

Statutory and Regulatory Exceptions

  1. Tax legislation may provide an exception to a penalty. Specific statutory exceptions can be found in either the penalty-related IRC section(s) or the accompanying regulation(s). For example:

    Legal ReferenceTitleIRM Reference

    IRC 6654(e)(1), (2), or (3)Estimated Tax Penalties (ES)IRM 20.1.3

    IRC 7502(a) and IRC 7502(e) (IRC 7502(e) does not apply to deposits due after Dec. 31, 2010)Timely Mailing Treated as Timely Filing and PayingIRM 20.1.2 and IRM 20.1.4

    IRC 6724(c)Waiver; Definitions and Special Rules, Information Return PenaltiesIRM 20.1.7.12

    IRC 6404(f)Abatement of Any Penalty or Addition to Tax Attributable to Erroneous Written Advice by the Internal Revenue ServiceIRM 20.1.1.3.3.4.1

    IRC 7508Time for Performing Certain Acts Postponed by Reason of Service in Combat Zone. This provision applies only in a presidentially declared Combat ZoneIRM 20.1.2.1.2.1, Combat Zone-IRC 7508

    IRC 7508A and Treas. Reg. 301.7508A-1Authority to Postpone Certain Deadlines by Reason of Federally Declared Disaster or Terroristic or Military ActionsIRM 25.16.1, Disaster Assistance and Emergency Relief, Program Guidelines and IRM 20.1.2.1.2.2, Federal Disaster Area-IRC 7508A

  2. Legislation with retroactive provisions may provide guidance on associated penalties. As a result of that retroactive provision, the IRS may issue a news release or other guidance with instructions for the disposition of the related penalties.

  3. IRC 6205 provides for an interest-free adjustment when an employer underreported and underpaid certain employment taxes if specific conditions are met by the employer to report the error and pay the tax due. Prior to Jan. 1, 2009, IRC 6205 and related treasury regulations were silent in regard to penalties. Consequently, IRS extended an administrative waiver to certain penalties. See IRM 20.1.1.3.3.2Administrative Waivers.

    1. The regulations under IRC 6205 provide that an interest-free adjustment cannot be made if the failure to report relates to an issue that was raised in an examination of a prior return period or if the employer knowingly underreported its employment tax liability.

    2. Also, under the regulations, an interest-free adjustment cannot be made after receipt of notice and demand for payment or after receipt of Letter 3523, Notice of Determination of Worker Classification (NDWC).

  4. Effective Jan. 1, 2009, Treas. Reg. 31.6205–1 and Treas. Reg. 31.6302–1 have been amended for interest-free adjustments. When all conditions have been met for an employer to qualify for an interest-free adjustment, the amount timely paid will be deemed to have been timely deposited by the employer. In other words, tax deemed to have been timely deposited is not subject to the failure to deposit (FTD), failure to pay (FTP), and failure to file (FTF) penalties. See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, IRM 20.1.2, Failure to File/Failure to Pay Penalties, and IRM 20.1.4, Failure to Deposit Penalty, for required procedures and additional information.

    1. When all regulatory requirements have been met for the amount paid to be considered timely deposited by the employer, penalties should not be assessed.

    2. If penalties were assessed, the account must be carefully reviewed to determine if penalty relief is appropriate, and if so, the correct reason for relief. Did the taxpayer state he or she met all requirements for an interest-free adjustment?

    IfAndThen

    The adjustment was input with Transaction Code (TC) 290, see IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, to determine if reversal of the TC 290 and reassessment with TC 298 is appropriate,Manual penalty reversal is required (Master File will automatically reverse systemic penalty assessments),Use Penalty Reason Code (PRC) 044.

    The adjustment was input with TC 298,IRS asserted the penalty or penalties incorrectly,Refer to IRM 20.1.1.3.4Correction of Service Error.

    IRS asserted the penalty or penalties correctly,Explain the reason for the penaltyor penalties to the taxpayer.

    The taxpayer did not meet all requirements for an interest-free adjustment,Established he or she was unable to comply timely due to reasonable cause and not due to willful neglect, (see IRM 20.1.1.3.2Reasonable Cause),Use the appropriate PRC for penalty abatement listed in Exhibit 20.1.1-2.

20.1.1.3.3.2 (08-05-2014)

Administrative Waivers

  1. The IRS may formally interpret or clarify a provision to provide administrative relief from a penalty that would otherwise be assessed. An administrative waiver may be addressed in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions.

    Example:

    An example of an administrative waiver is Notice 98-30, IRB 1998-22. This allowed a temporary waiver of the failure to deposit penalty for certain taxpayers first required to make federal tax deposits by EFTPS beginning on or after July 1, 1997.

  2. An administrative waiver may be necessary when there is a delay by the IRS in the following:

    1. Printing or mailing of forms,

    2. Publishing guidance (e.g. writing of Regulations), or

    3. Other conditions.

  3. IRC 6205 permits adjustments to be made, without interest, to correct underpayments of employment taxes. The amount of the underpayment must be paid by the time an adjusted return (e.g., Form 941–X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund) is filed or interest will begin to accrue from that date.

  4. For errors discovered on or after January 1, 2009, see IRM 20.1.1.3.3.1 for penalty information related to interest-free adjustments for employment taxes.

  5. For errors discovered prior to Jan. 1, 2009, take the following action to meet the IRS’s responsibility to provide fair and consistent treatment to taxpayers:

    1. For an increase of tax that qualifies for an interest-free adjustment, the IRS will not assess failure to file (TC 16X), failure to pay (TC 27X), or failure to deposit (TC 18X) penalties; provided the tax increase was paid by the due date of the tax period in which additional tax was ascertained.

      Note:

      If there’s a previously assessed TC 16X, on the tax period, it may be necessary to restrict the failure to file penalty by entering a TC 160 .00 on the adjustment.

    2. The tax adjustment will be represented by a TC 298/308, with an interest computation date.

    3. If one of the previously identified penalties has been assessed and a request for abatement is received, the abatement will be done as an administrative waiver if the penalty is based on the TC 298/308 tax increase (provided the tax increase was paid by the due date of the tax period in which it was ascertained).

20.1.1.3.3.2.1 (11-21-2017)

First Time Abate (FTA)

  1. IRS provides administrative relief from the following penalties if the qualifying criteria contained in this subsection are met:

    1. Failure to file (FTF) penalty under IRC 6651(a)(1), IRC 6698(a)(1), or IRC 6699(a)(1),

    2. Failure to pay (FTP) penalty under IRC 6651(a)(2) and/or IRC 6651(a)(3), and

    3. Failure to deposit (FTD) penalty under IRC 6656.

  2. This administrative waiver, implemented in 2001, is referred to as First Time Abate (FTA) and is available for penalty relief the first time a taxpayer is subject to one or more of the referenced penalties for a single return. When FTA criteria have otherwise been met, do not provide penalty relief under the FTA waiver unless the following are true:

    1. The taxpayer has filed, or filed a valid extension for, all required returns currently due, AND

    2. The taxpayer has paid, or arranged to pay, any tax currently due.

      Note:

      Although reported as a tax on Form 1040, this does not include an unpaid Shared Responsibility Payment (SRP) applicable under IRC 5000A(b).

    • When determining if the taxpayer has filed, or filed a valid extension for, all returns currently due, consider the taxpayer current with this requirement if the taxpayer states they filed any missing return or extension to file whose due date is 45 days or fewer than the current date. For returns or extensions to file whose due date is more than 45 days from the current date, secure a processable copy of each return and/or extension.

      Example:

      If considering penalty relief on May 25, 2017 and the taxpayer otherwise meets FTA criteria but we have no record their 2016 Form 1040 nor an extension of time to file has been filed, consider the taxpayer current for the 2016 Form 1040.

    • When determining if the taxpayer has paid, or arranged to pay, any tax currently due, consider the taxpayer current with this requirement if he or she has an open installment agreement and is current with his or her installment payments.

  3. The Reasonable Cause Assistant (RCA) is programmed to determine if FTA criteria are met. Refer to IRM 20.1.1.3.6Reasonable Cause Assistant, for RCA policy and additional FTA guidelines when RCA is used.

    Exception:

    RCA is unable to determine if the taxpayer has filed all returns and paid, or arranged to pay, all tax currently due. The account must be reviewed manually to determine if these criteria have been met prior to removing any penalties under the FTA waiver.

  4. The following FTA waiver eligibility criteria applies to all taxpayers:

    Note:

    When determining if FTA criteria are met, the criteria below applies to the same MFT as the penalized MFT unless the penalized MFT is 01, 14, 30, or 31. If the penalized MFT is 01 or 14, the criteria applies to both MFTs 01 AND 14. If the penalized MFT is 30 or 31, the criteria applies to both MFTs 30 AND 31.

    1. The tax period ending date is later than Dec. 31, 2000, and

    2. The taxpayer has not been required to file the same return, or no tax modules for the same return are in TDI Status 02, 03, or 04 (IMF), for the 3 years preceding the penalized tax period (see Exception), and

    3. If required to file the same return during the preceding 3 years, has no unreversed penalties (except an estimated tax penalty, TC 17X) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and a notice was issued showing the assessed penalty or penalties (a module balance cleared with a TC 606 indicates a notice showing the assessed penalty or penalties was not issued), and

    4. If required to file the same return during the preceding 3 years, has no penalties manually suppressed or reversed with Penalty Reason Code (PRC) 018 (FTA, RCA not used), 020 (FTA, RCA used), or 021 (Tolerance). See Exhibit 20.1.1-2Penalty Reason Code Chart (see Exception).

      Exception:

      If subsequent information shows the taxpayer was either not required to file a return or that they did in fact comply and were not subject to any penalty on a module on which a penalty abatement was input with PRC 018, 020, or 021, consider the taxpayer compliant for that module.

  5. When determining if FTA criteria are met for penalties assessed on MFT 30 or 31, the taxpayer(s) must meet FTA criteria on all returns required to be filed as a primary and secondary taxpayer, if applicable.

    Example:

    If the filing status of the return on the penalized period is Married Filing Joint and the required returns in the preceding 3 years were not filed under the same primary SSN and with the same filing status and same primary and secondary SSNs, FTA criteria for both SSNs must be met.

    Example:

    If the filing status on the return on the penalized period is other than Married Filing Joint and the taxpayer filed, or was required to file, as a secondary taxpayer during the preceding 3 years, FTA criteria must be met for all returns on which the taxpayer was reported, or was required to be reported, as the secondary taxpayer on a joint return.

  6. In addition to the criteria in paragraph (4), FTA criteria will not be met on BMF accounts if any of the following is true:

    1. A total of four or more FTD penalty waiver codes are present in the taxpayer’s three-year penalty history. Waiver Code 24 is set when the FTD penalty is waived due to a change in deposit frequency. Waiver Code 25 is set when the FTD penalty is waived per IRM 20.1.4.3,Restrictions on Assessments, criteria. Waiver codes, if posted, are shown in Command Code (CC) BMFOL definer R with the literal FTD PEN WAIVER CD.

    2. The FTD penalty is charged for EFTPS avoidance. However, if the taxpayer made some deposits electronically by EFTPS as required but not all and all other FTA criterion are met, any portion of an FTD penalty not attributable to EFTPS avoidance can be removed or suppressed. If the portion of the penalty attributable to EFTPS avoidance meets IRM 20.1.4.3,Restrictions on Assessments, criteria, remove the penalty in full.

    3. For a Form 1120, U.S. Corporation Income Tax Return, or Form 1120-S penalty, a Form 1120-S,U.S. Income Tax Return for an S Corporation, in the 3-year look-back period was filed late but not penalized.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The penalty is charged for an incomplete Form 1120-S under IRC 6699(a)(2) or Form 1065 under IRC 6698(a)(2). See IRM 20.1.2.5, Failure to File S Corporation Return-IRC 6699, and IRM 20.1.2.3, Failure to File a Partnership Return. An incomplete return penalty is assessed on MFT 02 or 06 with a TC 246 or a TC 240 without a 3-digit penalty reference number (PRN). Taxpayers that file an incomplete Form 1120-S or Form 1065 are provided an opportunity to submit the missing information before the incomplete return penalty is assessed.

  7. In addition to the criteria contained in paragraphs (4)-(6), penalty relief under the FTA waiver does not apply to the following:

    • Returns with an event-based filing requirement, generally returns filed once or infrequently such as Form 706, U.S. Estate Tax Return, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

    • The daily delinquency penalty (DDP), see e.g., IRC 6652(c)(2)(A) and IRM 20.1.8, Employee Plans and Exempt Organization Penalties.

    • Information reporting that is dependent on another filing, such as various forms that are attached.

      Example:

      Penalties assessed against a late-or unfiled Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, or Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. See IRM 20.1.9, International Penalties.

    • This list is not all inclusive.

  8. FTA is an administrative waiver and does not carry any oral statement authority (OSA) threshold. See IRM 20.1.1.3.1Unsigned or Oral Requests for Penalty Relief, for OSA guidelines.

  9. As stated in paragraph (2), penalty relief under the FTA waiver only applies to a single tax period. Further, penalty relief under the FTA waiver only applies to a tax period for which the qualifying criteria in paragraphs (4)-(6), as applicable, have been met. In addition, the FTA waiver is not applicable based solely on a taxpayer’s first request for penalty relief.

    Example:

    If a Form 941 filer was compliant for calendar years 2013, 2014, and 2015 but made late deposits and was assessed FTD penalties on all 4 2016 tax periods, FTA criteria can only be met and the waiver applied to the tax period ended 201603. Reasonable cause criteria must be met for tax periods 201606, 201609, and 201612.

    Example:

    If the same Form 941 filer was not compliant during calendar year(s) 2013, 2014, and/or 2015 but didn’t request penalty relief for those years and their first request for penalty relief is for the 4 FTD penalties on their 2016 returns, penalty relief under the FTA waiver is not appropriate for any of the 2016 penalties.

  10. An FTA waiver is not penalty-specific. In other words, if the taxpayer has any unreversed penalties (except an ES penalty) on a module in the 3-year look-back period, or any penalties reversed with PRC 018, 020, or 021, the FTA waiver does not apply to any penalty on the module under consideration.

    Example:

    If a taxpayer was assessed an FTD penalty and no other penalties on Form 941 for tax period 201703 and a review of the 3-year look-back period shows an unreversed FTP penalty ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (and a notice was issued), or the FTP penalty was removed with PRC 018, 020, or 021, the FTA waiver does not apply for 201703 tax module.

  11. Per IRM 20.1.1.3, penalty relief under Administrative Waivers, including FTA, is to be considered and applied before reasonable cause. If FTA criteria are met, the FTA waiver will be applied before reasonable cause and the taxpayer must be notified that we removed their penalty or penalties based on their prior history of compliance and not based on their reasonable cause statement.

    Caution:

    Do not provide relief under the FTA waiver if there is clear and convincing evidence that the taxpayer did in fact comply and is not subject to any penalties or if the penalty or penalties is/are the result of an IRS error. Take appropriate corrective actions that will result in systemic reversal of the penalty or penalties. If the module is restricted from removing the penalty or penalties systemically or the penalty or penalties is/are clearly the result of an IRS error then input the penalty abatement transaction(s) with penalty reason code (PRC) 045.

  12. When penalty relief under the FTA waiver is granted, notify the taxpayer we have removed the penalty or penalties based on their prior history of compliance and not based on a reasonable cause explanation provided, if applicable. Correspondex Letters 168C, 3502C (RCA only), and 3503C (RCA only), as well as ICS (integrated collection system) macro letters 4722, 4723, and 4724, contain appropriate paragraphs to use for this notification requirement. The following is an example of this paragraph:

    Example:

    We approved your request to remove the penalties. However, we only granted penalty relief because you have a good history of filing and paying on time. This type of penalty removal is only available one time. We will base our decisions to remove any future penalties on reasonable cause criteria.

    Note:

    When applicable, include an explanation that educates the taxpayer how to be compliant in the future. Examples of when an explanation may not be applicable include deceased taxpayers and telephone contacts during which an explanation was provided verbally.

  13. If the tax is not paid in full on the module that meets FTA criteria and the taxpayer is current with installment agreement payments (and has filed all returns currently due), allow abatement of the FTP penalty under the FTA waiver determined to the current date and use reason code (RC) 062with the TC 271. While the FTA waiver is an administrative waiver and not reasonable cause, theRC 062 will not restrict Master File from continuing to compute the FTP penalty on the unpaid tax and is to be used in this instance only.

    Note:

    An open paragraph must be used in Correspondex Letters 168C, 3502C, and 3503C to inform the taxpayer that the FTP penalty will continue to apply to the unpaid tax. After the tax is paid in full, the additional FTP penalty can be removed under the FTA waiver.

    Caution:

    If the tax is paid in full or the taxpayer has agreed to pay the balance owed immediately upon receipt of notice of abatement of the penalty (see IRM 20.1.2.1.4.1(9)), allow abatement or suppression of the assessed amount of FTP penalty (i.e., input TC 270 for $0.00 if the module only reflects accrued FTP). On IMF modules, use RC 065.

  14. Per IRM 20.1.1.5.1, a PRC is required when abating an assessed penalty or suppressing a penalty that is otherwise applicable. The FTA waiver carries its own PRCs as follows:

    • PRC 018 - To be used when an independent determination of the taxpayer’s eligibility for penalty relief under the FTA waiver is made. This includes situations where RCA is used but RCA did not determine FTA criteria have been met.

    • PRC 020 - To be used when RCA is used and RCA displays a message indicating the module under review meets FTA criteria. This includes situations where RCA displays a message indicating one or more modules in the 3-year history have been moved to the retention register and manual review of the module(s) moved to the retention register confirms FTA criteria have been met.

  15. Taxpayers are not required to specifically request penalty relief under the FTA waiver to be eligible for the waiver. If one or more penalties eligible for relief under the FTA waiver remain after all account discrepancies have been corrected, and/or are being proposed in the course of an examination, abatement or suppression of the penalty or penalties should be made if all FTA criteria have been met.

20.1.1.3.3.3 (08-05-2014)

Undue Hardship

  1. An undue hardship may support the granting of an extension of time for paying a tax or deficiency (i.e., Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship). Treas. Reg. 1.6161–1(b), provides that an undue hardship must be more than an inconvenience to the taxpayer. The taxpayer must show that he or she would sustain a substantial financial loss ifrequired to pay a tax or deficiency on the due date.

    1. Undue hardship generally does not affect a person’s ability to file and therefore would not provide a basis for penalty relief in a failure to file situation. However, each request must be considered on a case-by-case basis.

    2. Undue hardship may establish reasonable cause for failure to file on magnetic media under Treas. Reg. 301.6724–1. See IRM 20.1.7, Information Return Penalties.

  2. The extension of time to pay does not provide the taxpayer with an extension of time to file. Nor does the extension of time to pay relieve the taxpayer of any appropriate penalties. See IRM 20.1.2.1.3.2, Extensions of Time to Pay-IRC 6161.

  3. Undue hardship may also support relief from the addition to tax for failure to pay tax if the explanation for the noncompliance supports such a determination. However, the mere inability to pay does not ordinarily provide the basis for granting penalty relief. Under Treas. Reg. 301.6651–1(c), the taxpayer must also show that he or she exercised ordinary business care and prudence in providing for the payment of the tax liability.

    1. The taxpayer may claim that enough funds were on hand, but as a result of unanticipated events, the taxpayer was unable to pay the taxes.

    2. Consider an individual taxpayer’s inability to pay a factor when considering penalty relief if the taxpayer shows that, had the payment been made on the payment due date, undue hardship (as defined in Treas. Reg. 1.6161–1(b)) would have resulted.

    3. In the case where a taxpayer files bankruptcy, consider inability to pay a factor if the insolvency occurred before the tax payment due date.

  4. If payroll was met, taxes were withheld and should be available for deposit. Employers must reserve money withheld from employees’ wages in trust until deposited. The employer should not use the money for any other purpose. Undue hardship does not support relief from the penalty under IRC 6672, Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax (Trust Fund Recovery Program).

  5. Information to consider when evaluating a request for penalty relief includes, but is not limited to, the following:

    1. When did the taxpayer know he or she could not pay?

    2. Why was the taxpayer unable to pay?

    3. Did the taxpayer explore other means to secure the necessary funds?

    4. What did the taxpayer supply in the way of supporting documentation, such as copies of bank statements?

    5. Did the taxpayer pay when the funds became available?

  6. Use the appropriate PRC if penalty relief is warranted. See Exhibit 20.1.1-2.

20.1.1.3.3.4 (08-05-2014)

Advice

  1. This section discusses the following three basic types of advice that may qualify for statutory, regulatory, or administrative penalty relief:

    1. Written advice provided by IRS

    2. Oral advice provided by IRS

    3. Advice provided by a tax professional

  2. Information to consider when evaluating a request for abatement or non-assertion of a penalty due to reliance on advice includes, but is not limited to, the following:

    1. Was the advice in response to a specific request and was the advice received related to the facts contained in that request?

    2. Did the taxpayer reasonably rely on the advice?

  3. The following instances address some situations where penalty relief may not be appropriate even though the taxpayer relied on written advice from the IRS regarding an item on a filed return:

    1. The taxpayer did not reasonably rely on the advice regarding an item included on a return if the advice was received after the date the return was filed.

      Note:

      A taxpayer may be considered to have reasonably relied on advice received after the return was filed if he or she then filed an amended return that conformed with such written advice.

    2. A taxpayer may not be considered to have reasonably relied on written advice unrelated to an item included on a return, such as advice on the payment of estimated taxes, if the advice is received after the estimated tax payment was due.

    3. If the taxpayer, or his or her authorized representative, provided the IRS or the tax professional with adequate and accurate information, the taxpayer is entitled to penalty relief for the period during which he or she relied on the advice. The period continues until the taxpayer is placed on notice that the advice is no longer correct or no longer represents the IRS’s position.

  4. The taxpayer is placed on notice as the result of any of the following events that present a contrary position and occur after the issuance of the written advice:

    1. Written correspondence from the IRS that its advice is no longer correct or no longer represents the IRS’s position.

    2. Enactment of legislation or ratification of a tax treaty.

    3. A U.S. Supreme Court decision.

    4. The issuance of temporary or final regulations.

    5. The publication of a revenue ruling, revenue procedure, or other statement in the Internal Revenue Bulletin (IRB).

  5. Generally, Form 843, Claim for Refund and Request for Abatement, is required to be filed to request penalty abatement based on erroneous written advice by the IRS. However, if Form 843 is not filed and the information provided demonstrates that abatement of the penalty is warranted, the penalty should be abated, whether or not a Form 843 is provided. Information required to be provided includes the following:

    1. The taxpayer's written request for advice,

    2. The erroneous written advice furnished by the IRS to the taxpayer and relied on by the taxpayer, and

    3. The report (if any) of tax adjustments that identifies the penalty or addition to tax and the item relating to the erroneous written advice.

20.1.1.3.3.4.1 (11-25-2011)

Written Advice From the IRS

  1. The IRS is required by IRC 6404(f) and Treas. Reg. 301.6404–3 to abate any portion of any penalty attributable to erroneous written advice furnished by an officer or employee of the IRS acting in his or her official capacity.

  2. If the taxpayer does not meet the criteria for penalty relief under IRC 6404(f), the taxpayer may qualify for other penalty relief. For instance, taxpayers who fail to meet all of the IRC 6404(f) criteria may still qualify for relief under reasonable cause if the IRS determines that the taxpayer exercised ordinary business care and prudence in relying on the IRS’s written advice. See IRM 20.1.1.3.2.2.5.

  3. Requests that qualify for penalty relief based on erroneous written advice from the IRS under IRC 6404(f) must be filed according to the following:

    1. Within the period allowed for collection of the penalty or addition to tax, or

    2. If the penalty or addition to tax has been paid, within the period allowed for claiming a credit or refund of such penalty or addition to tax.

20.1.1.3.3.4.2 (12-11-2009)

Oral Advice From IRS

  1. The IRS may provide penalty relief based on a taxpayer’s reliance on erroneous oral advice from the IRS. The IRS is required by IRC 6404(f) and Treas. Reg. 301.6404–3 to abate any portion of any penalty attributable to erroneous written advice furnished by an employee acting in his or her official capacity. Administratively, the IRS has extended this relief to include erroneous oral advice when appropriate.

  2. In addition to considering the criteria provided in Treas. Reg. 301.6404–3, IRM 20.1.1.3.3.4Advice, and IRM 20.1.1.3.3.4.1Written Advice From the IRS, consider the following:

    1. Did the taxpayer exercise ordinary business care and prudence in relying on that advice?

    2. Was there a clear relationship between the taxpayer’s situation, the advice provided, and the penalty assessed?

    3. What is the taxpayer’s prior tax history and prior experience with the tax requirements?

    4. Did the IRS provide correct information by other means (such as tax forms and publications)?

    5. What type of supporting documentation is available?

  3. The following is supporting documentation:

    1. A notation of the taxpayer’s question to the IRS,

    2. Documentation regarding the advice provided by the IRS,

    3. Information regarding the office and method by which the advice was obtained,

    4. The date the advice was provided, and

    5. The name of the employee who provided the information.

20.1.1.3.3.4.3 (11-21-2017)

Advice From a Tax Advisor

  1. Reliance on the advice of a tax advisor generally relates to the reasonable cause exception in IRC 6664(c) for the accuracy-related penalty under IRC 6662. See IRM 20.1.5.6.4, Reliance on Advice, and Treas. Reg. 1.6664–4(c).

  2. However, in very limited instances, reliance on the advice of a tax advisor may provide relief from other penalties when the tax advisor provides advice on a substantive tax issue.

    Example:

    The employer researched all available IRS publications on the subject of contract labor, provided clear and convincing documentation as to the duties of the workers to the tax advisor, and requested an opinion from the tax advisor as to whether the workers were "contract labor" or "employees." As a result, the tax advisor advised the employer that the workers were "contract labor." However, the IRS later determined that the workers were "employees" and not "contract labor."

  3. Penalty relief based on reliance on the advice of a tax advisor is limited to issues generally considered technical or complicated. The taxpayer’s responsibility to file, pay, or deposit taxes generally cannot be excused by reliance on the advice of a tax advisor.

  4. Because the IRC and treasury regulations sections that provide penalty relief criteria for erroneous advice from a tax advisor are generally limited to the accuracy-related penalty, relief from other penalties must meet the reasonable cause standards. See IRM 20.1.1.3.2Reasonable Cause.

20.1.1.3.3.5 (11-21-2017)

Fire, Casualty, Natural Disaster, or Other Disturbance-Major Disasters

  1. This section discusses penalty relief provisions for circumstances that generally fall under the definition of "major disaster" (such as a hurricane, tornado, earthquake, etc.) or "emergency" (see IRM 25.16.1.2, Identification of Covered Disaster Area and Affected Taxpayers) and that affect a significant number of taxpayers located within a designated geographical area.

  2. Generally, relief is provided in the form of extensions of time to file or pay and is usually provided systemically with the setting of an "-O" Freeze or "-S" Freeze posted to the account. See IRM 25.16.1.7.2, Disaster Assistance and Emergency Relief, -O Freeze, and IRM 25.16.1.7.1, Disaster Assistance and Emergency Relief, -S Freeze.

  3. The determination to grant relief from each penalty must be based on the facts and circumstances surrounding each individual case.

  4. For additional guidelines, including guidelines for reasonable cause consideration where systemic penalty relief is not applicable, see IRM 20.1.1.3.2.2.2.

20.1.1.3.3.6 (11-25-2011)

Official Disaster Area

  1. When a significant disaster occurs affecting a wide area of taxpayers, the IRS often issues special instructions to facilitate evaluating the request for penalty relief.

  2. Because these are one-time instructions, they will not be incorporated in this IRM. Territories, campuses, and customer service sites will be kept informed of any special instructions affecting their areas.

20.1.1.3.4 (08-05-2014)

Correction of Service Error

  1. An IRS error can be any error made by the IRS in computing or assessing tax, crediting accounts, etc. See Exhibit 20.1.1-2Penalty Reason Code Chart, for the appropriate PRC to be used when abating either a systemically-generated or manually-input penalty.

  2. When an analyst from any area of the IRS identifies a computer programming application that caused a penalty to be assessed in error, that analyst should coordinate the following with OSP:

    1. Contact Information Technology (IT) to resolve the inadequate computer application, and

    2. Include on the unified work request (UWR) a statement indicating that PRC 015 must be used to identify any abatement of a penalty resulting from reversal of the computer application.

  3. Other IRS error examples include the following:

    1. A math error when manually computing a penalty.

    2. An extension of time to file that did not post to the Master File (and manual input of a TC 460 did not, or will not, result in an automatic penalty reversal, if input of a TC 460 is appropriate in accordance with IRM 20.1.2.1.3.1.1, Extension of Time to File Not Found).

    3. Any other error, when it can be shown that; (1) the taxpayer did in fact comply with the law, and (2) the IRS did not initially recognize that fact.

20.1.1.3.5 (11-21-2017)

Evaluating Penalty Relief Requests

  1. The initial request for relief may occur either during or after an examination (but before a penalty is actually assessed), with a return that is either filed or paid late, or after assessment of the penalty or penalties and notification issued to the taxpayer.

  2. When the request is received, carefully analyze the taxpayer’s reasons to determine if penalty relief can be considered and is warranted. The burden of proving entitlement to relief is generally upon the taxpayer.

    Caution:

    Prior to analyzing the taxpayer's reason(s), analyze the account to determine if penalty relief cannot be considered, or if relief can only be considered by another IRS function. An example includes, but is not limited to, Freeze Codes "F-," "-N," "-V," "-W," "-Y," "-Z," or "Z-."

  3. The following guidelines generally apply to all penalties for which the IRC provides relief. As stated in IRM 20.1.1.3, the penalty relief criteria contained throughout IRM 20.1.1 do not apply to all penalties referenced in IRM 20.1. Refer to the applicable IRM 20.1 section(s) for additional criteria depending on the penalty or penalties for which relief is requested. See IRM 20.1.1.1.2.

  4. Each request must be evaluated on its own merit, including the following:

    1. The events or parties involved, and

    2. If the taxpayer exercised ordinary business care and prudence, but due to circumstances or events beyond the taxpayer’s control the taxpayer was unable to meet the tax requirement, or

    3. If other penalty relief criteria apply (such as a statutory or regulatory exception or an administrative waiver).

  5. The taxpayer’s obligation to meet the requirement is ongoing. Ordinary business care and prudence requires that the taxpayer continue to attempt to meet the requirements, even though late.

  6. Determine if the taxpayer’s explanation addresses the penalty or penalties imposed.

    1. The dates and explanations should clearly correspond with events on which the penalties are based to show that the taxpayer is entitled to relief from the penalty.

    2. Request additional information from the taxpayer to clarify any explanations if the dates and explanations do not correspond with the events on which the penalty is based.

      Note:

      See IRM 20.1.1.3.3.2.1First Time Abate (FTA). If the penalty or penalties being considered is/are eligible for relief under the FTA waiver, determine if the taxpayer meets FTA criteria before requesting additional information.

  7. Review available IRS information in determining whether or not the taxpayer exercised ordinary business care and prudence. Check the preceding tax years (go back at least three years or twelve quarters) for payment patterns and the taxpayer’s overall compliance history.

    1. Assertion of the same penalty or penalties in the taxpayer's history may indicate that the taxpayer is not exercising ordinary business care.

    2. If this is the taxpayer’s first incident of noncompliant behavior, weigh this factor with other reasons the taxpayer gives for relief since a first time failure to comply does not by itself establish reasonable cause. However, see the IRM 20.1.1.3.3.2.1First-Time Abate (FTA), administrative waiver.

  8. Consider the length of time between the event cited as a reason for the noncompliance and subsequent compliance. The length of time between events may serve to cancel or reduce the event’s effect. Penalty relief may not be appropriate if, after considering all facts and circumstances, the taxpayer failed to correct his or her noncompliant behavior within a reasonable period of time.

  9. The following are examples where penalty relief may not be appropriate:

    1. The taxpayers claim that they were unable to comply with the filing requirement due to a death in the family. The death occurred several months prior to the due date of the return. The return was not filed until a year after the due date of the return.

    2. Taxpayers claim that they were unable to comply with the filing requirement because the records necessary for filing were in the control of a third party, e.g., a bankruptcy trustee or an accountant. The records were returned to the taxpayer well in advance of the time the return was required to be filed. The return was not filed until several months after the records were returned.

    3. In both of the examples, the timing of the event may prevent the taxpayer from receiving penalty relief unless other factors justify the delay in filing.

  10. Consider if the taxpayer could have anticipated the event that caused the non-compliance. SeeIRM 20.1.1.3.2.2Ordinary Business Care and Prudence.

20.1.1.3.5.1 (11-21-2017)

Subsequent Requests for Penalty Relief

  1. A second or subsequent request for penalty relief may be received after the initial request for relief has been denied. The request is generally considered an appeal of the previous penalty relief denial. Also see IRM 20.1.1.4.1.

  2. If the penalty was previously sustained in Appeals, forward the request to the appropriate Appeals office. (This may be identified by the presence of PRC 041/042 followed by a TC 290 for $0.00 with a Blocking Series 96X, -N Freeze Code on the account.)

  3. If the review of the account indicates that the taxpayers request for penalty relief was previously disallowed (and not sustained in Appeals), review the circumstances of the previous denial.

    IfAndThen

    The taxpayer is submitting new information,The facts presented in the new information meet penalty relief criteria (see IRM 20.1.1.3),Abate the penalty or penalties. See IRM 20.1.1.3.5.2.

    The facts presented in the new information do notmeet penalty relief criteria,Notify the taxpayer that you are unable to grant relief based on the new information provided and the information contained in the original disallowance.

    The facts presented do not meet penalty relief criteria and the taxpayer indicates a desire for appealing the decision,Forward the case to Appeals with all required information (and notify the taxpayer the additional information does not meet penalty relief criteria and his or her request is being forwarded to Appeals).

    The taxpayer is not submitting new information,The taxpayer has not requested an appeal of the previous determination,Inform the taxpayer we are unable to reconsider the penalty relief request.

    The taxpayer is requesting an appeal of the previous determination,Forward the case to Appeals with all required information.

    It is unclear what the taxpayer wants,Contact the taxpayer to request clarifying information.

  4. Generally, a campus penalty appeals coordinator will forward the cases to the Ogden Appeals Campus Office, however, the applicable Appeals office may vary based on the type of case. See (6) below. Cases transferred to Appeals must include the following documents:

    1. The letter requesting an appeal, signed by the taxpayer or an authorized power of attorney (POA) (with a valid Form 2848, Power of Attorney and Declaration of Representative, on file).

      Note:

      Form 8821, Tax Information Authorization, or Form 2848, Level H, is not considered an authorized POA.

    2. A copy of the previously denied penalty relief request (the TC 290 .00 in Blocking Series 98/99 source document). If the source document is not available, provide a copy of the Files charge-out information to Appeals.

    3. A copy of the disallowance letter or a print of the RCA conclusion screen (852C, 853C, IDRS Print, 854C, 2413(P), 2414(P) or other disallowance letter).

    4. A cover sheet (Form 12835, Transmittal of a Case to Appeals) identifying the tax period and the type and amount of each penalty.

    5. Form 3210, Document Transmittal, may not be required when transferring via the Correspondence Imaging System (CIS). Check with the receiving function.

  5. When transferring a case to the Ogden Appeals Campus Office, complete the following:

    1. Input a TC 971 with Action Code 251 on each tax period being transferred,

    2. Reassign the control base to Appeals (category APPZ), and

    3. Input TC 470 with Closing Code 90, if applicable.

  6. Mail the case to the applicable address shown in the Appeals Campus Case Routing Spreadsheet Tool at https://organization.ds.irsnet.gov/sites/AppealsCOS/APS/SitePages/CaseRouting.aspx.

    Caution:

    Ensure the appropriate Type of Case is selected from the drop-down list. For international cases, select "International Exam and PBC 315 and PENAP and FBAR" .

20.1.1.3.5.2 (11-21-2017)

Taxpayer Entitled to Relief

  1. If the taxpayer provides an explanation that supports his or her request for penalty relief, waive or abate the applicable penaltyor penalties. If the explanation applies to one penalty or multiple penalties but not all penalties, only the penalty or penalties to which the explanation applies should be waived or abated.

  2. Document the decision and the basis for providing relief according to functional guidelines. Attach a copy of the information to the original return (if available) or other transaction (input) document.

  3. Decisions with respect to penalties made by compliance personnel should not ordinarily be changed by personnel within another functional area. Before considering relief for any penalty or penalties asserted by compliance personnel, contact that office to determine if the case should be returned to the originating office.

  4. If relief is granted prior to assertion of the penalty or penalties, use computer condition codes to suppress the automatic assertion of the penaltyor penalties. Functional areas that forward returns to be processed must request that the campus prevent the assessment of the penalty or penalties. This may be done by doing the following:

    1. Writing "reasonable cause" or "penalty relief" (as appropriate) in the preprinted penalty block on the return or on Form 4364, Delinquency Computations,

    2. Requesting the penalty assessment transaction code be input for zero amount,

    3. Editing a computer condition code (CCC) on the return, or

    4. Preparing other forms appropriate for forwarding returns or penalty computations for processing.

      Note:

      In addition, annotate the appropriate penalty reason code (PRC) on the respective form or return.

  5. If relief is granted after the assessment of a penalty, follow procedures for abating the penalty or the appropriate portion of the penalty. Adjustments to penalties that are due to reasonable cause must include Reason Code 062 and the appropriate PRC. See Exhibit 20.1.1-2Penalty Reason Code Chart.

20.1.1.3.5.3 (11-21-2017)

Taxpayer Not Entitled to Relief

  1. The information contained in paragraphs (2)-(8) does not apply to all IRM 20.1 penalties. Refer to the appropriate IRM 20.1 section depending on the penalty or penalties considered. See IRM 20.1.1.1.2.

    Example:

    If considering an accuracy-related penalty (IRC 6662), refer to IRM 20.1.5.4, Post Assessment Abatement Consideration of Accuracy Related Penalties. If considering an international penalty, refer to IRM 20.1.9.1.1, Common Terms.

  2. If the criteria for penalty relief has not been established, determine if additional information would be helpful to evaluate the taxpayers request. See IRM 20.1.1.3.2Reasonable Cause.

  3. If a final determination is that the criteria for granting penalty relief was not established, complete the following:

    1. Document the decision and its basis according to functional guidelines, and

    2. Attach a copy of the information to the original return (if available) or other transaction (input) document.

  4. Employees denying a request for pre-assessment relief (prior to assessment) or abatement (after assessment), must provide written notification to the taxpayer of the denial and of the taxpayers appeal rights, regardless of whether the request was received in the following manner:

    • In person

    • Over the phone

    • In writing

  5. The notice should include the following:

    1. A complete explanation of the IRS’s decision and the basis for denial,

    2. Information on the appeal procedures, including instructions on how to submit a written protest, and

    3. Power of attorney information.

  6. The IRS has developed standardized letters that are used by various offices. They include the following:

    • IDRS Correspondex Letter 0854C, Penalty Waiver or Abatement Disallowed/Appeals Procedure Explained, which is generally used by campuses.

      Note:

      If the reasonable cause assistant (RCA) is used (see IRM 20.1.1.3.6), Correspondex Letter 0852C (BMF) and Letter 0853C (IMF) are generated through RCA and IDRS.

    • Pattern Letter 2413(P) and Letter 2414(P), which are used by Collection area offices, available as an ICS macro.

  7. Functions that process returns through the campus will need to alert the campus of their decision to deny penalty relief. This can be done by writing "penalty relief denied" in the appropriate preprinted penalty block on the return or on Form 4364, Delinquency Computations.

  8. If a request for penalty relief is denied after assessment, request or input TC 290 for zero amount, using Blocking Series 98/99 (Appeals uses Blocking Series 96) with Reason Code 062 and Hold Code 3 on each module for which penalty relief was requested and denied.

20.1.1.3.6 (11-21-2017)

Reasonable Cause Assistant (RCA)

  1. The Reasonable Cause Assistant (RCA) will be used where available when considering penalty relief due to reasonable cause. RCA is to be used after normal case research has been performed, (i.e., applying missing deposits/payments, adjusting tax, researching for missing extensions of time to file, etc.) for the following penalties:

    1. IMF-failure to file (FTF) and failure to pay (FTP) (Form 1040-series returns processed on MFT 30 or 31), and

    2. BMF-failure to deposit (FTD) (currently limited to MFTs 01 (Form 941), 10 (Form 940), 11 (Form 943), 14 (Form 944), and 16 (Form 945).

  2. RCA is a decision support interactive software program developed to reach a reasonable cause determination. RCA is accessed through the Account Management Services (AMS) Tools menu.

  3. Use of RCA will ensure consistent and equitable administration of penalty relief consideration.

  4. When an employee has determined that a taxpayer has requested penalty relief based on reasonable cause, whether the request was made by telephone or in writing, RCA will be accessed to determine if penalty relief will be granted.

    Caution:

    See IRM 20.1.1.3.5 to determine if penalty relief can be considered, or if penalty relief can only be considered by another function.

  5. No tool or application other than the RCA application accessed from the AMS desktop application has been authorized for use by the Office of Servicewide Penalties (OSP) to assist in determining if reasonable cause or FTA criteria have been met.

20.1.1.3.6.1 (11-21-2017)

RCA and First Time Abate (FTA) Consideration

  1. Refer to IRM 20.1.1.3.3.2.1First Time Abate (FTA), for all eligibility criteria for penalty relief under the FTA administrative waiver.

  2. RCA has been programmed to determine if FTA criteria are met under most conditions. However, RCA is unable to review any modules in the 3-year look-back period that have been moved to the retention register. If RCA determines FTA criteria may be met based on any modules that have not been moved to the retention register AND one or more modules in the 3-year look-back period has/have been moved to the retention register, RCA will display a warning message.

    1. As stated on the warning message, modules in the 3-year look-back period that have been moved to the retention register must be reviewed manually to determine if FTA criteria are met.

    2. When the Ok button is selected in the warning message, RCA next displays the First Time Abatedialog message. Cancel must be selected if manual review of the module(s) moved to the retention register shows FTA criteria have not been met.

    3. In cases where at least one module in the 3-year look-back period has been moved to the retention register, RCA has not performed a thorough analysis to determine if FTA criteria are met. If manual review verifies FTA criteria have been met, use Penalty Reason Code (PRC) 020 with the adjustment transaction(s).

  3. As stated in IRM 20.1.1.3.6, RCA is currently only programmed to review BMF modules on MFTs 01, 10, 11, 14, and 16 and only if an FTD penalty greater than $0.00 is present:

    1. If an FTD penalty of greater than $0.00 is present AND FTF and/or FTP penalties are also present, the FTA recommendation by RCA applies to all penalties.

      Exception:

      If at least one module in the 3-year look-back period has been moved to the retention register and manual review shows FTA criteria have not been met, no penalties will be removed under the FTA waiver.

    2. If an FTD penalty of greater than $0.00 is NOT present but an FTF and/or FTP penalty is, RCA does not perform the FTA analysis for any user type. However, RCA will allow revenue officer (RO) users to process a penalty abatement transaction, if applicable, through RCA. Although the RCA Adjustment Data screen contains a message indicating RCA does check for FTA criteria under this condition, it does not. The account must be reviewed manually to determine if FTA criteria are met (see IRM 20.1.1.3.3.2.1). If FTA criteria are met, select PRC 018 from the drop-down list. Do not use PRC 020.

  4. If the MFT reviewed is 30 or 31, RCA will perform an analysis to determine if the tax on the module is fully paid:

    • If the tax is fully paid, RCA will use Reason Code (RC) 065 (and PRC 020) with the adjustment and will default either the total amount of the FTP penalty assessed on the module with the TC 271 or it will default TC 270 for $0.00 if the module contains only accrued FTP.

    • If the tax is not fully paid, RCA will use RC 062 (and PRC 020) with the adjustment and will default the total FTP penalty computed to the current date for the TC 271.

    • If the TC 271 amount defaulted by RCA is incorrect, the amount must be edited before transmitting the adjustment.

    Note:

    If RCA does not display the FTA message but it’s subsequently determined FTA criteria have been met, use PRC 018 if the tax on the module is paid in full. Use PRC 020 if the tax is not paid in full. For MFTs 30 & 31, RCA will default RC 062 with PRC 020 if the tax is not fully paid but it is not currently programmed to use RC 062 with PRC 018.

  5. If the MFT reviewed is 01, 10, 11, 14, or 16, RCA currently will NOT perform an analysis to determine if the tax on the module is fully paid, nor is RCA programmed to use RC 062 with PRC 018 or 020. If the tax on the module is NOT paid in full and PRC 018 or 020 will be used:

    1. Users that are NOT profiled as an RO user (CRs, TEs, etc.) - If a TC 271 is added to the RCA Adjustment Data screen, it will be necessary to add 062 to the first RC field on the CC ADJ54 screen in IDRS before transmitting the adjustment.

    2. Users profiled as an RO user - At this time, there are no options to add RC 062 to the adjustment either before selecting Ok on the RCA Adjustment Data screen nor by Centralized Case Processing (CCP) prior to the adjustment being transmitted. This section will be updated if programming changes can be input to allow for use of RC 062 with PRC 018 or 020 on BMF modules.

  6. Per IRM 20.1.1.3.3.2.1, individual taxpayers must be compliant as primary or secondary filers with all required returns in the 3-year look-back period. RCA programming was updated in Jan. 2017 to review the history of 2 or more SSNs under most conditions. However, if RCA displays the First Time Abate message when accessed on a module on MFT 30 or 31, it will be necessary to manually review the 3-year history to verify all FTA criteria have been met (see IRM 20.1.1.3.3.2.1). If not, select Cancel and proceed with RCA for a reasonable cause determination.

  7. Per IRM 20.1.1.3.3.2.1, penalty abatement under the FTA waiver will only be made if the taxpayer has:

    1. Filed, or filed a valid a valid extension for, all required returns currently due, AND

    2. The taxpayer has paid, or arranged to pay, any tax currently due.

      RCA is currently unable to determine if these requirements have been met and the account must be reviewed manually for this determination.

  8. Per IRM 20.1.1.3.3.2.1, penalty relief under the FTA waiver doesn’t apply to any portion of a FTD penalty assessed for EFTPS avoidance. At this time, RCA is unable to determine if only a portion of an FTD penalty was charged for EFTPS avoidance and will not display the First Time Abatemessage if the Penalty Computation Code (PCC) used with the TC 18X is one that indicates an avoidance credit is posted (see IRM 20.1.4.14.3).

    • In this situation, RCA will display "EFTPS Avoidance" in the Alerts on the Module Home Screen. The account can be reviewed manually to determine if FTA criteria are otherwise met.

      Note:

      The Penalty History section of the RCA Module Home screen can be used as a quick reference to determine if FTA criteria have not been met as this will reflect any unreversed penalties in the 3-year look-back period for modules that have not been moved to the retention register. Even if all modules in the 3-year look-back period are reflected and all reflect ‘No Penalties’, the account must be reviewed manually to determine if all FTA criteria have been met.

  9. RCA will also display a FTA window on a BMF account when the taxpayer has a change in deposit frequency. Employees need to be aware this is different than a FTA for a good compliance history and use the appropriate PRC when removing the penalty for a first-time change in deposit frequency.

20.1.1.3.6.2 (11-21-2017)

Penalty Reason Codes

  1. Per IRM 20.1.1.3, a penalty reason code (PRC) is required when suppressing, reducing, or removing a penalty. Also see IRM 20.1.1.5.1Master File Penalty Reason Codes.

  2. When RCA reaches an Abate or Mixed conclusion (also see IRM 20.1.1.3.6.10), RCA will default the applicable PRC for the abatement adjustment on the RCA Adjustment Data screen. The PRC field on the Adjustment Data screen also provides a drop-list of all PRCs reflected in Exhibit 20.1.1-2. The appropriate PRC should be selected if the PRC defaulted by RCA is incorrect based on the facts and circumstances.

  3. Although not reflected on the Adjustment Data screen, RCA will pass reason code (RC) 062 to the first RC field in CC ADJ54 if the selected PRC is 022, 024, 025, 026, 030, or 046. RCA will also pass RC 062 with PRC 020 in certain situations (see IRM 20.1.1.3.6.1).

  4. When the conditions for use of RC 062 have not been met, RCA will pass RC 065 when accessed on MFT 30 or 31 (IMF) or no RC will be passed when accessed on MFT 01, 10, 11, 14, or 16 (BMF).

    Note:

    When the adjustment transaction includes TC 271, the applicable RC and PRC must be selected in accordance with the requirements contained in IRM 20.1.2.1.4.1.

  5. When RCA’s determination (see IRM 20.1.1.3.6.10 and IRM 20.1.1.3.6.10.1) is overridden, the following options are available based on the RCA user type:

    • User not profiled as a revenue officer (RO) user (i.e., contact representatives, tax examiners, etc.) - RCA does not provide an option to input the required adjustment action through RCA. The adjustment action must be input outside of RCA and the applicable RC and PRC used in accordance with IRM 20.1.1.3.6.2 and Exhibit 20.1.1-2.

    • RO users - RCA will default the abatement transaction code (TC) and abatement amount for any assessed FTF, FTP, and/or FTD penalty on the module but will not select a default PRC. The applicable PRC must be selected from the drop-down list provided on the Adjustment Data screen in accordance with IRM 20.1.1.3.6.2 and Exhibit 20.1.1-2. RCA will use RC 062 or RC 065 (IMF only) in accordance with Exhibit 20.1.1-2.

      Note:

      RCA will not pass RC 062 with PRC 018 on IMF nor BMF modules, and it will not pass RC 062 with PRC 020 on BMF modules.

20.1.1.3.6.3 (11-25-2011)

Increase in Oral Statement Ceiling

  1. Beginning January 1, 2002, the oral statement ceiling for failure to file, failure to pay, and failure to deposit penalties was increased. See IRM 20.1.1.3.1.

  2. RCA will be used where available. Where RCA is not available, employees should receive managerial approval to allow for the oral abatement of penalties when reasonable cause criteria are met. The ceiling also applies to BMF FTF and FTP penalties (even though RCA is not programmed to consider these penalties at this time).

20.1.1.3.6.4 (02-22-2008)

Oral Statement Ceiling Exceeded

  1. A signed, written statement is not required to deny a penalty relief request, regardless of the penalty amount(s). Therefore, users will not be required to obtain a signed, written statement before accessing RCA in "oral" mode. If the RCA determination is to abate the penalty or penalties and the oral ceiling threshold is exceeded, RCA will display a message stating a signed, written statement is required to allow the abatement, in addition to any other documentation required. See IRM 20.1.1.3.6.5.

    1. If RCA determines the penalty should be sustained, follow established RCA "sustain"procedures.

    2. If RCA determines the penalty should be abated, request a signed, written statement.

20.1.1.3.6.5 (02-22-2008)

Documentation

  1. Specific circumstances within RCA require the taxpayer to provide documentation to support his or her claim before a penalty relief determination can be reached. Other circumstances will allow the employee to accept "credible information," either orally or in writing.

    1. "Credible information" must explain facts and circumstances showing the taxpayer exercised ordinary business care and prudence, and cite specific dates for the non-compliance. All information, including dates, must substantiate why the taxpayer was unable to comply.

    2. RCA has been programmed to include reasonable and specific time frames to allow for filing and/or paying taxes after the event that prevented compliance ended. See IRM 20.1.1.3.2.2,Ordinary Business Care and Prudence.

20.1.1.3.6.6 (08-05-2014)

Attaching RCA Determination

  1. When RCA reaches a conclusion to either abate (remove) or sustain the penalty, the program automatically displays a print dialog to allow printing the determination that includes all information input by the RCA user. This print must be attached as a source document, or attached to the CIS case, if applicable. See IRM 21.5.2, Adjustment Guidelines, for additional information.

  2. See IRM 20.1.1.3.1 for additional information concerning unsigned and oral requests.

20.1.1.3.6.7 (11-21-2017)

Reasonable Cause Penalty Relief Request Prior to Penalty Assessment

  1. RCA is unable to consider penalty relief on modules with no TC 150 posted. However, RCA can consider FTF and/or FTP penalty relief on IMF accounts if a TC 150 has posted, but no penalties have been assessed, or if the penalties have been fully reversed. It can also consider FTD penalty relief on BMF accounts with a posted TC 150 but no posted, or fully reversed, TC 18X.

    Note:

    RCA does not provide an option to address any unassessed penalties for users that are profiled as revenue officer (RO) users.

  2. While the reasons for accessing RCA under these conditions vary, this functionality is most beneficial for BMF CP 207 or CP 207L replies where the taxpayer knows he or she made one or more deposits late and requests penalty relief based on reasonable cause prior to assessment of the FTD penalty.

  3. For CP 207 and CP 207L replies (see IRM 20.1.4.18, CP 207/207L Notices), use CC FTDPN to compute the appropriate penalty prior to accessing RCA.

    1. If a penalty applies, access RCA for a penalty relief determination.

      Note:

      RCA does not review the account to determine if FTA criteria have been met if an FTD penalty for a positive amount is not present on the module. Prior to accessing RCA, review the account to determine if FTA criteria have been met (see IRM 20.1.1.3.3.2.1). If so, accessing RCA is not required. If the 13th week from issuance of the CP 207 notice has not expired per IRM 20.1.4.18.1, input a TC 180 for zero, BLK 14, and PRC 018. This action should prevent automatic assessment of an FTD penalty.

    2. If FTA criteria have not been met and RCA determines reasonable cause criteria have been met, input a TC 180 for zero, BLK 14, RC 062, and the appropriate PRC in the 4th RC position. (This action is required to avoid sending the taxpayer unnecessary notices).

    3. If RCA determines reasonable cause criteria have not been met, follow normal CP 207 assessment procedures (see IRM 20.1.4.18) and normal penalty relief request denial procedures (see IRM 20.1.1.3.5.3).

  4. On IMF accounts, certain account conditions can result in the taxpayer receiving a balance due notice that includes an accrued FTP penalty charge but no TC 27X is present on the account. RCA programming was updated in Jan. 2017 to determine if accrued FTP penalty for a positive amount is present on the module and now functions in the same manner as it has on modules that contain assessed FTP penalty for a positive amount.

    1. When RCA determines abatement of the FTP penalty is appropriate, RCA will default a TC 271 amount (or a TC 270 for zero if applicable) on the RCA Adjustment Data screen based on the requirements contained in IRM 20.1.1.3.3.2.1 and IRM 20.1.2.1.4.1. However, users are responsible for determining the appropriate TC 271 amount or, if applicable, if a TC 270 for zero is appropriate and change the amount defaulted by RCA before transmitting the adjustment.

    2. For RO users, RCA will generally default the amount of assessed FTP, or a TC 270 for zero, on all BMF modules and on IMF modules on which RCA’s Sustain determination is overridden. If the module contains accrued FTP and RC 062 will be input with the adjustment, the amount defaulted by RCA will generally need to be edited before selecting OK on the RCA Adjustment Data screen. See Exhibit 20.1.1-2 to determine if RC 062 will be used depending on the PRC selected.

     

20.1.1.3.6.8 (11-21-2017)

RCA Letter Generation

  1. If RCA determines reasonable cause has not been established, Correspondex Letter 0852C (BMF) or Letter 0853C (IMF) can be issued by users that are not profiled as an RO user through RCA providing the reason(s) for denial and explaining the appeal procedures.

    1. "Special Insert" and "Return Address" codes are required on the Letter 0852C and Letter 0853C to generate the appropriate appeals coordinator's name and return address. Enter the codes established by your local Campus User Support function (normally used on Letter 0854C). These codes are also available on the SERP Penalty Appeal Coordinators List page.

    2. If the codes entered do not generate the correct information, report the problem to your local User Support function.

  2. After completing the RCA Letter Data screen and having RCA send CC LETER to IDRS and transmit, RCA will send the required paragraphs and fill-ins to CC LPAGE when the Review/Manual Transmitbutton is selected. RCA does not automatically generate the letter. Users must manually transmit the letter in IDRS and verify the letter has been transmitted as reflected by REQUEST COMPLETED.

    Note:

    The Upper Case Only setting in IDRS must be turned off prior to selecting Review/Manual Transmit.

20.1.1.3.6.9 (11-21-2017)

RCA for BMF

  1. RCA cannot consider BMF FTP and FTF penalty relief at this time. However, because most BMF accounts that have been penalized for FTF and FTP penalties also include a FTD penalty, RCA should be used to consider penalty relief for the FTD penalty.

    1. If the same reasons are used for requesting FTF and FTP penalty relief (as they usually are), the RCA conclusion can generally apply to all three penalties.

      Note:

      The FTD penalty is based on failing to make timely deposits in the proper format that were due during the tax return period (most due no later than the 15th of the month following the end of the tax period), while the FTF and FTP penalties are based on failing to file a tax return and/or pay all tax due by the last day of the month that follows the end of the tax period. Consequently, the date(s) of the event(s) that prevented compliance with the different requirements may not support removal of all penalties. Review the facts and circumstance thoroughly before applying RCA’s FTD penalty determination to the FTF and/or FTP penalties.

    2. If the RCA conclusion is to sustain the penalty and Correspondex Letter 0852C is issued, RCA provides an option to automatically insert a paragraph stating the FTD denial reason also applies to FTF and/or FTP (or an open paragraph can be inserted to notify the taxpayer the denial applies to the FTF and/or FTP penalties in addition to the FTD penalty).

      Note:

      If the facts and circumstances justify abatement for the FTF penalty and/or FTP penalty but not the FTD penalty, do not select the option to include the penalty or penalties being abated on the RCA Letter Data screen.

    3. If more than one penalty is involved, only one IDRS adjustment should be made. Use the PRC that would be applicable for the FTD penalty abatement.

20.1.1.3.6.10 (11-21-2017)

RCA Conclusions/Determinations

  1. RCA programming applies the reasonable cause standards outlined throughout IRM 20.1.1.3.2against the reasonable cause category or categories chosen by the RCA user and the answers selected and/or dates entered (if applicable) to the questions posed by RCA. Therefore, to ensure the correct determination is reached, users must make every effort to choose the applicable category or categories and answers (correct date(s) entered, etc.) based on the information provided by the taxpayer. RCA will reach 1 of 5 possible conclusions for the MFT and tax period (module) reviewed (listed in order of priority):

    RCA ConclusionExplanationActionAdditional Information

    1. AbateReasonable cause established.Remove the penalty or penalties.

    Caution:

    When the FTP penalty is being abated for reasonable cause, refer to IRM 20.1.2.1.4.1 for additional information and, if necessary, edit the TC 271 amount defaulted by RCA.

    2. OtherNot a reasonable cause issue.RCA will display additional information/instructions. 

    3. SuspendSufficient information was not provided for RCA to reach a conclusion.RCA displays all information required to support a showing of reasonable cause.

    Note:

    Not applicable to revenue officers except on BMF modules and a valid record of federal tax liability (ROFTL) is not readily available, when applicable.

    4. SustainReasonable cause not established.Deny the request. 

    5. MixedIn general, reasonable cause partially established.
    • IMF—Abate one penalty/sustain the other penalty

    • BMF—Abate a portion of the FTD penalty applicable to one or more late deposit(s)/sustain a portion of the FTD penalty applicable to one or more late deposit(s). Also see IRM 20.1.4.3,Restrictions on Assessments

    Caution:

    In some instances on BMF accounts (FTD penalty), RCA reviews each late-deposited liability. When this is the case, the RCA "module conclusion" only applies to the late-deposited liability(ies) selected for review. Consequently, it may be necessary to access RCA more than once if all late-deposited liabilities were not late for the same reason(s).

  2. An "abate" or "sustain" conclusion, dependent on the reasonable cause category(ies) chosen and the answers selected, is reached after RCA has done the following:

    1. Made an unbiased analysis of the facts of the case,

    2. Properly applied the law and IRS policy to the facts of the case, and

    3. Performed the actions in the first 2 bullets fairly and consistently compared to similar cases.

  3. Therefore, fair and consistent application of penalties requires employees to make a final penalty relief determination consistent with the RCA conclusion. However, understanding that the individual facts and circumstances vary for each case and that there may be unique facts and circumstances in certain cases that RCA cannot consider, an "override (abort)" function is available in RCA. See IRM 20.1.1.3.6.10.1.

20.1.1.3.6.10.1 (11-25-2011)

Overriding (Aborting) RCA’s Conclusion

  1. Overriding the "module conclusion" reached by RCA may be appropriate in limited situations. Prior to overriding the RCA conclusion, employees must do the following:

    1. Verify that all pertinent reasonable cause categories applicable to the facts and circumstances addressed in the request were selected for review. If not, select Add Category and select one or more additional categories for RCA review.

    2. Verify the most appropriate answers to all questions posed by RCA were selected (correct dates entered, etc.). If not, select Previous to return to previous questions and select a more appropriate answer.

  2. If there are unique individual facts and circumstances RCA is unable to consider, those individual facts and circumstances must be carefully analyzed and must clearly show, in accordance with the reasonable cause guidelines outlined throughout IRM 20.1.1.3.2, that despite the exercise of ordinary business care and prudence the taxpayer was nevertheless unable to comply within the prescribed time.

    Caution:

    Per IRM 20.1.1.3.6.10, RCA has properly applied the law and IRS policy to the facts it has considered. A determination to override RCA's conclusion cannot conflict with law or IRS policy. For example, delegating a non-delegable duty may appear to show the exercise of ordinary business care and prudence, but such an act is not legally supported.

  3. A determination to override RCA’s conclusion must be justified. The reason(s) the RCA conclusion is being overridden is required and must clearly state why the RCA conclusion is incorrect and why, or why not, the facts and circumstances of the case support the action being taken. In addition, the specific IRM 20.1.1.3.2 section(s) used to support an override determination is required.

  4. Managerial approval to override RCA’s determination is not required but is recommended.

20.1.1.4 (11-21-2017)

Methods of Appealing Penalties

  1. Various administrative and legislative remedies are provided for taxpayers who disagree with the IRS’s determination that they are liable for a particular penalty. Generally, when a taxpayer disagrees with our determination regarding a penalty, he or she has the right to an administrative appeal.

  2. Taxpayers have the right to challenge the assertion or assessment of a penalty, and generally may do so at any stage in the penalty process. Taxpayers may request the following:

    1. A review of the penalty prior to assessment (e.g., deficiency procedures),

    2. A penalty abatement after it is assessed, and either before or after it is paid (post-assessment review), or

    3. An abatement and refund after payment (claim for refund).

  3. Taxpayers may indicate their disagreement with the IRS either verbally or in writing, or if the penalty has already been paid, by filing a claim for refund or credit.

  4. If agreement cannot be reached at the area field office or the campus, the taxpayer may request a conference with the employee’s immediate manager, or (in most cases) the taxpayer may request that the case be forwarded to Appeals. Taxpayers should provide a written request for consideration by Appeals. Also see IRM 20.1.1.3.5.1Subsequent Requests for Penalty Relief.

  5. The taxpayer may also file suit in court. Depending on the procedural circumstances of the taxpayer’s case, the taxpayer may petition the United States Tax Court or file a complaint with either the United States District Court or a United States Court of Federal Claims (as appropriate). See IRM 8.20, Account and Processing Support (APS).

  6. Also see IRM 8.11, Penalties Worked in Appeals.

20.1.1.4.1 (02-22-2008)

The Appeals Function

  1. The Appeals Office is an independent administrative body within the IRS that is the only formal internal level of appeal.

  2. The review of a penalty determination by Appeals is not automatic. Appeals will only review a penalty if the request for relief has been previously denied by an IRS employee and the taxpayer requests an appeal.

  3. In addition, Appeals may make a determination that the taxpayer did not commit the prohibited action or failure to act for which the penalty is asserted (charged). Issues of basic liability for a penalty may be considered in the appeals process, and should be considered before determining if reasonable cause or other relief criteria exist.

  4. Appeals has the authority to settle penalties for less than the full amount based on hazards of litigation.

20.1.1.4.1.1 (11-21-2017)

Pre-assessment Appeals

  1. Generally, Appeals will consider the appropriateness of the following type of penalties prior to assessment:

    1. Penalties that are asserted by the IRS in the course of an examination of a taxpayer’s income tax return,

    2. Penalties that are granted a specific pre-assessment appeal right such as the trust fund recovery penalty under IRC 6672 (see IRM 8.25.1, Trust Fund Recovery Penalty (TFRP), Overview and Authority) or the preparer penalties under IRC 6694 (see IRM 8.11.3, Return Preparer Penalty Cases), and/or

    3. The intentional disregard penalty of IRC 6721(e) when it is asserted for failures to comply with the cash reporting requirements of IRC 6050I (Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business).

  2. Generally, if Appeals considers a penalty before it is assessed, Appeals will not reconsider the same penalty after it is assessed.

    1. However, at its discretion, Appeals may reconsider its prior decision if evidence becomes available that indicates further consideration is warranted.

    2. Taxpayers may also pay the penalty previously upheld by Appeals and file a claim for refund. The claim for refund may be transferred to Appeals, if denied at the campus level.

  3. Also see 8.11.1, Return Related Penalties in Appeals.

20.1.1.4.1.2 (11-21-2017)

Post-assessment Appeals

  1. To request abatement of a penalty after assessment, the taxpayer must submit a written request to the IRS.

  2. The employee must consider all the facts and circumstances to determine if the taxpayer’s explanation meets the penalty relief criteria. See IRM 20.1.1.3Criteria for Relief From Penalties andIRM 20.1.1.3.5.1Subsequent Requests for Penalty Relief.

    1. If a taxpayer orally requests the abatement of a penalty, instruct the taxpayer to submit the request in writing. IRM 20.1.1.3.1.

    2. If a taxpayer orally requests an appeal of a decision, instruct the taxpayer to submit the request in writing.

20.1.1.4.2 (11-25-2011)

Deficiency Procedures

  1. IRC 6211 generally defines a deficiency as the excess of the correct amount of income tax, estate tax, or gift tax owed, minus the tax amount shown on the return and amounts previously assessed (or collected without assessment) as a deficiency, plus the amounts of rebates made. In general, deficiency procedures are used when additional income, estate, or gift taxes, and/or related penalties are proposed. The IRS generally can or cannot do the following:

    1. Cannot assess an additional amount of income tax, estate tax, or gift tax, including related penalties, unless it complies with deficiency procedures;

    2. Can assess additional amounts of employment tax and certain excise tax, and related penalties, without providing a notice of deficiency;

    3. Can assess penalties not related to a tax (e.g., IRC 6694, IRC 6695, IRC 6695A, IRC 6700, IRC 6701, IRC 6702, and IRC 6713) without providing a notice of deficiency;

    4. Can assess estimated tax penalties (IRC 6654 and IRC 6655) if a return was filed for the tax year, without providing a notice of deficiency; and

    5. Can assess the failure to file and failure to pay penalties (IRC 6651) applicable to the portion of the tax liability that is not a tax deficiency, without providing a notice of deficiency.

      Example:

      Taxpayer files the return one month late and reports and pays a tax of $4,000. During an audit, the IRS determines a tax deficiency of $1,000. The failure to file penalty (FTF) is 5 percent per month (for up to 5 months) of the amount of tax. The total FTF penalty is $250 (5 percent of $5,000 for one month). If the taxpayer contests the deficiency, the taxpayer will be entitled to a notice of deficiency for $1,050 ($1,000 tax deficiency and $50 FTF penalty (5 percent of $1,000). The remaining $200 failure to file penalty which was attributable to the original tax assessment is not part of the deficiency and is collectible by immediate assessment.

  2. A penalty is subject to deficiency procedures if the related tax underpayment being assessed is subject to deficiency procedures. For example, if the negligence penalty was assessed on an underpayment of income tax, the deficiency procedures would apply to the negligence penalty as well as the income tax deficiency. However, if the penalty was the result of an underpayment of employment tax, deficiency procedures would not apply to the penalty.

    1. The taxes and related penalties subject to deficiency procedures include income tax, estate tax, gift tax, and certain excise taxes.

    2. The taxes and related penalties not subject to deficiency procedures include employment taxes imposed by Subtitle C of the IRC, and certain excise taxes.

  3. The procedure called "notice of deficiency" provides the taxpayer a method of appealing tax and/or penalties to the United States Tax Court prior to assessment. See IRC 6212.

20.1.1.4.2.1 (11-21-2017)

Non-Deficiency Procedures

  1. Most excise taxes are not subject to deficiency procedures. No statutory notice of deficiency is issued and the taxpayer cannot petition the Tax Court.

  2. Some employment tax determinations are reviewable by the Tax Court in proceedings to determine employment status under IRC 7436. See IRM 4.23.10.10 for how to determine which issues can be assessed without providing the taxpayer the opportunity to seek Tax Court review. The penalties related to the taxes that are reviewable by the Tax Court also cannot be assessed until a Notice of Determination of Worker Classification (NDWC) has been issued. The penalties related to the taxes which are not subject to Tax Court review can be assessed without the issuance of a NDWC.

  3. Generally, procedures for assessing penalties that are not subject to pre-assessment Tax Court review are as follows:

    IfAndThen

    Penalties are proposedThe taxpayer agrees,The penalties are assessed.

    Penalties are proposedThe taxpayer disagrees,A 30-day letter is issued and the taxpayer may file a protest with Appeals.

    Appeals sustains the penalty proposal, The penalties are assessed.

    Note:

    See IRM 20.1.1.2.3Managerial Approval for Penalty Assessments.

  4. If penalties are assessed and the taxpayer cannot or does not file a protest with Appeals, the taxpayer must pay the penalty, then file a claim for credit or refund.

  5. If a 30-day letter was not issued, or if a claim for refund was denied, give the taxpayer the opportunity for an appeal.

20.1.1.5 (02-22-2008)

Master File Indicators

  1. Master File indicators are listed in the following subsections:

    1. Master File Penalty Reason Codes

    2. Penalty Transaction Codes

    3. Penalty Reference Numbers

20.1.1.5.1 (11-25-2011)

Master File Penalty Reason Codes

  1. Penalty reason codes (PRC’s) were adopted to enable the IRS to track penalties. Accurate reporting of these reason codes is vital. PRCs provide the basis for determining a taxpayer’s compliance history and the foundation for analyzing trends in penalty abatements. PRCs are used with both BMF and IMF Document Code 54 and 47 transactions.

  2. PRCs are divided into the following two categories:

    • Systemically generated

    • Manually input

  3. Exhibit 20.1.1-2 shows all current PRCs and identifies which PRCs are available for manual input and which are systemically generated.

  4. If an abatement, partial abatement, or suppression of a penalty is appropriate, either input the abatement transaction or complete the appropriate form to request that the support area abate the penalty using the specified PRC.

    1. Taxpayer Service: IDRS (ADJ54): The PRC MUST be input only in the fourth reason code position.

    2. Compliance: The PRC must be used to identify the reason for the abatement or non-assertion of a penalty when completing any of the following forms: Form 5344, Examination Closing Record (ADJ47); Form 5599, TE/GE Examined Closing Record (ADJ47); and Form 8278,Assessment and Abatement of Miscellaneous Civil Penalties (ADJ54).

    3. Appeals: The PRC must be used to identify the reason for the abatement or non-assertion of a penalty when completing any of the following forms: Form 5403, Appeals Closing Record(ADJ47), Form 5402, Appeals Transmittal and Case Memo (ADJ54), and Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties (ADJ54).

  5. The main categories of PRCs available for manual input are the following:

    1. Reasonable Cause-used when the taxpayer has established that he or she was unable to comply due to circumstances beyond his or her control despite the exercise of ordinary business care and prudence. Reason Code (RC) 062 is required in addition to the appropriate PRC. See IRM 20.1.1.3.2Reasonable Cause.

    2. General Penalty Relief-including disaster relief, penalty removal or reduction due to an amended return, or other specific penalty provisions provided throughout IRM 20.1 (including certain statutory exceptions and administrative waivers). See IRM 20.1.1.3.

    3. Statutory Exception or Administrative Waivers-to be used when written procedures have been established. Generally, PRC 044 identifies penalty relief based on a statutory or regulatory exception, and PRC 043 identifies administrative waivers. Some exceptions and waivers are assigned a specific PRC. Use PRCs 043 and 044 when a specific PRC is not assigned.

    4. Correction of Service Error-to be used when it is determined that the IRS made an error that resulted in an incorrect penalty or computed the penalty incorrectly or inappropriately. Generally, PRC 045 is to be used to identify penalty relief based on the correction of an IRS error.

    5. Appeals-the following four PRCs are to be used only by Appeals: PRC 039-third party full or partial abatement of penalties (Appeals settlement usually involving a bulk or batch filer or payroll tax service bureau with one penalty issue, but multiple taxpayers); PRC 040-hazards of litigation, or other Appeals settlement, when the entire penalty is abated; PRC 041-penalties are sustained by Appeals; PRC 042-partial abatement (Appeals settlement where only part of the penalty is abated).

  6. If more than one penalty is abated for more than one reason, each abatement action must reference its own PRC. This will require a separate adjustment for each PRC. For example:

    • 16X Reasonable Cause-PRC 025

    • 27X Partially Abated-PRC 042

    • 18X Hazards-PRC 040

  7. If all penalties are abated for the same reason, only one PRC must be referenced. For example:

    • 16X Reasonable Cause-PRC 025

    • 27X Reasonable Cause

    • 18X Reasonable Cause

20.1.1.5.2 (11-25-2011)

Penalty Transaction Codes

  1. Penalty transaction codes (TCs) indicate penalty assessment or abatement actions. Generally, return-related penalties are based on an underpayment of tax. See Exhibit 20.1.1-3 for a description of the penalty TCs and their related IRC section(s). Related penalty TCs in a series are shown with the first two digits, followed by an "X" as the third digit.

    Example:

    In the failure to file (FTF) penalty series, the TC will be shown as 16X.

  2. Generally, when the penalty is assessed on the tax module, each penalty is assigned a TC that identifies the type of penalty. However, some penalties assessed on a tax module will use a TC 240 with a penalty reference number (PRN) that identifies the type of penalty. See IRM 20.1.1.5.3. These reference numbers are generally between 500 and 799. See Exhibit 20.1.1-4Exhibit 20.1.1-5, and Exhibit 20.1.1-6

  3. There are usually four potential transaction codes for each penalty, one each for manual and computer assessments with the related abatement codes. For example, FTF penalty TCs are the following:

    1. TC 160-Manually Assessed

    2. TC 161-Manually Abated

    3. TC 166-Systemically-Generated Assessment

    4. TC 167-Systemically-Generated Abatement

20.1.1.5.3 (11-21-2017)

Penalty Reference Numbers (PRNs)

  1. Generally, penalty reference numbers are used to identify penalties that are not based on information from a tax return. These penalties are based on a failure to perform an act required by the IRC. The penalty is usually assessed on MFT 13 (BMF) or 55 (IMF), and is identified by TC 240 and the appropriate PRN. However, assessment of a penalty with an assigned PRN(s) is not limited to MFTs 13 and 55.

    Caution:

    Because a PRN for a positive amount will result in a systemic TC 240 assessment, and a PRN for a negative amount will result in a systemic TC 241 abatement, manual input of a TC 240 or 241 is appropriate only in rare circumstances.

  2. At times, several PRNs will be assigned to identify one IRC section, though the failure may be the same or similar. This is done to identify the area or program responsible for assessing or abating the penalty. For example, both PRNs 500 and 600 are used to identify a penalty assessed as the result of IRC 6721.

    1. PRN 500 is used if the failure was identified on the Payer Master File (PMF) and is assessed by a campus function.

    2. PRN 600 is used if the failure was identified during an examination, audit, or other compliance determination based on the taxpayer's books and records and is assessed by a compliance field function.

  3. Some PRNs between 600 and 799 are used to identify return-related penalties. For example:

    • PRNs 786-790, 792, 680 (prior to 2015 and for court ordered assessments) and 681 are used to identify accuracy-related penalty assessments and abatements (per IRC 6662 and IRC 6662A, respectively). See IRM 20.1.5, Return Related Penalties.

    • PRN 666 is used to identify a frivolous tax return penalty (per IRC 6702(a)). See IRM 20.1.10.10,IRC Section 6702 Frivolous Tax Submissions.

  4. See Exhibit 20.1.1-4Penalty Reference Numbers (500 Series)Exhibit 20.1.1-5Penalty Reference Numbers (600 Series), and Exhibit 20.1.1-6Penalty Reference Numbers (700 Series), for PRNs, their related IRC section, and a brief description of the penalty computation, or the computer paragraph language inserted in the balance due notice.

  5. The following are examples of PRNs assigned for various failures relating to IRC 6721, Failure to File Correct Information Returns.

    Reference NumberDescriptionSource

    500-514 (except 511 for tax years after 2008)Used by Campuses to assess/abate penalties based on PMF informationIRM 20.1.7, Information Return Penalties

    549/550Use to assess/abate penalties based on the Combined Annual Wage Reporting (CAWR) ProgramIRM 4.19.4,CAWR Reconciliation Balancing

    600 seriesUse to assess/abate a penalty as the result of an examination or a determination made by a Compliance Field Function employee, i.e.,
    PRN 600 - failure to timely file, or accurately file, or file in the correct format an information return
    PRN 651 - failure to file Form 8300 reporting cash transactions greater than $10,000
    PRN 652 - Intentional disregard of the requirement to file Form 8300, reporting cash transactions greater than $10,000.Exhibit 20.1.1-5

20.1.1.5.4 (02-22-2008)

Corporate Files on Line (CFOL)

  1. CFOL provides on-line research of Master File account and return data. The use of command codes such as IMFOL, BMFOL, RTVUE, BRTVU, and TRDBV is an alternative to MFTRA or ESTAB requests.

  2. However, since Master File does not carry all information available on the IDRS screen displays (IDRS notice status, case control information, pending transaction, etc.), it is imperative that IDRS research be initiated before accessing Master File information via CFOL command codes.

    Note:

    IDRS input command codes that will cause a change to Master File data cannot be preceded by BRTVU or RTVUE.

  3. CFOL command codes should be used to research entity and/or tax data that may not be available on IDRS.

    1. It is recommended that CFOL command codes be used in lieu of MFTRA or ESTAB when the case can be resolved from information provided by the CFOL command codes.

    2. This will eliminate the need to order MFTRA transcripts in most cases.

  4. IMFOL accesses the Individual Master File (IMF) and allows several screen displays based on an input definer code. These include the following definers:

    1. I-An index screen which shows whether a specific tax period is available on-line or not. The index screen also includes a balance due field showing if the account is in debit, credit, or zero balance.

    2. E-A screen which shows entity type information (similar to INOLE).

    3. T-A screen which has specific data from the tax account (similar to TXMOD and MFTRA).

    4. A-A screen titled IMF Adjustment Transaction Screen which includes detailed information about input adjustment transactions.

    5. V-A screen which includes retention register account information.

    6. R-A posted TC 150 return screen, which displays return data that is transcribed along with systemically-generated fields.

    7. S-A status history screen, which includes extension to file data.

    8. H-A help screen which displays information to assist in using IMFOL (or BMFOL).

  5. RTVUE accesses the Return Transaction File (RTF). It contains all edited, transcribed, and error corrected data from data entry lines of returns and related forms and schedules filed in the current processing year (including returns for prior tax years). This file contains information for the current year and two prior year returns. This command code requires a definer to access a particular screen and has an index type screen.

  6. For further explanation of the screen displays and applicable definer codes, refer to IRM 4.4.32,AIMS, ERCS, and IDRS Data Processing, or IRM 2.3, IDRS Terminal Responses.

Exhibit 20.1.1-1

Penalty Relief—Application Chart

StatuteType of PenaltyReasonable
Cause Relief
Other
Relief

IRC 6039EFailure to Provide Information Concerning Resident StatusYesYes

IRC 6651(a)(1)Failure to File Tax ReturnYesYes

IRC 6651(a)(2)Failure to Pay Tax When DueYesYes

IRC 6651(a)(3)Failure to Pay Within 10 Days of Notice of Additional Tax Due (notices issued prior to 1/1/1997)YesYes

IRC 6651(a)(3)Failure to Pay Within 21 Days of Notice of Additional Tax Due (10 business days if amount is $100,000 or more) (notices issued after 12/31/1996)YesYes

IRC 6651(f)Fraudulent Failure to FileNoNo

IRC 6652(a)(1)Failure to File Certain Information ReturnsYesYes

IRC 6652(c)(1)Failure to File Annual Return by Exempt OrganizationYesYes

IRC 6652(c)(2)Failure to File Returns Under IRC 6034 or IRC 6043(b))YesYes

IRC 6652(d)(2)Notification of Change in Status of a PlanYesYes

IRC 6652(e)Information Required in Connection With Certain Plans of Deferred Compensation—Form 5500, Annual Return/Report of Employee Benefit PlanYesYes

IRC 6652(h)Failure to Give Notice to Recipients of Certain Pension, Etc., DistributionsYesYes

IRC 6652(i)Failure to Give Written Explanation to Recipients of Certain Qualifying Rollover DistributionsYesYes

IRC 6652(j)Failure to File Certification With Respect to Certain Residential Rental ProjectsYesYes

IRC 6654Estimated Tax Penalty on IndividualsNoYes

IRC 6655Estimated Tax Penalty on CorporationsNoNo

IRC 6656(a)Failure to DepositYesYes

IRC 6657Bad ChecksYesYes

IRC 6662Accuracy-Related Penalty on UnderpaymentsYes*Yes

IRC 6662AAccuracy-Related Penalty on Understatements With Respect to Reportable TransactionsYes*Yes

IRC 6663FraudNoNo

IRC 6676Erroneous Claim for Refund or CreditYesNo

IRC 6692Failure to File Actuarial ReportYesYes

IRC 6698Failure to File Partnership ReturnYesYes

IRC 6699Failure to File S Corporation ReturnYesYes

IRC 6721Failure to File Correct Information Reporting ReturnsYesYes

IRC 6722Failure to Furnish Correct Payee StatementsYesYes

IRC 6723Failure to Comply With other Information Reporting RequirementsYesYes

*Reasonable cause does not apply to any portion of the underpayment (IRC 6662) or understatement (IRC 6662A) attributable to an IRC 6662(b)(6) transaction (transactions lacking economic substance within the meaning of IRC 7701(o), or failing to meet the requirements of any similar rule of law).

Note:

This list is not all inclusive. Refer to the appropriate IRM 20.1 section (see IRM 20.1.1.1.2) for relief provisions for penalties not listed in this exhibit.

Exhibit 20.1.1-2

Penalty Reason Code Chart

The PRCs contained in this exhibit are to be used when abating or suppressing a penalty. The exhibit has been divided by PRC group type. Where applicable, the 1st, 2nd, or 3rd position reason code (RC) shown with each PRC is required. PRCs are input in the 4th RC position.

The definitions of relief criteria contained in this exhibit are not to be used as justification for abatement or suppression of a penalty. Penalty relief guidelines contained throughout IRM 20.1 must be followed first and, if relief criteria are met, then select the applicable PRC. In some cases, a specific PRC to use will be reflected in IRM 20.1 (see IRM 20.1.2.1.4.1(9) and IRM 20.1.3.1.2(8) for examples) or a functional IRM such as Parts 4, 5, or 21.

In addition, the definitions provide general guidelines and are not all-inclusive. If a specific PRC is not referenced in an IRM section and the definitions do not apply to a specific situation, select the most appropriate PRC.

The PRCs contained in the table below are to be used when manually abating/suppressing a penalty when reasonable cause has been established.

IMF RCBMF RCPRCDefinition/ Relief Criteria

062062022Normal business care and prudence followed, but taxpayer was still unable to comply due to circumstances beyond his or her control. Generally used when the taxpayer establishes a single circumstance prevented compliance. See IRM 20.1.1.3.2.2.

062N/A024IMF-Death, serious illness, or unavoidable absence of the taxpayer or a member of his or her immediate family. See IRM 20.1.1.3.2.2.1.

062062025Records inaccessible / Unable to obtain records / Records destroyed by fire or other casualty. See IRM 20.1.1.3.2.2.3.

N/A062026BMF-Death, serious illness, or unavoidable absence of the person responsible for filing and/or paying taxes (i.e., owner, corporate officer, partner, etc.) or a member of his or her immediate family. See IRM 20.1.1.3.2.2.1.

062062030Other-Combination of mistakes. Normal business care and prudence followed, but documentation shows non-compliance was due to circumstances beyond the taxpayer's control. See IRM 20.1.1.3.2.1.

062062046This was originally established to identify Y2K Relief but is now used for specific situations that will be identified in an IRM section. See IRM 20.1.2.1.3.2.2(4) and IRM 20.1.4.15.3(4) for examples.

N/A062071Limited to Form 990–PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation, (MFT 44)-Allows a private foundation reasonable cause for FTF and FTP 90 days after it received a determination letter from the IRS stating the organization is a private foundation or it cannot be expected to be a public charity.

N/A062072Membership organization (MFT 67) has no full-time employees responsible for administering finances and was unable to timely file due to little continuity or understanding of duties due to frequent officer changes. Normal business care and prudence.

N/A062073Membership organization (MFT 67) has no full-time employees responsible for administering finances and has no prior history of late filing and claims ignorance of the requirement.

The PRCs in the table below are limited to use by Appeals.

IMF RCBMF RCPRCDefinition/Relief Criteria

065None039Appeals-Partial/full abatement of penalties based on third party (bulk and batch filers or payroll tax service bureaus) settlement.

065None040Appeals settlement based on hazards of litigation. Complete removal of penalty/penalties.

065None041Appeals sustains penalty/penalties.

065None042Appeals partial abatement.

The PRCs in this table are used when manual penalty relief/suppression is warranted/required per the IRM for criteria other than reasonable cause.

IMF RCBMF RCPRCDefinition/Relief Criteria

065None010Amended/corrected return or schedule. TP prepared original (for example, FTD-Schedule B/CP 207 replies).

065None013Amended/corrected return. Original prepared by IRS (substitute for return (SFR)/ IRC 6020(b).

065None014Misdated FTD. After 1-1-2000 used only for manual abatement if the penalty is restricted from systemic abatement after TC 971 AC 301 to 308 is input to adjust a TC 186.
Also use for misdated payments affecting FTF, FTP, and estimated tax penalties.

065None016Estimated tax penalties-taxpayer computational error (Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, or Form 2220, Underpayment of Estimated Tax by Corporations. See IRM 20.1.3.1.2, Manual Penalty Adjustments.

065None021Tolerance criteria met-FTD, FTF, FTP and estimated tax penalties.

065None023Taxpayer relied on practitioner or third party advice. See IRM 20.1.1.3.2.2.5.

065None027Timely mailed/timely filed.

065None028Official disaster area. See IRM 20.1.1.3.3.6.

065None029Undue economic hardship/inability to pay (FTP). See IRM 20.1.1.3.3.3, IRM 20.1.2.1.4.1(9) and IRM 20.1.2.1.4.3(5).

Note:

Rarely allowed on employment tax deposits.

N/ANone066Cascading FTD penalty relief (1998 only).

N/ANone067Educational FTD penalty relief (i.e., ABCs of FTD).

065None017Bank error caused dishonored check penalty (TC 286). Banking documentation provided showing credit availability.

065None018First-time penalty relief. RCA not used-manual 3-year look back for compliant behavior. See IRM 20.1.1.3.3.2.1.

065None019Bulk/batch filer-payroll tax service bureau related penalty. Use restricted to the penalty prevention and resolution group (PPRG).

065None020RCA used-good history of compliance. See IRM 20.1.1.3.6.1.

The PRC in this table is used when manual penalty relief/suppression is warranted/required per the IRM for an administrative waiver.

IMF RCBMF RCPRCDefinition/Relief Criteria

065None043IRS provided relief for a valid penalty. (i.e., RRA '98 section 3304(b) change in FTD deposit frequency for 1st quarter only starting in 1999). See IRM 20.1.1.3.3.2.

The PRCs in this table are used when manual penalty relief/suppression is warranted/required per the IRM for a statutory waiver or regulatory exception.

IMF RCBMF RCPRCDefinition/Relief Criteria

N/ANone012Decrease to FTD penalty per IRC 6656(e) and Rev. Proc. 2001–58. Taxpayer designated FTD applications; based on a valid ROFTL. See IRM 20.1.4.26.3, Statutory Penalty Relief.

NoneNone044Erroneous or late written advice by IRS. Relief based on revenue procedures. See IRM 20.1.1.3.3.1.

The PRCs in this table are used when systemic penalty relief/suppression is warranted.

IMF RCBMF RCPRCDefinition/Relief Criteria

065None001Suppressed/abated due to tolerance criteria.

065None002Penalty adjusted due to computational error.

065None003
066Master File recovery.

N/ANone068Systemic FTD penalty abatement per the EFTPS/FTD Penalty Refund Program.

The PRCs in this table are used to identify manual penalty relief/suppression as a result of some error caused by IRS or some other Treasury agency.

IMF RCBMF RCPRCDefinition/Relief Criteria

065None015General IRS error. Specific instructions for use of this code would be released in IRM updates or SERP alerts.

065None031Erroneous oral advice by IRS. See IRM 20.1.1.3.3.4.2.

065None032Other Treasury agency errors (FMS or EFTPS treasury financial agent (TFA) errors).

065None045IRS error. Math error in computing the penalty or penalties. Extension to file not posted to Master File. Taxpayer complied with law but IRS did not recognize compliance. See IRM 20.1.1.3.4.

This table identifies user fee reversal codes (input with TC 361). These are not used for penalty relief/suppression, but they are used in the same manner as PRCs. Refer to IRM 5.19.1.5.4.6.3, User Fee Payment Transfer/User Fee Abatements, for additional information.

IMF RCBMF RCPRCDefinition/Relief Criteria

NoneNone047
048
049
050
051User fee reversals.

Exhibit 20.1.1-3

Penalty Transaction Codes

The descriptions provided in this exhibit are intended to provide a general overview of the penalty calculation. Refer to the specific IRM 20.1 section for current penalty rates and policy.

Note:

With the exception of TC 270, when a manual penalty assessment is reversed, the reversed portion is reflected separately from the remaining portion (if any). The reversed portion is also uniquely identified by an "R" following the transaction code for BMF transactions, and by the "0" being replaced by a "3" for IMF transactions. For example, the reversed portion of a TC 160 assessment becomes a TC 160R in BMF, and a TC 163 in IMF; the reversed portion of a TC 240 assessment becomes a TC 240R in BMF, and a TC 243 in IMF.

TCStatuteDescriptionReference

16XIRC 6651(a)(1)Failure to file a tax return (FTF). The FTF penalty is equal to 5 percent (5%) of the net tax due multiplied by each month or part of a month (not to exceed 5 months) the return is not filed.

Note:

The penalty is reduced by the amount of any failure to pay (FTP) penalty for any month in which both the FTF and FTP penalties apply.

Note:

For income tax returns filed 60 days or more late, a minimum penalty may apply. See IRM 20.1.2.2.7.4.

IRM 20.1.2.2.7
IRM 20.1.2.2.7.316XIRC 6698(a)(1)Failure to file partnership return-Late filed Form 1065, U.S. Return of Partnership Income, or Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return. The penalty is computed by multiplying the applicable base penalty rate times number of partners times the number of months late, up to a maximum of 5 months for returns due before Dec. 21, 2007, or up to a maximum of 12 months for returns due after Dec. 20, 2007. The applicable base penalty rates are as follows:

  • For returns due before Dec. 21, 2007, $50.

  • For returns due after Dec. 20, 2007 but before Jan. 1, 2009, $85.

  • For returns due after Dec. 31, 2008, $89 or $90, depending on the beginning of the taxable year.

  • For returns for taxable years beginning after Dec. 31, 2009, $195.

    Note:

    These rates are subject to change and are subject to an annual inflationary adjustment. Refer to IRM 20.1.2.3.2 for current rates.

Note:

For taxable years beginning in 2008, add $1 to the effective rate.

IRM 20.1.2.3.216XIRC 6699(a)(1)Failure to file an S Corporation return-Late filed Form 1120-S, U.S. Income Tax Return for an S Corporation. The penalty is computed by multiplying the applicable base penalty rate times number of shareholders times the number of months late, up to a maximum of 12 months. The applicable base penalty rates are as follow:

  • For returns due after Dec. 20, 2007 but before Jan. 1, 2009, $85.

    Note:

    See IRM 20.1.2.5.2.

  • For returns due after Dec. 31, 2008, $89 if the taxable year does not begin after Dec. 31, 2009.

  • For returns for taxable years beginning after Dec. 31, 2009, $195.

    Note:

    These rates are subject to change and are subject to an annual inflationary adjustment. Refer to IRM 20.1.2.5.2 for current rates.

IRM 20.1.2.5.217XIRC 6654Failure by an individual to pay estimated income tax (aka ES penalty):

  • The excess of the required installment minus the amount paid or credited on or before the due date of the installment is the underpayment.

  • To determine the penalty for each installment, multiply:
    -The penalty rate (the underpayment interest rate for the applicable quarter)
    -By the amount of the underpayment,
    -For the period of the underpayment (the earlier of the date the payment is received or the return due date).

IRM 20.1.3.2
IRM 20.1.3.2.1.117XIRC 6655Failure by a corporation to pay estimated income tax.

  • The excess of the required installment minus the amount paid or credited on or before the due date of the installment is the underpayment.

  • To determine the penalty for each installment, multiply:
    -The penalty rate (the underpayment interest rate for the applicable quarter)
    -By the amount of the underpayment,
    -For the period of the underpayment (the earlier of the date the payment is received or the return due date).

IRM 20.1.3.3
IRM 20.1.3.3.1.118XIRC 6656Failure to deposit (FTD). The penalty is based on the following:

  • Required amount(s) not properly or timely deposited, and

  • The number of days between the deposit due date and the date the deposit is received

  • 2%: 1 to 5 days late

  • 5%: 6 to 15 days late

  • 10%: more than 15 days late but before 10 days after notice and demand, or

  • 15%: payments received more than 10 days after notice and demand

  • 10%: FTD avoidance-payments made directly to the IRS, or deposits made to a bank when the employer is required to deposit electronically.

    Note:

    All deposits due after Dec. 31, 2010, must be made electronically.

IRM 20.1.4
IRM 20.1.4.2
IRM 20.1.4.7.1

20XIRC 6723Failure to provide a taxpayer identification number (TIN). The penalty is $50 per failure, not to exceed $100,000 per calendar year.IRM 20.1.7.10

23XIRC 6652(c)Daily delinquency penalty (DDP): Generally, $20 times the number of days the failure to file or the failure to include required information continues after the due date, not to exceed the lesser of $10,000 or 5% of the gross receipts per return. The penalty rate and maximum penalty are subject to an annual inflationary adjustment. Refer to the applicable Revenue Procedure based on the tax year of the return, etc. as follows:

  • Tax year 2015 - see Rev. Proc. 2016-11.

  • Tax year 2016 - see Rev. Proc. 2015-53.

  • Tax year 2017 - see Rev. Proc. 2016-55.

  • Tax year 2018 - see Rev. Proc. 2017-58.

IRM 20.1.8.2.1240** Assesses a miscellaneous penalty generally associated with a penalty reference number (PRN).

Caution:

Manual input of a TC 240 is limited to rare circumstances. Input of a PRN for a positive amount will result in a systemic TC 240.

 241**

  • Abates a miscellaneous penalty generally associated with a PRN, or

  • Abates a TC 246 FTF penalty

Caution:

Manual input of a TC 241 is limited to rare circumstances (except TC 246 reversals). Input of a PRN for a negative amount will result in a systemic TC 241.

 

246IRC 6698(a)(2)Assesses the partnership FTF penalty for missing information. Refer to the TC 16X, IRC 6698(a)(1) description in this table for penalty computation.IRM 20.1.2.3

246IRC 6699(a)(2)Assesses the S Corporation FTF penalty for missing information. Refer to the TC 16X, IRC 6699(a)(1), description in this table for penalty computation.IRM 20.1.2.5

246IRC 6721(a)(2)(A)TC 246 with PRN 688 identifies failure by a large partnership (over 100 partners) to file electronically. The penalty is the applicable rate times the number of partners in excess of 100. The applicable rate depends on the due date of the return. See IRM 20.1.2.4 for applicable rates and maximums.IRM 20.1.2.4 and IRM 21.7.4.4.2.8.1.1

246IRC 7519(f)(4)MFT 15-Failures related to Form 8752, Required Payment or Refund Under Section 7519. The TC 246 is assessed with PRN 684.IRM 20.1.10.17

247 Systemically abates a penalty assessed with a TC 246. 

27XIRC 6651(a)(2)Failure to pay tax shown on a return (FTP). The penalty rate is 1/1of 1% (.005) per month, for each month or part of a month, from the due date of the return to the date the tax is paid or the maximum of 25% of the unpaid tax is reached.IRM 20.1.2.2.8.4

27XIRC 6651(a)(3)Failure to pay tax required to be shown on a return (FTP). The penalty rate is 1/1 of 1% (.005) for each month or part of a month, from 21 calendar days (10 business days for amounts of $100,000 or more) of the date of notice and demand until the tax is paid or the maximum of 25% of the unpaid tax is reached.

Note:

For notices issued prior to 1/1/1997, the penalty is from 10 days of the date of the notice and demand for any amount.

IRM 20.1.2.2.8.5

27XIRC 6651(d)Increases the FTP penalty from 1/1 of 1% (.005) to 1% (.01) per month, the earlier of the day on which notice and demand for immediate payment is given or 10 days after the IRS has issued the notice of intent to levy.IRM 20.1.2.2.8.1.1

27XIRC 6651(h)When specific conditions are met, the FTP penalty rate decreases from 1/1 of 1% (.005) to 1/1 of 1% (.0025) for any month that begins on or after the taxpayer has entered into an installment agreement.IRM 20.1.2.2.8.1.2

28XIRC 6657Bad check penalty imposed against dishonored checks or other forms of payment.

Note:

Prior to July 2, 2010, only payments made in the form of a paper check or money order were subject to this penalty.


If the instrument is $1,250 or more ($750 or more for payments received before 5/26/2007):

  • The penalty is 2 percent of the amount of the instrument.


If the instrument is less than $1,250 (less than $750 for payments received before 5/26/2007), the penalty is the lesser of the following:

  • $25, or

  • The amount of the instrument.

IRM 20.1.10.4

31X*IRC 6652(b)Penalty for failure to report tips imposed on an employee (who received the tips) equal to 50 percent of the employee’s portion of the FICA tax or railroad retirement tax applicable to the tip amount that was not reported at the time and in the manner required.IRM 20.1.10.3.2

32X*IRC 6663Fraud penalty. Imposes a penalty of 75% of the portion of any underpayment of tax if the underpayment is attributable to fraud.

Note:

IRC 6663 applies to returns due after Dec. 31, 1989. For returns due prior to Jan. 1, 1990, the fraud penalty was applicable under repealed IRC 6653(b)

.IRM 20.1.5.14.1

35X*Repealed IRC 6653(a)Negligence penalty assessed for return periods prior to January 1, 1990, at a rate of 5% of the underpayment of tax due to negligence.
For return periods after Dec. 31, 1989, negligence is assessed under IRC 6662(b)(1) using PRN 786 (PRN 680 was previously used). See IRM 20.1.5.3.2(8)..IRM 20.1.5.7

*The penalty was assessed as the result of an examination or other compliance employee determination. These penalties should be abated only by the area responsible for assessing the penalty or by Appeals.
**See penalty reference numbers in Exhibit 20.1.1-4Exhibit 20.1.1-5, and Exhibit 20.1.1-6.

Exhibit 20.1.1-4

Penalty Reference Numbers (500 Series)

This exhibit is divided into 3 separate tables as follows:

  • Penalty Reference Numbers (PRN) 500-514 - These PRNs are assessed by the Information Return Program (IRP) Penalty Unit

  • PRNs 549 and 550 - These PRNs are assessed by the Combined Annual Wage Reporting (CAWR) function

  • Other miscellaneous 500-series PRNs - These PRNs are assessed by various functions via Form 8278

Refer to the end of this exhibit for additional information.

The following table provides general information for PRNs 500 through 514 assessments. These PRNs are assessed by the IRP Penalty Unit. Refer to IRM 20.1.7 for additional information.

PRNCode SectionPenalty Description

 IRC 6721Imposition of Penalty for Failure to Comply with Certain Information Reporting Requirements
PRNs 500–514 should only be used for returns and statements due after December 31, 1989.

  IRC 6721 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, IRC 6721 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.

500*IRC 6721Late Filing Penalty
A penalty is charged for each Form 1098, Mortgage Interest Statement, Form 1099 (with any applicable suffix), Form W-2 G, Certain Gambling Winnings, or Form W-2, Wage and Tax Statement, that was not correctly and timely filed.

501*IRC 6721Magnetic Media Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 (after the first 250 forms of each type) required by IRC 6011(e)(2)(A) not filed electronically (or by magnetic media before 12/2/2008).

502*IRC 6721Missing or Incorrect TIN Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 submitted with missing or incorrect TINs.

503*IRC 6721Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 submitted in an improper format as provided for in the IRC, Treas. Regs, or Social Security Administration (SSA) procedures.

504*IRC 6721Late and Magnetic Media Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was not filed:

  • Correctly and timely, and

  • Electronically (or using magnetic media before 12/2/2008) (over 250 forms).

505*IRC 6721Late and Missing or Incorrect TIN Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was:

  • Not correctly and timely filed, and

  • Submitted with a missing or incorrect TIN.

506*IRC 6721Late and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was not:

  • Correctly and timely filed, and

  • Submitted in an improper format as provided for in the IRC, Treas. Regs, or SSA procedures.

507*IRC 6721Magnetic Media and Missing or Incorrect TIN Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was as follows:

  • Not filed electronically (or using magnetic media before 12/2/2008) (over 250 forms), and

  • Filed with missing or incorrect TINs.

508*IRC 6721Magnetic Media and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was not as follows:

  • Filed electronically (or using magnetic media before 12/2/2008) (over 250 returns), and

  • Submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.

509*IRC 6721Missing or Incorrect TIN and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was filed as follows:

  • With a missing or incorrect TIN, and

  • In an improper format as provided for in either the IRC, Treas. Regs. or SSA procedures.

510*IRC 6721Late, Magnetic Media, and Missing or Incorrect TIN Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was as follows:

  • Not correctly and timely filed,

  • Not filed electronically (or by magnetic media before 12/2/2008) (after the first 250 forms of each type) required by IRC 6011(e)(2)(A), and

  • filed with missing or incorrect TINs.

511 (Tax years before 2009)IRC 6721Late, Magnetic Media, and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was not as follows:

  • Correctly and timely filed,

  • Filed electronically (or by magnetic media before 12/2/2008) (after the first 250 forms of each type) required by IRC 6011(e)(2)(A), and

  • Submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.

511* (Tax years after 2008)IRC 6722(e)Failure to Furnish Payee Statements-Intentional Disregard
A penalty is charged for each failure to furnish a correct payee statement that is due to intentional disregard. The penalty is the applicable rate reflected in Section 10.7 of Document 6209 or, if greater:

  • 10% of the aggregate amount of the items required to be reported correctly in the case of a payee statement other than one required by IRC section 6045(b), 6041A(e) (with respect to a return required under section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6050L(c); or

  • 5% of the aggregate amount of the items required to be reported correctly in the case of a payee statement required by IRC section 6045(b), 6050K(b), or 6050L(c).


There is no maximum penalty.512*IRC 6721Late, Missing or Incorrect TIN, and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was as follows:

  • Not correctly and timely filed,

  • Filed with missing or incorrect TINs, and

  • Not submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.

513*IRC 6721Magnetic Media, Missing or Incorrect TIN, and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was as follows:

  • Not filed electronically (or using magnetic media before 12/2/2008) (over 250 returns),

  • Filed with missing or incorrect TINs, and

  • Not submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.

514*IRC 6721Late, Magnetic Media, Missing or Incorrect TIN, and Improper Format Penalty
A penalty is charged for each Form 1098, Form 1099, Form W-2 G, or Form W-2 that was as follows:

  • Not correctly and timely filed,

  • Not filed electronically (or using magnetic media before 12/2/2008) (over 250 returns),

  • Filed with missing or incorrect TINs, and

  • Not submitted in the proper format as provided for in either the IRC, Treas. Regs., or SSA procedures.

PRNs 549 and 550 are used by the CAWR Penalty Program

PRNCode SectionPenalty Description

549*IRC 6721(e)Penalty in the Case of Intentional Disregard
A penalty is charged for each Form W-2 that was not filed as required by IRC 6051. The penalty is the greater of:

  • The applicable penalty rate per missing Form W-2, or

  • 10% of the total wages that were required to be reported.


See Section 10.7 of Document 6209 for applicable penalty rates and IRM 4.19.4.3.1.1.

550*IRC 6721(a)Late Filing Penalty
The penalty is assessed at the applicable penalty rate) for each Form W-2 secured by CAWR.
See Section 10.7 of Document 6209 for applicable penalty rates and IRM 4.19.4.3.1.2.

The 500 series PRNs in this table are assessed with Form 8278.
Refer to and use the most current revision of Form 8278.

PRNCode SectionPenalty Description

519IRC 6652(o)Failure to Provide Notices With Respect to Qualified Small Employer Health Reimbursement Arrangements
A penalty of $50 applies for each failure to provide a written notice as required by IRC 9831(d)(4) unless the failure is due to reasonable cause and not due to willful neglect. The maximum penalty per calendar year is $2,500.

527*
IMFIRC 6652(c)(1)(D)Failure to Provide Public Inspection of Application as Required by IRC 6104(d)
See IRM 20.1.8.2.1.

  • $20* per day for each day the failure continues.

  • No maximum penalty amount.

528*
IMFIRC 6652(c)(1)(C)Failure to Provide Public Inspection of Annual Returns and Reports as Required by IRC 6104(d) and IRC 527(j)
See IRM 20.1.8.2.1.

  • $20* per day for each day the failure continues.

  • Maximum penalty is $10,000* per return or report.

537*IRC 6721(e)Failure to File Correct Information Returns Due to Intentional Disregard
See IRM 20.1.7.8.2.
The penalty is the applicable penalty rate for each failure or, if greater, one of the following:

  • 10% of the total amount required to be reported on the information returns for dividends, patronage dividends, interest, fishing boat operators, royalties, and wage and tax statement, or

  • 5% of the total amount required to be reported on the information returns for brokers, exchange of partnership interest, or disposition of donated property payments, or

  • If Form 8300, the greater of $25,000*, or the amount of cash required to be reported in the transaction up to $100,000*.

    Note:

    * - These amounts are subject to inflationary adjustments. Refer to the applicable Rev. Proc. depending on the due date of Form 8300.

  • No maximum penalty amount.


See Section 10.7 of Document 6209 for the applicable penalty rates depending on the return due date.543IRC 6702(b)Penalty for Specified Frivolous Submissions referenced in IRC 6702(b)(2)
See IRM 20.1.10.10.2.

  • $5,000 per submission.

551IRC 6720BFraudulent Identification of Exempt Use Property
See IRM 20.1.10.14.

  • $10,000.

  • No maximum penalty.

552IRC 6652(e)Failure to File Returns and Reports Relating to Certain Trusts and Annuity Plans Required Under IRC 6047(d).
See IRM 20.1.8.3.4 and IRM 4.71.18.5.

  • $25 per day

  • Maximum $15,000

553IRC 6693(a)(2)(B)Failure to File a Report Relating to Archer MSAs Required Under IRC 220(h)
See IRM 20.1.8.3.9.

  • $50 for each failure.

  • No maximum penalty.

554IRC 6693(a)(2)(C)Failure to file a Report Relating to Health Savings Accounts Required Under IRC 223(h)
See IRM 20.1.8.3.9.

  • $50 for each failure.

  • No maximum penalty.

555IRC 6693(a)(2)(D)Failure to File a Report Relating to Qualified Tuition Programs Required Under IRC 529(d)
See IRM 20.1.8.3.9.

  • $50 for each failure.

  • No maximum penalty.

556IRC 6693(a)(2)(F)Failure to File a Report Relating to Coverdell Education Savings Accounts Required Under IRC 530(h)
See IRM 20.1.8.3.9.

  • $50 for each failure.

  • No maximum penalty.

557IRC 6693(b)(1)Overstatement of Designated Nondeductible Contributions
See IRM 20.1.8.3.9.

  • $100 for each failure.

  • No maximum penalty.

558IRC 6693(b)(2)Failure to File a Form Relating to Nondeductible Contributions Required by IRC 408(o)(4)
See IRM 20.1.8.3.9.

  • $50 for each failure.

  • No maximum penalty.

562IRC 6652(n)Failure to Make Reports Required Under IRC 3511, IRC 6053(c)(8), and IRC 7705

  • $50 per failure, or

  • $100 per failure when due to negligence or intentional disregard.

  • No maximum penalty.

563IRC 6720CPenalty for Failure to Notify Health Plan of Cessation of Eligibility for COBRA Premium Assistance (for employees involuntarily terminated between September 1, 2008 and May 31, 2010).
See IRM 20.1.10.15.

  • 110% of the premium reduction after termination of eligibility.

  • No maximum penalty.

564IRC 6685Willful Failure to Comply With the Public Disclosure Requirements of IRC 6104(d)
The penalty is in addition to any criminal penalty imposed by IRC 7207.
See IRM 20.1.8.2.3.

  • $5,000 per return or application.

  • No maximum penalty.

565IRC 6676Penalty for Erroneous Claim for Refund or Credit
Effective for claims filed or submitted after 5/25/2007.
See IRM 20.1.5.16.

Exception:

For married filing joint assessments, the penalty is assessed on MFT 30 using Form 3870 with PRN 687.



20% of the excessive amount of the claim.

566IRC 6684Liability of Tax Relating to Private Foundations and Certain Other Tax-Exempt Organizations by Reason of a Willful and Flagrant Act or Failure to Act
See IRM 20.1.8.2.2.

Penalty is 100% of the tax liability.

567IRC 6711Failure by Tax-Exempt Organization to Disclose Availability of Information or Service From Federal Government
See IRM 20.1.8.2.5.
For any day on which a failure under IRC 6711(a) occurs, the penalty is the greater of:

  • $1,000, or

  • 50% of the aggregate cost of the offers or solicitations referred to in IRC 6711(a)(1).

  • No maximum penalty.

568IRC 6693(a)(2)(E)Failure to File a Report Relating to Qualified ABLE Programs as Required by IRC 529A

  • $50 per failure.

  • No maximum penalty.

570IRC 6689Failure to File Notice of Redetermination of Foreign Tax Required by IRC 905(c)
See IRM 20.1.9.19.

  • 5% of the deficiency per month, or fraction thereof.

  • Maximum penalty is 25% of the deficiency.

573IRC 6693(c)Failure to Furnish Certain Information to Participants in SIMPLE IRA Plans Required by IRC 408(i) or IRC 408(l)(2)
See IRM 20.1.8.3.9.

  • $50 for each day on which such failures continue.

  • No maximum penalty.

574IRC 6653Failure to Pay Stamp Tax
See IRM 20.1.11.3.

Penalty is 50% of the total amount of the underpayment amount.

575IRC 6674Fraudulent Statement or Willful Failure to Furnish Statement to Employee as Required by IRC 6051 or IRC 6053(b)
See IRM 20.1.10.7.

  • $50 for each failure.

  • No maximum penalty.

578IRC 6709(a)Negligence Penalty With Respect to Mortgage Credit Certificates
See IRM 20.1.10.13.1.

  • $1,000 per misstated certificate.

579IRC 6709(b)Fraud Penalty with Respect to Mortgage Credit Certificates
See IRM 20.1.10.13.2.

  • $10,000 per misstated certificate attributable to fraud.

580IRC 6709(c)Failure to Timely File Report Relating to a Mortgage Credit Certificate Required Under IRC 25(g)
See IRM 20.1.10.13.3.

  • $200 per failure.

  • Maximum penalty is $2,000.

581IRC 6695ASubstantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals
See IRM 20.1.12. The penalty is the lesser of:

  1. The greater of:

    1. 10% of the understatement attributable to the misstatement, or

    2. $1,000; or

  2. 125% of the gross income received by the appraiser from the preparation of the appraisal.


Previously assessed with PRN 606.582IRC 6697Penalty to Be Imposed on a Regulated Investment Company or a Real Estate Investment Trust Which Uses the Deficiency Dividend Procedure of IRC 860, Deduction for Deficiency Dividends, to Retain Its Qualified Status
See IRM 20.1.10.9.

Note:

IRC 6697 has been repealed for tax years beginning after Dec. 22, 2010.

  • Equal to the interest charge paid by the trust on the deficiency dividend.

  • May not exceed 50% of the deficiency dividend deduction allowed by IRC 860(a).

583IRC 6652(d)(1)Failure to File a Registration Statement by Pension Plan
See IRM 20.1.8.3.2 and IRM 4.71.18.3.

  • $1 per failure per participant.

  • Maximum penalty is $5,000 per Plan year.

584IRC 6652(d)(2)Failure to File a Notification by Pension Plan
See IRM 20.1.8.3.3 and IRM 4.71.18.4.

  • $1 per failure per day.

  • Maximum penalty is $1,000.

585IRC 6652(h)Failure to give a Notice to Recipients required under IRC 3405(e)(10(B)
See IRM 20.1.8.3.5 and IRM 4.71.18.6.

  • $10 per failure.

  • Maximum calendar year penalty is $5,000.

586IRC 6652(i)Failure to give a Written Explanation to Recipients required under IRC 402(f)
See IRM 20.1.8.3.6 and IRM 4.71.18.7.

  • $100 per failure.

  • Maximum calendar year penalty is $50,000.

587IRC 6652(j)Failure to File Certification With Respect to Certain Residential Rental Projects as Required by IRC 142(d)(7)
See IRM 20.1.10.3.3.

  • $100 for each failure.

  • No maximum penalty.

588IRC 6652(k)Failure to Make Reports Required Under IRC 1202(d)(1)(C)
See IRM 20.1.10.3.4.
For reports covering periods in 2 or more years, the penalty is multiplied by the number of years.

  • $50 for each failure.

  • If the failure is due to negligence or intentional disregard,
    $100 for each failure.

  • No maximum penalty.

589*IRC 6652(c)(2)(C)(ii)Failure to File Return for Split-Interest Trusts (as required under IRC 6034(a)) With Gross Income in Excess of $250,000*
See IRM 20.1.8.2.1.1.

  • $100* for each day the failure continues.

  • Maximum penalty is $50,000* per return.

590IRC 6652(a)Failure to File Information Returns With Respect to Certain Payments Aggregating Less than $10 as Required Under IRC 6042(a)(2) and IRC 6044(a)(2)
See IRM 20.1.10.3.1.

  • $1 for each statement not filed.

  • Maximum penalty is $1,000 per calendar year.

591*IRC 6652(c)(1)(B)(ii)Failure to Comply With Notice of Demand by Manager of Organization
See IRM 20.1.8.2.1.

  • $10* for each day the failure continues after expiration of the time specified in the demand.

  • Maximum penalty is $5,000* per return.

592*IRC 6652(c)(2)(B)Failure to Comply With Notice of Demand by Manager of Exempt Organization or Trust
See IRM 20.1.8.2.1.1.

  • $10* for each day the failure continues after expiration of the time specified in the demand.

  • Maximum penalty is $5,000* per return.

593IRC 9707Failure to Pay Premium as Required by IRC 9704
See IRM 20.1.10.18.

  • $100 per day.

  • No maximum penalty amount.

594Voluntary Disclosure Initiative Penalty-27.5%Failure to Timely Notify the IRS of One or More Various Activities Related to Foreign Bank Accounts/Entities and Various Sections of Titles 26 and 31 of the United States Code
See IRM 20.1.9.1.4.

  • 27.5% of the highest aggregate account/asset value in all foreign bank accounts/entities for the tax years covered by the voluntary disclosure.

  • Requires a closing agreement entered into by the taxpayer with the Commissioner of IRS.

595Voluntary Disclosure Initiative Penalty-5%Failure to Timely Notify the IRS of One or More Various Activities Related to Foreign Bank Accounts/Entities and Various Sections of Titles 26 and 31 of the United States Code
See IRM 20.1.9.1.4.

  • 5% of the highest aggregate account/asset value in all foreign bank accounts/entities for the tax years covered by the voluntary disclosure.

  • Requires a closing agreement entered into by the taxpayer with the Commissioner of IRS.

596Voluntary Disclosure Initiative Penalty-20%Failure to Timely Notify the IRS of One or More Various Activities Related to Foreign Bank Accounts/Entities and Various Sections of Titles 26 and 31 of the United States Code
See IRM 20.1.9.1.4.

  • 20% of the highest aggregate account/asset value in all foreign bank accounts/entities for the tax years covered by the voluntary disclosure.

  • Requires a closing agreement entered into by the taxpayer with the Commissioner of IRS.

597Voluntary Disclosure Initiative Penalty-12.5%Failure to Timely Notify the IRS of One or More Various Activities Related to Foreign Bank Accounts/Entities and Various Sections of Titles 26 and 31 of the United States Code
See IRM 20.1.9.1.4.

  • 12.5% of the highest aggregate account/asset value in all foreign bank accounts/entities for the tax years covered by the voluntary disclosure.

  • Requires a closing agreement entered into by the taxpayer with the Commissioner of IRS.

598Voluntary Disclosure Initiative Penalty-25%Failure to Timely Notify the IRS of One or More Various Activities Related to Foreign Bank Accounts/Entities and Various Sections of Titles 26 and 31 of the United States Code
See IRM 20.1.9.1.4.

  • 25% of the highest aggregate account/asset value in all foreign bank accounts/entities for the tax years covered by the voluntary disclosure.

  • Requires a closing agreement entered into by the taxpayer with the Commissioner of IRS.

* - PRNs and dollar amounts marked with an asterisk "*" are subject to annual inflationary adjustments.

  • For PRNs applicable to penalties under IRC 6721 and IRC 6722, refer to Section 10.7 of Document 6209 for amounts as adjusted for inflation, if applicable. For others, refer to the applicable Revenue Procedure based on the tax year of the return, etc. as follows:

  • Tax year 2015 - see Rev. Proc. 2016-11.

  • Tax year 2016 - see Rev. Proc. 2015-53.

    Note:

    Section 3.48(3) of Rev. Proc. 2015-53 contains an incorrect rate. The correct rate is reflected in Section 4 of Rev. Proc. 2016-11.

  • Tax year 2017 - see Rev. Proc. 2016-55.

  • Tax year 2018 - see Rev. Proc. 2017-58.

PRN 599 identifies a systemically-assessed penalty under IRC 6038 for a late filed Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Manual assessment of a penalty under IRC 6038 is made with PRN 623. See IRM 20.1.9.3.3 and IRM 21.8.2.20.2 for additional information.

Exhibit 20.1.1-5

Penalty Reference Numbers (600 Series)

Penalty Reference Numbers (PRN) marked with an asterisk "*" identify penalties assessed with Form 8278.

Caution:

Refer to and use the most current revision of Form 8278.

PRNStatutePenalty Description

600*IRC 6721Failure to File Correct Information Returns
This reference number should only be used for returns and statements due after December 31, 1989.

IRC 6721 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, IRC 6721 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html
For other circumstances that may apply, see IRM 20.1.7.8.603*IRC 6038CFailure of Foreign Corporation Engaged in a U.S. Business to Furnish Information or Maintain Records
See IRM 20.1.9.8.

  • Initial penalty is $10,000 for each taxable year.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues. No maximum penalty amount (assess with PRN 705).

604*IRC 6652(f)Failure of Foreign Person to File Return Regarding Direct Investment in U.S. Real Property Interests
See IRM 20.1.9.12.

  • The penalty applies to returns required under IRC 6039C.

  • $25 per day. Maximum is the lesser of $25,000, or 5% of the aggregate fair market value of the United States real property investments.

605*IRC 6686Failure to File Returns or Supply Information by DISC or Former FSC
See IRM 20.1.9.17.

  • $100 for each failure to supply information to shareholders on Schedule K. Maximum $25,000 per calendar year.

  • $1,000 for each failure to file Form 1120-DISC, Domestic International Sales Corporation Return, Form 1120-IC DISC, Interest Charge Domestic International Sales—Corporation Return or Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation.

606IRC 6695ASubstantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals

Note:

Effective Jan. 2010, PRN 581 is used for IRC 6695A penalty assessments.

607*IRC 6721(a)Failure to File Information Returns or Registration Statements by Due Date

Caution:

Use of PRN 607 is limited to employees of the Bank Secrecy Act (BSA) Program.


See PRN 600 above for an explanation of the applicable penalty rates.609*IRC 6721(a)Failure to Comply With Certain Information Reporting Requirements-Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business

Caution:

Use of PRN 609 is limited to employees of the Bank Secrecy Act (BSA) Program. All others use PRN 651


See PRN 651 for an explanation and the applicable penalty rates.611*IRC 6652(c)(3)(A)Failure to File a Disclosure Required of Tax-Exempt Entity

  • $100** per failure per day.

  • $50,000** maximum for any 1 disclosure.



**-Subject to annual inflationary adjustments. See additional information at end of exhibit.612*IRC 6722Failure to Furnish Correct Payee Statement
For returns required to be filed after December 31, 1989, a penalty will be imposed for each failure to:

  1. Furnish a payee statement on or before the due date to the person to whom the statement must be furnished,

  2. Furnish all information required, and

  3. Furnish correct information.

Note:

Only one penalty per statement, regardless of the number of failures per statement.



IRC 6722 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, for statements required to be furnished on or after Jan. 1, 2011, IRC 6722 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.
For failures that are due to intentional disregard:

  • No maximum penalty. No reduction in penalty rate.

613*IRC 6679Failure to File Returns, Etc., With Respect to Foreign Corporations or Foreign Partnerships
See IRM 20.1.9.15.

  • Form 5471, Schedule O, Organization or Reorganization of Foreign Corporation and Acquisitions and Dispositions of Its Stock

  • Form 8865, Schedule P, Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership.

See IRC 6046 and IRC 6046A.

  • The initial penalty is assessed at $10,000 per failure.

  • If failure continues for more than 90 days after notification, penalty is increased by $10,000 for each 30-day period (or fraction thereof) the failure continues. Maximum additional penalty up to $50,000 (assess with PRN 704).

614*IRC 6714Failure to Meet Disclosure Requirements Applicable to Quid Pro Quo Contributions as Required by IRC 6115
See IRM 20.1.8.2.6.

  • $10 per contribution.

  • Maximum penalty is $5,000 for a particular fundraising event or mailing.

616*IRC 6682False Information With Respect to Withholding
See IRM 20.1.10.8.

  • False information on Form W-4, Employee's Withholding Allowance Certificate, and/or Form W-9, Request for Taxpayer Identification Number and Certification.

  • $500 for each false statement (Form W-4/Form W-9).

618IRC 6672Failure to Collect and Pay Over Tax, or an Attempt to Evade or Defeat Tax
See IRM 20.1.10.5.

  • Trust Fund Recovery Program. The penalty is assessed against responsible corporate officers.

  • 100% of the tax required to be collected, accounted for, and paid over.

619*IRC 6038(b)(2)Failure to File Returns With Respect to Foreign Corporations or Foreign Partnerships-Continuation Penalty for Failure to Provide Information After 90-Day Period
See IRM 20.1.9.3.4.

  • The penalty is assessed at $10,000 per 30-day period (or fraction thereof).

  • $50,000 maximum continuation penalty.

  • The initial penalty is assessed with PRN 623

621*IRC 6723Failure to Comply With Other Information Reporting Requirements
For returns and statements required to be filed after December 31, 1989
See IRM 20.1.7.10.

  1. A penalty of $50 per failure:
    To comply timely with specified information reporting requirements, or
    To include correct information.

  2. The maximum penalty is $100,000 per year.

623*IRC 6038Failure to Furnish Information With Respect to Certain Foreign Corporations
See IRM 20.1.9.3.
Failure to file Form 5471, and/or Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

  • Initial penalty is $10,000 per annual accounting period plus FTC reduction.

  • If failure continues for more than 90 days after notification, penalty is increased by $10,000 for each 30-day period (or fraction thereof) the failure continues. Maximum additional penalty up to $50,000 (assess with PRN 619).

Note:

PRN 623 was used temporarily in 2009 for systemically-assessed penalties which are now assessed with PRN 599. See IRM 21.8.2.20.2 for additional information.

624IRC 6695Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons
See IRM 20.1.6.5.

Caution:

PRNs 714-718 were intended to be used for IRC 6695(a)-(e) assessments but have not yet been activated. We’ll retain the PRN 714-718 descriptions for more detailed information for each of the IRC 6695(a)-(e) penalties, but PRN 624 will continue to be used for assessments under these sections.


Any failure by the preparer to:

  1. Furnish a copy of the return to the taxpayer-IRC 6695(a)

  2. Sign the return-IRC 6695(b)

  3. Furnish the preparer's identifying number-IRC 6695(c)

  4. Retain a copy, return or list, as required by IRC 6107(b)-IRC 6695(d)

  5. File a correct information return or other requirement of IRC 6060-IRC 6695(e)



These penalties are assessed at $50** per failure, not to exceed:

  • $25,000** per calendar year for IRC 6695(a), IRC 6695(b), and IRC 6695(c)

  • $25,000** per return period for IRC 6695(d) and IRC 6695(e)



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.625*IRC 6038AInformation With Respect to Certain Foreign Owned Corporations
Failure to furnish information or maintain records as required by IRC 6038A(a) and IRC 6038A(b). Form 5472, Information Return of a Foreign Owned Corporation.
See IRM 20.1.9.5.

  • Initial penalty is $10,000 for each taxable year with respect to which the failure occurs.

  • If the failure continues for more than 90 days after notice of failure mailed, an additional $10,000 is imposed for each 30-day period during which the failure continues after the expiration of the original 90 day period (assess with PRN 701).

626*IRC 6695(f)Negotiation of Check by Tax Return Preparer
See IRM 20.1.6.5.6.

  • Endorses or otherwise negotiates a refund check (with respect to income tax) issued to a taxpayer.

  • $500** per failure.



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.

627*IRC 6695(g)Failure by Preparer to Be Diligent in Determining Eligibility for Child Tax Credit (CTC), American Opportunity Tax Credit (AOTC) and Earned Income Credit (EIC)
See IRM 20.1.6.5.7, IRM 20.1.6.5.7.1, and 20.1.6.5.7.2.
A penalty applies for any tax return or claim for refund that fails to satisfy the IRC 6695(g) requirements.
The penalty rate varies depending on the tax year of the return and is subject to annual inflationary adjustments. Refer to IRM 20.1.6-1 for penalty rates.
There is no maximum amount.

628*IRC 6700Promoting Abusive Tax Shelters
See IRM 20.1.6.13.

  • The penalty is the lesser of $1,000 or 100% of gross income derived (or to be derived) from such activity between 1/1/1990 and 10/22/2004.

  • For such activities after 10/22/2004, the penalty is the lesser of $1,000 or 100% of gross income derived (or to be derived). In the case of a statement described in IRC 6700(a)(2)(A), the penalty is 50% of gross income derived (or to be derived).

629*IRC 6652(c)(3)(B)(ii)Failure by Entity or Manager to Comply With Written Demand to File a Disclosure Required Under IRC 6033(a)(2)
See IRM 20.1.8.2.1.2.

  • $100** for each day the failure continues after the date specified in the demand.

  • Maximum penalty is $10,000** with respect to any 1 disclosure.



**-Subject to annual inflationary adjustments. See additional information at end of exhibit.

630*IRC 6720Donee's Failure to Issue Acknowledgement on Used Vehicle Donation as Required by IRC 170(f)(12)
See IRM 20.1.8.

Multiple calculations. See IRC 6720(1) and IRC 6720(2) for calculations.

631*IRC 6701Penalties for Aiding and Abetting Understatement of Tax Liability
Aiding and abetting-Preparer

See IRM 20.1.6.14
The penalty is assessed for each document that relates to the tax liability of:

  • Individual-at $1,000, or

  • Corporate-at $10,000

632*IRC 6705Failure by a Broker to Provide Notice to Payors
See IRM 20.1.10.11.

$500 for each failure.

633*IRC 6713Disclosure or Use of Information by Preparers of Returns
See IRM 20.1.6.7.

  • $250 per disclosure or use

  • Maximum of $10,000 per calendar year

634*IRC 6707Failure to Furnish Information Regarding Reportable Transactions Required by IRC 6111(a)
See IRM 20.1.6.16.
See IRC 6707A(c) for definitions of reportable and listed transactions.

  1. For reportable transactions, the penalty for returns due after 10/22/2004 is $50,000 per failure.

  2. For listed transactions, the penalty for returns due after 10/22/2004 is the greater of:

    • $200,000, or

    • 50% of the gross income derived relating to the listed transaction. In the case of an intentional failure or act, 75% of the gross income derived

635IRC 6651(f)Fraudulent Failure to File

Caution:

Effective July 2, 2013, PRN 635 is no longer used for IRC 6651(f) assessments. Use PRN 686.


See IRM 20.1.2.2.7.5 for additional information.636*IRC 6708Failure to Maintain Lists of Investors/Advisees in Potentially Abusive Tax Shelters Required by IRC 6112(a)
See IRM 20.1.6.18.

  • $10,000 per day, from the 21st day after the list is requested, until a complete list is provided to IRS.

  • No maximum penalty amount.

637*IRC 6721(a) or IRC 6722(a)Failures for Returns Relating to Higher Education Tuition and Related Expenses as Required by IRC 6050S (Form 1098–E, Student Loan Interest Statement)
See IRM 20.1.7.8 and IRM 20.1.7.9.

IRC 6721 and IRC 6722 provide different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s) and/or statement(s). In addition, IRC 6721 and IRC 6722 provide reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.

Exception:

For IRC 6722, the reduced rates only apply to statements required to be furnished on or after Jan. 1, 2011.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.638*IRC 6721Failures Related to Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, as Required by IRC 6053
See IRM 20.1.7.8.

IRC 6721 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, IRC 6721 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.

Exception:

In the case of intentional disregard, there are no reduced penalty rates or maximum penalty.

639*IRC 6704(b)Failure to Keep Records Necessary to Meet Reporting Requirements Under IRC 6047(d)
See IRM 20.1.8.4.

  • $50 per calendar year, multiplied by the number of failures.

  • Maximum penalty for any person for any calendar year is $50,000.

642IRC 6722(e)Failure to Furnish Payee Statements-Intentional Disregard
See IRM 20.1.7.9.1.
The penalty is the greater of:

  • The applicable rate reflected in Section 10.7 of Document 6209 depending on the statement due date, or

  • 10% of the amount of income required to be reported on payee statements for dividends, patronage dividends, interest, fishing boat operators, royalties, and wage and tax statements, or

  • 5% of the amount required to be reported on the payee statements for brokers, exchange of partnership interest, or disposition of donated property payments


There is no maximum penalty amount.643*IRC 6673(a)Sanctions and Costs Awarded by Courts
See IRM 20.1.10.6.1.

  • Tax Court determined that the proceedings before it have been instituted by the taxpayer primarily for delay, etc.

  • Court awarded sanctions, penalties, or costs not to exceed $25,000

644*IRC 6673(b)Sanctions and Costs Awarded by Courts (IRC 7433)
See IRM 20.1.10.6.2.

  • A Court (other than the Tax Court) determination that the taxpayer filed frivolous suit against the United States.

  • Court awarded sanctions, penalties, or costs not to exceed $10,000

645*IRC 6694(a)Understatement of Taxpayer’s Liability by Tax Return Preparer
See IRM 20.1.6.4.
The penalty is assessed against a tax return preparer. The penalty is based on an understatement of liability due to an unreasonable position that the tax return preparer knew (or should have known) was unreasonable. No maximum penalty amount.

  1. For income tax returns or claims prepared on or prior to May 25, 2007, the penalty is $250 per return or claim.

  2. For tax returns or claims prepared after May 25, 2007, the penalty is the greater of:

    • $1,000, or

    • 50% of the income derived, or to be derived, per return or claim

647*IRC 6710Failure to Disclose That Contributions Are Nondeductible as Required by IRC 6113
See IRM 20.1.8.2.4.

  • $1,000 for each day the failure occurs. Maximum penalty is $10,000 per calendar year.

  • If the failure is due to intentional disregard, the penalty for each day the failure occurs is the greater of $1,000 or 50% of the aggregate cost of the solicitations. The $10,000 limitation does not apply if the failure is due to intentional disregard.

648*IRC 6707AFailure to Include Reportable Transaction Information With Return (Form 8886, Reportable Transaction Disclosure Statement)
See IRM 20.1.6.17.
For each failure to include information with respect to a reportable transaction, the penalty is 75 percent of the decrease in tax shown on the return as a result of the reportable transaction with the following maximum and minimum penalty amounts:

  1. For listed transactions (see IRC 6707A(c)(2)), the maximum penalty is:

    • $100,000 in the case of a natural person, or

    • $200,000 for all other taxpayers.

  2. For any other reportable transaction (see IRC 6707A(c)(1)), the maximum penalty is:

    • $10,000 in the case of a natural person, or

    • $50,000 for all other taxpayers

  3. The minimum penalty for both listed and any other reportable transaction is:

    • $5,000 in the case of a natural person, or

    • $10,000 for all other taxpayers

649*IRC 6652(l)Failure by Corporation to File Returns Required by IRC 6043(c) (Form 8806, Information Return for Acquisition of Control or Substantial Change in Capital Structure)
See IRM 20.1.10.3.5.

  • $500 per day per failure

  • Maximum $100,000

650*IRC 6694(b)Willful or Reckless Understatement of Taxpayer’s Liability by Tax Return Preparer
See IRM 20.1.6.4.
The penalty is assessed if any part of the understatement is due to willful or reckless conduct or intentional disregard of the rules or regulations in preparing the return or claim for refund. The penalty is reduced by any amount of penalty paid under IRC 6694(a).
No maximum penalty amount.

  1. For income tax returns or claims prepared on or before May 25, 2007, the penalty is $1,000 per return or claim.

  2. For tax returns or claims prepared after May 25, 2007, the penalty is the greater of:

    • $5,000, or

    • 75% of the income derived, or to be derived, per return or claim (50% for tax years ending on or before Dec. 18, 2015)

651*IRC 6721(a)Failure to Comply With Certain Information Reporting Requirements-Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
See IRM 20.1.7.8.
The penalty is assessed for each Form 8300 not timely and/or correctly filed as required by IRC 6050I.

IRC 6721 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, IRC 6721 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html652*IRC 6721(e)(2)(C)Intentional Disregard of the Failure to Comply With Certain Information Reporting Requirements-Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business
See IRM 20.1.7.8.2(8).

Note:

This reference number is used to assess the intentional disregard penalty when Form 8300 is not timely and/or correctly filed.


The penalty is assessed at the greater of:

  • $25,000**, or

  • The amount of cash received in such transaction, to the extent the cash does not exceed $100,000**.


The maximum yearly limitations under IRC 6721 shall not apply.

**-Subject to annual inflationary adjustments. See additional information at end of exhibit.653*IRC 6722(a)Failure to Furnish Correct Statements Required by IRC 6050I(e)-Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business
See IRM 20.1.7.9.

IRC 6722 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s) or statement(s). In addition, IRC 6722 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.

    Exception:

    The reduced penalty rates don’t apply to returns or statements due on or before Jan. 1, 2011.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.654*IRC 6722(e)Intentional Disregard of the Requirement to Furnish a Correct Payee Statement Required by IRC 6050I(e)-Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business
See IRM 20.1.7.9.1.

  1. The intentional disregard penalty is the greater of:

    • The applicable rate reflected in Section 10.7 of Document 6209 depending on the statement due date, or

    • 10 percent of the amount required to be reported correctly on the statement

  2. The maximum yearly limitation does not apply.

655*IRC 6717(a)Penalty for Refusal to Permit Entry or Examination Allowed by IRC 4083(d)(1)
See IRM 20.1.11.8.2.

  • A penalty of $1,000 for each refusal to admit entry or to permit examination.

  • A penalty of $1,000 for each refusal to admit entry or to permit examination if the refusal is related to any place where taxable fuel is stored or produced.

656*IRC 6715Dyed Fuel Sold for Use or Used in Taxable Use, Etc.
See IRM 20.1.11.6.
Generally, the penalty is assessed on any dyed fuel (nontaxable use) that is sold, used, or held for sale or use, for a taxable use.

  1. 1st offense, the penalty is the greater of:

    • $1,000, or

    • $10 for each gallon of dyed fuel involved

  2. Subsequent violations, the penalty is the greater of:

    • $1,000 multiplied by the sum of one plus the number of prior violations assessed per IRC 6715 on that person (or any related person or predecessor of that person or related person), or

    • $10 for each gallon of dyed fuel involved

657*IRC 6718Failure to Display Tax Registration on Vessels
See IRM 20.1.11.8.4.
The penalty is assessed on any vessel required to display proof of registration as required by IRC 4101(a)(3) and fails to do so. The penalty is:

  • $500 per vessel for the initial one month failure to display.

  • For multiple monthly violations: $500, plus the amount derived by multiplying $500 times the number of monthly penalties previously imposed.

658*IRC 6652(c)(2)(A)Failure to File Information Return Required by IRC 6034 (relating to returns by certain trusts) or IRC 6043(b) (relating to terminations, etc., of exempt organizations)
See IRM 20.1.8.2.1.1.

  • $10** per day per return

  • Maximum penalty is $5,000** per return



**-Subject to annual inflationary adjustments. See additional information at end of exhibit.659*IRC 6677Failure to File Information With Respect to Certain Foreign Trusts as Required by IRC 6048-Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
See IRM 20.1.9.13.

  1. Initial penalty is 35% of gross reportable amount.

    Note:

    For notices and returns due after 12/31/2009, the initial penalty is the greater of 35% of the gross reportable amount, or $10,000.

  2. If failure continues for more than 90 days after notice, $10,000 for each 30-day period (or fraction thereof) the failure continues after the expiration of the 90-day period (assess with PRN 702.

  3. Total penalty cannot exceed gross reportable amount.

660*IRC 6677(b)Form 3520-AAnnual Return of Foreign Trust With a U.S. Owner-IRC 6048(b)
See IRM 20.1.9.14.

  1. Initial penalty is 5% of gross reportable amount.

    Note:

    For notices and returns due after 12/31/2009, the initial penalty is the greater of 5% of the gross reportable amount, or $10,000.

  2. If failure continues for more than 90 days after notice, $10,000 for each 30-day period (or fraction thereof) the failure continues after the expiration of the 90-day period (assess with PRN 703).

  3. Total penalty cannot exceed gross reportable amount.

661*IRC 6675Excessive Claims With Respect to the Use of Certain Fuels-Per IRC 6416(a)(4), IRC 6420, IRC 6421, or IRC 6427
See IRM 20.1.11.5.
The penalty is the greater of:

  • Two times the excessive amount, or

  • $10

662*
(BMF)IRC 527(j)(1)Failure to Make Required Disclosure of Expenditures and Contributions (Form 8872, Political Organization Report of Contributions and Expenditures)
See IRM 20.1.8.2.7.

  • 35% of amount relating to failure.

  • Also see IRC 6652(c).

663*
(BMF)IRC 6652(c)(1)(A)Failures Related to Annual Returns Required by IRC 6033(a)(1) (Exempt Organizations) and IRC 6012(a)(6) (Political Organizations)

  1. For organizations with gross receipts of $1,000,000** or less, the penalty is:

    • $20** per day during which such failure continues

    • Maximum penalty is the lesser of $10,000** or 5% of the gross receipts

  2. For organizations with gross receipts of more than $1,000,000**, the penalty is:

    • $100** per day during which such failure continues

    • Maximum penalty is $50,000**


**-Subject to annual inflationary adjustments. See additional information at end of exhibit.664*IRC 6712Failure to Disclose Treaty-Based Return Position as Required by IRC 6114
See IRM 20.1.9.20.

  • $10,000 per failure for C corporations

  • $1,000 per failure for all other taxpayers

665*IRC 6715ATampering With, or Failing to Maintain Security Requirements, for Mechanical Dye Injection Systems
See IRM 20.1.11.7.

  1. For IRC 6715A(a)(1) (Tampering), the penalty is the greater of:

    • $25,000, or

    • $10 for each gallon of fuel involved

  2. For IRC 6715A(a)(2) (Failure to Maintain Security Requirements), the penalty is:

    • $1,000 per failure, and

    • $1,000 per day for failing to correct the violation for each day after which such violation was discovered or such person should have reasonably known of such violation

666*IRC 6702(a)Frivolous Return

Caution:

Only PRN 666 assesses IRC 6702(a) after 1/24/2005


See IRM 20.1.10.10.1.
The penalty is assessed per frivolous document. On a Married Filing Joint frivolous return, the penalty is assessed on each spouse. The penalty is:

  • $500 per document for filings and submissions prior to Mar. 17, 2007.

  • $5,000 per document for filings and submissions after Mar. 16, 2007.

667*IRC 6725Failure to Report Information Under IRC 4101 (failure to report a vessel/facility)
See IRM 20.1.11.8.7.

$10,000 per failure.

668*IRC 6039F(c)Failure to File Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, to Report Receipt of Foreign Gifts
See IRM 20.1.9.10.

  • 5% of the amount of the foreign gift for each month the failure continues

  • Maximum penalty cannot exceed 25% of the amount of the gift

669*
(IMF)IRC 6688Failure to File Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession, Regarding Residence in a US Possession as Required by IRC 937(c)
See IRM 20.1.9.18.

$1,000 per failure.

670*IRC 6719Failure to Register or Reregister as Required by IRC 4101
See IRM 20.1.11.8.5.

  • $10,000 for each initial failure, and

  • $1,000 for each day thereafter the failure continues

671*
(IMF)IRC 6039GFailure to File Form 8854, Initial and Annual Expatriation Information Statement, Regarding Expatriate/Residency Report
See IRM 20.1.9.11.

$10,000 per failure.

672*IRC 6721Failures in Regard to Information Returns Relating to Taxable Mergers and Acquisitions as Required by IRC 6043A
See IRM 20.1.7.8.

IRC 6721 provides different penalty rates per failure as well as maximum annual penalties per taxpayer depending on the due date of the return(s). In addition, IRC 6721 provides reduced penalty rates and maximum penalties for small businesses with gross receipts of $5 million or less as well as reduced rates and maximum penalties based on the following:

  • Failures corrected within 30 days after the due date of the information return, and

  • Failures corrected after the 30th day following the due date of the information but on or before August 1st.


In addition, the penalty rates and maximum penalties are subject to inflationary adjustments for returns required to be filed on or after Jan. 1, 2016. For all rates and maximum penalties as adjusted for inflation, if applicable, refer to Section 10.7 of Document 6209 at http://serp.enterprise.irs.gov/databases/irm.dr/current/6209/section-10-7.html.

Note:

In the case of intentional disregard, there is no maximum penalty amount.

673*IRC 6720AResale of Certain Adulterated Diesel Fuels
See IRM 20.1.11.8.6.

$10,000 for each transfer, sale, or holding out for resale.

674*IRC 6723Failure by Transferor to Notify Partnership of Exchange as Required by IRC 6050K(c)

  • A penalty of $50 is imposed for each failure to comply timely with specified information reporting requirements.

  • The maximum penalty for failure to comply with all specified information reporting requirements is $100,000 per year.

676*IRC 6038BNotice of Certain Transfers to Foreign Persons (Failure to File Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation) (Failure to File Form 8865, Schedule O, Transfer of Property to a Foreign Partnership)
See IRM 20.1.9.7.

  • 10% of the fair market value of the property transferred at the time of exchange.

  • Maximum $100,000.

  • No maximum if failure is due to intentional disregard.

677IRC 6677(b)Failure to File Part II of Form 3520
See IRM 20.1.9.13.

  • 5% of the gross reportable amount.

  • If the failure continues for more than 90 days, a continuation rate of $10,000 applies for each 30-day period the failure continues.

  • The continuation penalty is assessed with PRN 706.

  • The total penalty cannot exceed the gross reportable amount.

678*IRC 6706(a)Failure to Show Information on Debt Instrument Required by IRC 1275(c)(1) (reported on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments)
See IRM 20.1.10.12.1.

$50 for each instrument to which a failure exists.

678*IRC 6706(b)Failure to Furnish Information to Secretary Required by IRC 1275(c)(2) (reported on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments)
See IRM 20.1.10.12.3.

  • 1% of the aggregate issue price of debt instrument amount.

  • Maximum $50,000.

679*
(IMF)IRC 6039EFailure by Passport and Immigration Applicants to Provide Information Concerning Residence Status
See IRM 20.1.9.21.

$500 for each failure to provide the required information.

680IRC 6662Accuracy-Related Penalties
See IRM 20.1.5.
See PRNs 786-792 for IRC 6662(c)-(h) assessments input after 2014.

For assessments input after 2014, use PRN 680 if the following are true:

  • The penalty is imposed for substantial understatement of income tax under IRC 6662(d), and

  • Negligence under IRC 6662(c) is a secondary consideration.

    Note:

    See IRM 20.1.5.3.2(8).



For assessments input before 2015, penalties assessed with PRN 680 were computed as follows:

  • For IRC 6662(c) through IRC 6662(g), the penalty is 20% of the underpayment

  • For IRC 6662(h) (Gross Valuation Misstatements), the penalty is 40% of the underpayment


To reverse assessments input with PRN 680, when applicable, a TC 680 for a negative amount must be input. Do not use PRNs 786-792 to reverse PRN 680 assessments.681IRC 6662AAccuracy-Related Penalty on Understatements With Respect to Reportable Transactions
See IRM 20.1.5.15.

  • 20% of reportable transaction understatement.

  • 30% for nondisclosed listed or other avoidance transactions.

683IRC 6662(j)Undisclosed Foreign Financial Asset Understatement
See IRM 20.1.5.13.

  • 40% if any portion of an underpayment is attributable to any undisclosed foreign financial asset

684IRC 7519(f)(4)Required Payments for Entities Electing Not to Have Required Taxable Year (IRC 444 Elections)
See IRM 20.1.10.17.

  • The penalty is assessed for failing to make a timely election payment

  • The penalty is assessed at 10 percent of the underpaid amount and is assessed on MFT 15 with TC 246

686IRC 6651(f)Fraudulent Failure to File
See IRM 20.1.2.2.7.5 and IRM 25.1.7.

  • 15 percent of unpaid tax for each month the return is late, not to exceed 75 percent (5 months).

  • For any month where the FTP penalty also applies, the FFTF penalty is reduced by the amount of the FTP penalty for that month.

687IRC 6676Penalty for Erroneous Claim for Refund or Credit

Caution:

PRN 687 is used for Married Filing Joint assessments only. All others use PRN 565


See IRM 20.1.5.16.3 and IRM 20.1.5.16.6 .

  • 20% of the excessive amount of the claim.

  • Assessed with Form 3870, Request for Adjustment.

688IRC 6721(a)(2)(A)Failure to File Partnership Return Using Electronic Media
See IRM 20.1.2.4 and IRM 21.7.4.4.2.8.1.

  • Applies to partnerships with over 100 partners.

  • Penalty is systemically assessed with TC 246 and PRN 688.

  • The penalty rate and maximum penalty varies depending on the due date of the return. For returns due on or after Jan. 1, 2016, the penalty rate and maximum penalties are subject to annual inflationary adjustments. See IRM 20.1.2.4 for penalty rates and maximum penalties.

690N/AInsurance Provider Fee (IPF) Late Filing Penalty
See IRM 25.21.2.9(1).

  • Applicable under section 9010(g)(2)(A) of the Patient Protection and Affordable Care Act of 2010 (ACA).

  • Penalty is $10,000 plus the lesser of:

    1. $1,000 for each day the failure continues, or

    2. The amount of the fee for which the report was required.

691N/AInsurance Provider Fee (IPF) Accuracy-Related Penalty
See IRM 25.21.2.9(2).

  • Applicable under section 9010(g)(3)(A) of the Patient Protection and Affordable Care Act of 2010 (ACA).

  • The penalty is equal to the excess of:

    1. The amount of the covered entity’s fee for the fee year that should have been paid in the absence of the understatement, over

    2. The amount of the fee determined based on the understatement.

692IRC 5000AIndividual Shared Responsibility Payment
See IRM 20.1.11.2.

  • The penalty applies for failure to maintain minimum essential coverage required under IRC 5000A(a).

  • The penalty rate varies depending on the taxable year. Refer to IRM 20.1.11.2.1 for the penalty rates.

697IRC 6672Trust Fund Recovery Penalty - Payment by Related Responsible Party
See IRM 5.7.7.5.1.

699IRC 6672Trust Fund Recovery Penalty - Payment by Related BMF Account
See IRM 5.7.7.5.1.

Note:

689 is NOT a Penalty Reference Number. It is used by TEGE for sanction assessments pertaining to closing agreements. See IRM 4.5.2.3.1.29(19), Credit and Tax Computation Adjustment (Item 15), for additional information.

** - These amounts are subject to annual inflationary adjustments. For PRNs applicable to penalties under IRC 6721 and IRC 6722, refer to Section 10.7 of Document 6209 for amounts as adjusted for inflation, if applicable. For others, refer to the applicable Revenue Procedure based on the tax year of the return, etc. as follows:

  • Tax year 2015 - see Rev. Proc. 2016-11.

  • Tax year 2016 - see Rev. Proc. 2015-53.

    Note:

    Section 3.48(3) of Rev. Proc. 2015-53 contains an incorrect rate. The correct rate is reflected in Section 4 of Rev. Proc. 2016-11.

  • Tax year 2017 - see Rev. Proc. 2016-55.

  • Tax year 2018 - see Rev. Proc. 2017-58.

Exhibit 20.1.1-6

Penalty Reference Numbers (700 Series)

Penalty reference numbers marked with an asterisk "*" identify penalties assessed with Form 8278.

Caution:

Refer to and use the most current revision of Form 8278.

PRNStatuteDescription

700*IRC 6038D(d)(1)Information With Respect to Foreign Financial Assets
See IRM 20.1.9.22.

  • Initial penalty is $10,000 for each taxable year.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues (assess with PRN 710).

701*IRC 6038A(d)(2)Information With Respect to Certain Foreign-Owned Corporations-Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.5.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • No Maximum Penalty

  • Initial penalty assessed with PRN 625

702*IRC 6677Failure to File Information With Respect to Certain Foreign-Trusts-Form 3520-Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.13.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • Maximum penalty cannot exceed gross reportable amount

  • Initial penalty assessed with PRN 659

703*IRC 6677Failure to File Information With Respect to Certain Foreign-Trusts Form 3520-A-Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.14.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • Maximum penalty cannot exceed gross reportable amount

  • Initial penalty assessed with PRN 660

704*IRC 6679(a)(2)Failure to File Returns, Etc., With Respect to Foreign Corporations or Foreign Partnerships- Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.15.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • Maximum penalty is $50,000

  • Initial penalty assessed with PRN 613

705*IRC 6038CInformation with Respect to Foreign Corporations Engaged in U.S. Business-Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.8.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • No Maximum Penalty

  • Initial penalty assessed with PRN 603

706IRC 6677Failure to File Part II of Form 3520 - Continuation Penalty
See IRM 20.1.9.13.

  • Initial penalty is assessed with PRN 677.

  • If the failure continues for more than 90 days, a continuation rate of $10,000 applies for each 30-day period the failure continues.

  • The total penalty cannot exceed the gross reportable amount.

7082014 Voluntary Disclosure Initiative Penalty-5%Offshore Voluntary Disclosure Program (OVDP) - 2014 OVDP 5% Penalty
See IRM 20.1.9.1.4.

  • Applies to OVDP submissions made on or after July 1, 2014.

7092014 Voluntary Disclosure Initiative Penalty-50%Offshore Voluntary Disclosure Program (OVDP) - 2014 OVDP 50% Penalty
See IRM 20.1.9.1.4.

  • Applies to OVDP submissions made on or after July 1, 2014.

710*IRC 6038D(d)(2)Information With Respect to Foreign Financial Assets-Increase in Penalty Where the Failure Continues After Notification
See IRM 20.1.9.22.4.

  • If the information is not received within 90 days from notification, a continuation penalty of $10,000 is charged for each 30-day period (or fraction thereof) the failure continues.

  • Maximum penalty is $50,000.

  • Initial penalty assessed with PRN 700

711IRC 6038ALB&I - Systemic Penalty for Failure to File Form 5472 in Conjunction with Failure to File Corporate Return
See IRM 20.1.9.5.3 and IRM 21.8.2.21.2.

  • Refer to PRN 625 explanation for manual assessment and additional information.

712IRC 6038LB&I - Systemic Penalty for Failure to File Form 5471 in Conjunction with Failure to File Partnership Return
See IRM 20.1.9.3.3 and IRM 21.8.2.20.2.

  • Refer to PRN 623 explanation for manual assessment and additional information.

713IRC 6652(c)(4)Failure to Submit a Notice Required Under IRC 506(a)
See IRM 20.1.8.

  • Relates to organizations required to notify Secretary of intent to operate as an IRC 501(c)(4) organization.

  • IRC 6652(c)(4)(A) - $20 for each day the organization fails to submit notice, up to $5,000.

  • IRC 6652(c)(4(B) - $20 for each day the responsible person fails to submit notice by the date promised, up to $5,000.

714IRC 6695(a)Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons-Failure to Furnish Copy to Taxpayer
See IRM 20.1.6.5.1.

Note:

PRNs 714-718 have not been activated as expected. Continue to assess IRC 6695(a)-(e) penalties with PRN 624 until further notice.

  • $50** per failure

  • Maximum $25,000** per preparer per calendar year



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.715IRC 6695(b)Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons-Failure to Sign Return
See IRM 20.1.6.5.2.

Note:

PRNs 714-718 have not been activated as expected. Continue to assess IRC 6695(a)-(e) penalties with PRN 624 until further notice.

  • $50** per failure

  • Maximum $25,000** per preparer per calendar year



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.716IRC 6695(c)Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons-Failure to Furnish Identifying Number of Tax Return Preparer
See IRM 20.1.6.5.3.

Note:

PRNs 714-718 have not been activated as expected. Continue to assess IRC 6695(a)-(e) penalties with PRN 624 until further notice.

  • $50** per failure

  • Maximum $25,000** per preparer per calendar year



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.717IRC 6695(d)Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons-Failure to Retain Copy of List
See IRM 20.1.6.5.4.

Note:

PRNs 714-718 have not been activated as expected. Continue to assess IRC 6695(a)-(e) penalties with PRN 624 until further notice.

  • $50** per failure

  • Maximum $25,000** per return period



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.718IRC 6695(e)Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons-Failure to Satisfy Reporting Requirements for Tax Return Preparers
See IRM 20.1.6.5.5.

Note:

PRNs 714-718 have not been activated as expected. Continue to assess IRC 6695(a)-(e) penalties with PRN 624 until further notice.

  • $50** for each failure to file a return as required by IRC 6060, and

  • $50** for each failure to include a required item in the return

  • Maximum $25,000** per return period



**-Subject to annual inflationary adjustments. See IRM 20.1.6-1 and additional information at end of exhibit.780IRC 6662(b)(6)Accuracy Related Penalty-Noneconomic Substance Transaction
See IRM 20.1.5.12.

  • 20% of underpayment attributable to transaction lacking economic substance

781IRC 6662(i)Increase in Penalty in Case of Nondisclosed Noneconomic Substance Transaction
See IRM 20.1.5.12.1.

  • 40% of underpayment attributable to nondisclosed transaction lacking economic substance

786IRC 6662(c)Accuracy Related Penalty on Underpayments due to Negligence or Disregard of the Rules and Regulations
See IRM 20.1.5.7.

  • 20% of the underpayment attributable to negligence or disregard of the rules and regulations.

787IRC 6662(d)Accuracy Related Penalty on Underpayments due to Substantial Understatement
See IRM 20.1.5.8.

  • 20% of the underpayment in the case of a substantial understatement of income tax.

788IRC 6662(e)Accuracy Related Penalty on Underpayments due to Substantial Valuation Misstatement
See IRM 20.1.5.9.

  • 20% of the underpayment attributable to a substantial valuation misstatement.

789IRC 6662(f)Accuracy Related Penalty on Underpayments due to Substantial Overstatement of Pension Liabilities
See IRM 20.1.5.10.

  • 20% of the underpayment attributable to a substantial overstatement of pension liabilities.

790IRC 6662(g)Accuracy Related Penalty on Underpayments due to Substantial Estate or Gift Tax Valuation Understatement
See IRM 20.1.5.11.

  • 20% of the underpayment attributable to a substantial estate or gift tax valuation understatement.

792IRC 6662(h)Increase in Accuracy Related Penalty on Underpayments in Case of Gross Valuation Misstatement
See IRM 20.1.5.9.3.

  • 40% of the underpayment in the case of a gross valuation misstatement.

** - These amounts are subject to annual inflationary adjustments. Refer to the applicable Revenue Procedure based on the tax year of the return, etc. as follows:

  • Tax year 2015 - see Rev. Proc. 2016-11.

  • Tax year 2016 - see Rev. Proc. 2015-53.

    Note:

    Section 3.48(3) of Rev. Proc. 2015-53 contains an incorrect rate. The correct rate is reflected in Section 4 of Rev. Proc. 2016-11.

  • Tax year 2017 - see Rev. Proc. 2016-55.

  • Tax year 2018 - see Rev. Proc. 2017-58.

Exhibit 20.1.1-7

Table of Abbreviations and Acronyms

The following table reflects commonly-used abbreviations and acronyms that may be referenced throughout IRM 20.1. For any acronyms not listed, refer to the Acronym Database.

ABBREVIATIONSDEFINITION

23CAssessment Date

ACDSAppeals Centralized Database System

ACHAutomated Clearing House

ACRAudit Change Report

ADEPTAutomated Deposit of Electronic Payments for Taxes

ADPAutomatic Data Processing

AGIAdjusted Gross Income

AICPAAmerican Institute of Certified Public Accountants

AIMSAudit Information Management System

AMSAccount Management Services (formerly DI—Desktop Integration)

ANMFAutomated Non-Master File (also see NMF)

AOAppeals Officer

AOCAdvice of Credit

ASEDAssessment Statute Expiration Date

ASFRAutomated Substitute for Return

ATFBureau of Alcohol, Tobacco, Firearms and Explosives (Dept. of Justice) (also see TTB)

BFSBureau of the Fiscal Service (formerly Financial Management Services (FMS))

BMFBusiness Master File

BWHBackup Withholding

CPSCase Processing Support

CAFCentralized Authorization File

CADECustomer Account Data Engine

CARECustomer Assistance, Relationships and Education

CAWRCombined Annual Wage Reporting

CBAFCommercial Bank Address File

CCCommand Code

  

CFRCode of Federal Regulations

CICriminal Investigation

CISCorrespondence Imaging System

CPComputer Paragraph

CPACertified Public Accountant

CPMCivil Penalty Module

CRSCommunication Replacement System

CSEDCollection Statute Expiration Date

CYCalendar Year

CVPNCivil Penalty Name Line

EAEnrolled Agent

ECC-DETEnterprise Computing Center—Detroit

ECC-MEMEnterprise Computing Center—Memphis

ECC-MTBEnterprise Computing Center—Martinsburg

EFTElectronic Funds Transfer

EFTPSElectronic Federal Tax Payment System

DLNDocument Locator Number

DPData Processing

EFCElectronic Filing Coordinators

EFPElectronic Filing Program

EINEmployer Identification Number

EMISEnforcement Management Information System

EPMFEmployee Plans Master File

EQTRASExamination Quality Trends Analysis System

ERTAEconomic Recovery Tax Act of 1981

ESEstimated Tax

ETAElectronic Tax Administration

ETEEmployment Tax Examiner

FFAFiduciary FTD Avoidance

FICAFederal Insurance Contributions Act

FIFOFirst-In-First-Out Inventory Method

FITFederal Income Tax

FFTFFraudulent Failure to File

FRBFederal Reserve Bank

FRCSFederal Reserve Communication System

FTAFirst Time Abate

FTDFailure to Deposit (also, Federal Tax Deposit)

FTD POCFederal Tax Deposit Point of Contact (previously referred to as FTD Interagency Coordinator)

FTFFailure to File

FTPFailure to Pay

FUTAFederal Unemployment Tax Act

FYFiscal Year

GBPGood Block Proof

IACInterest Abatement Coordinator

ICSIntegrated Collection System

IDRSIntegrated Data Retrieval System

IDTCAInterest and Dividend Tax Compliance Act of 1983

IEPInternational Enforcement Program

IMFIndividual Master File

IMPACTImproved Penalty Administration and Compliance Tax Act of 1989

IRAIndividual Retirement Account

IRAFIndividual Retirement Account File

IRCInternal Revenue Code

IRPInformation Return Program

IRMInternal Revenue Manual

IR RegsInternal Revenue Regulations

IRSInternal Revenue Service

IRS NO.Abstract Number

LIFOLast-In-First-Out Inventory Method

LMQASLine Management Quality Assurance System

  

MCRMaster Control Records

MFMaster File

MFTMaster File Tax

MICRORARRevenue Agent Report-Computer Generated

MSNMicrofilm Serial Number

NASACTNational Association of State Auditors, Comptrollers, and Treasurers

NMFNon-Master File (also see ANMF)

OBRAOmnibus Budget Reconciliation Act

OCROptical Character Recognition

ODCOzone Depleting Chemicals

OPIOffice of Penalties and Interest
In Nov. 2006, OPI was split into the Office of Servicewide Penalties and the Office of Servicewide Interest

OSIOffice of Servicewide Interest

OSPOffice of Servicewide Penalties

PASProgram Analysis System

PCCPenalty Computation Code

PFNPartnership Prefiling Notification

PICPenalty Indicator Code

PILPreparer’s Inventory Listing

PINEXPenalty and Interest Notice Explanations

PMFPayer Master File

PNLPrefiling Notification Letter

  

POAPower of Attorney

PRCPenalty Reason Code

PRNPenalty Reference Number

PSCPenalty Screening Committee

PVLPreparer’s Volume Listing

QASQuality Assurance Staff

QRQuality Review

RARRevenue Agent Report

RCReason Code

RCAReasonable Cause Assistant

RDDReturn Due Date

RFCRegulated Futures Contract

REMICReal Estate Mortgage Investment Conduit

ROFT/ROFTLRecord of Federal Tax/Record of Federal Tax Liability (deposit liability schedule)

RONTRecord of Net Tax Liability—Form 720, Quarterly Federal Excise Tax Return

RRTARailroad Retirement Tax Act

RSEDRefund Statute Expiration Date

RURTRailroad Unemployment Repayment Tax

SCCFService Center Control File

SICSchedule Indicator Code

SFRSubstitute for Return

SRTPStatement on Responsibilities in Tax Practice

SSASocial Security Administration

SSNSocial Security Number

STAUPCommand code which stops collection activity

TAMRATechnical and Miscellaneous Revenue Act of 1988

TAOTaxpayer Assistance Order

TCTransaction Code

TDATaxpayer Delinquent Account

TDDTelecommunications Device for the Deaf

TECSTreasury Enforcement Communication System

TEFRATax Equity and Fiscal Responsibility Act (1982)

TE/GETax Exempt/Government Entities

TIFTaxpayer Information File

TINTaxpayer Identification Number

TLNTransmittal Locator Number

TPTaxpayer

TRA’86Tax Reform Act of 1986

TTBAlcohol and Tobacco Tax and Trade Bureau

TT&LTreasury Tax and Loan Account

TYTax Year

UPCUnpostable Code

URPUnderreporter Branch (Service Centers)

Exhibit 20.1.1-8

Dictionary of Key Terms

TERMSDEFINITION

23C DATEThe date an assessment is made. Assessment is accomplished when the assessment officer schedules the liability and signs the assessment register (Form 23C, Assessment Certificate, Summary Record of Assessments).

ABATEMENTA reduction in the assessment of tax, penalty, or interest when it is determined the assessment is incorrect, or when the taxpayer should be relieved of a liability, e.g., penalty abatement for reasonable cause.

ABSTRACT NUMBERA three-digit number that references a specific type of excise tax. The abstract number will correspond exactly with the IRS number shown on the excise tax form, Form 720. See IRM 20.1.4.10.1.

ABSTRACTSReports that identify the specific type of tax collected, corresponding to the proper appropriation account set by Congressional Act or Public Law.

ACCOUNTA record of a taxpayer’s assessments, abatements and credits.

ACCRUALSThe increase of interest and penalty amounts amassed from the date a penalty or interest assessment is posted to an account (23C Date) to the date the amounts are paid.

ADVANCE PAYMENTThe payment made for an anticipated deficiency prior to the actual assessment.

ADVICE OF CREDIT (AOC)An obsolete transmittal of federal taxes paid to a depositary bank. See IRM 20.1.4.24.4.1.

ANNUAL ACCOUNTING PERIODA 12-consecutive month period (calendar or fiscal year) adopted by the taxpayer for maintaining books and records.

ASSERTDetermine that tax, penalty, or interest applies to a taxpayer account.

ASSESSFormal entry of tax debt including penalty, and/or interest that has been determined to be due and collectable by IRS.

ASSESSMENTA bookkeeping entry, recording the amount of tax, penalties, and/or interest charged to a taxpayer’s account.

ASSESSMENT DATEThe date Form 23C is executed by the assessment officer.

AUDIT TRAILData used to track case activity to follow the development of an issue from the time it is raised to the time it is resolved.

AUTOMATIC ADJUSTMENTA subsequent adjustment to an account which follows automatically from the previous adjustment.

BALANCE DUEThe amount of tax, penalty, interest or other receivables that remain unpaid on a taxpayer’s account.

BLOCKReturns or documents that have been grouped together for processing and filing purposes. Blocks consist of one hundred or fewer documents.

BUREAU OF THE FISCAL SERVICE (BFS)The federal agency responsible for the government’s cash management program. (formerly Financial Management Service (FMS))

BUSINESS MASTER FILE (BMF)The files maintained by the IRS which include business transactions and accounts. These include employment taxes, income taxes on businesses, use taxes, wagering taxes, and excise taxes.

BURDEN OF PROOFThe necessity of affirmatively proving a fact or facts in dispute on an issue.

CALENDAR YEARA 12-consecutive month period beginning with January 1.

CHARITABLE DEDUCTION PROPERTYA taxpayer’s contribution of real or personal property to a charity for which a deduction can be claimed under IRC 170.

CLAIM—FORMALA request from the taxpayer on the proper form, such as Form 843, Claim For Refund and Request for Abatement, Form 1040X, Amended U.S. Individual Income Tax Return, or Form 1120X, Amended U.S. Corporation Income Tax Return, asking that a liability previously assessed be reduced.

CLAIM—INFORMALA written request, other than on the proper form, signed by the taxpayer, requesting changes to obtain a correct and accurate reflection of his or her tax liability.

COMMAND CODE (CC)A five or six character code used to access IDRS.

COMMERCIAL BANK ADDRESS FILE (CBAF)A computer listing of all authorized depositories within each service center’s processing area.

COMPUTER PARAGRAPH NOTICE (CP)A computer generated message relating to a taxpayer’s account.

CONTACT PERSONNELAny IRS employee who has direct contact with the taxpayer either on the telephone, in person, or by mail.

CYCLEOne week’s processing at the service center and Martinsburg Computing Center (ECC-MTB).

DEBIT BALANCEThe amount by which the balance due exceeds the total amount of credits.

DELINQUENT RETURNA return which is filed after the prescribed due date (determined with regard to any valid extension of time).

DISCLOSURESee IRC 6103 and IRC 6664(c).

DISHONORED CHECKA taxpayer’s check or money order that a financial institution does not accept for payment. See IRM 20.1.10.

DOCUMENT CODE
(Doc Code)
The Code which identifies the specific type of return or document that was filed or processed. See Document 6209, IRS Processing Codes and Information, Section 2.2.

DOCUMENT LOCATOR NUMBER (DLN)A 14-digit identification number assigned to every return/document and entered into the ADP system that affects a taxpayer account.

DOCUMENT REGISTERA numerical listing of each item in a block of returns or documents. The document register serves as a transmittal for each block of remittance returns.

DUE DATEDate by which a return must be filed or a payment or deposit made.

DUMMY MODULEA tax module created on IDRS in order to record information when the true tax module is not present.

ECONOMIC SUBSTANCE DOCTRINEAs defined in IRC 7701(o)(5)(A), means the common law doctrine under which tax benefits under subtitle A (Income Taxes) with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.

EMPLOYEE PLANS MASTER FILE (EPMF)The files maintained by the IRS which include transactions on employee plan accounts.

EMPLOYER IDENTIFICATION NUMBER (EIN)A unique nine-digit number used to identify a taxpayer’s business account in a NN–NNNNNNN format.

ENTITY AREAThe portion of an input document or tax return that contains the name, address, account number, tax period and other entity data.

FEDERAL RESERVE BANK (FRB)One of 12 banks of the Federal Reserve system which verifies and classifies federal tax deposits (FTD) monies collected within its geographic jurisdiction.

FEDERAL TAX DEPOSIT POINT OF CONTACT (FTD POC)The designated employee in the FTD unit of the SC Accounting Operation who is a liaison between IRS, FRB, commercial banks and reporting agents (previously referred to as the FTD interagency coordinator).

FIDUCIARY FTD AVOIDANCE (FFA)The penalty chargeable to third party fiduciaries who do not submit their trusts’ estimated tax payments on magnetic tape through the FTD system.

FILE LOCATION CODE (FLC)The first two digits of the DLN used to identify the campus or district office that initiated a transaction. See Document 6209, Section 4.3 for a complete list of FLCs.

FISCAL YEARAn accounting period of 12 consecutive months other than a calendar year.

FOREIGN-CONTROLLED CORPORATIONA domestic corporation engaged in U.S. business and controlled by a foreign person.

FRAUDThe intentional commission of an act or acts for the specific purpose of evading a tax believed to be owing.

FREEZE CODEA condition on an account which prohibits any further action being taken.

FRIVOLOUSClearly lacking in substance, or clearly insufficient as a matter of law.

GENERATED DATAInformation produced as a result of input to, or update of, IDRS or Master File.

HARDSHIPSee undue hardship.

INDIVIDUAL MASTER FILE (IMF)The files maintained by the IRS which include transactions on individual tax accounts.

INDIVIDUAL RETIREMENT ACCOUNT FILE (IRAF)The files maintained by the IRS which include transactions on individual retirement accounts.

INTEGRATED DATA RETRIEVAL SYSTEM (IDRS)A computer system capable of retrieving or updating stored information which works in conjunction with the Master File records of a taxpayer’s account.

INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN)A taxpayer identifying number issued by the IRS to an alien individual who is ineligible to receive an SSN for the purpose of reporting tax related information.

JULIAN DATEThe numeric day of the year starting with 001 on January 1 and continuing sequentially to 365 (or 366).

LEVYAn administrative means of collecting taxes by seizure of the taxpayer’s property and rights to property to satisfy delinquent taxes.

MASTER FILE TAX (MFT) CODEA two-digit code that identifies the type of return filed and the tax class. See Document 6209, Section 2.2 for a complete listing of MFTs.

MICROFILM SERIAL NUMBER (MSN)A ten-digit locator number printed across each FTD and AOC processed through the optical character recognition (OCR) equipment as each service center. The MSN is used to identify and/or locate individual FTD coupons.

MODULEA specific TIN, MFT, and Tax Period on which tax, payments, etc. for a single return are reflected.

NON-MASTER FILEThe files maintained by the IRS which include transactions on tax accounts not included on the Master File.

NORMAL (LEGAL) DUE DATEThe date the statute requires the filing of the return. If the normal or extended due date falls on a Saturday, Sunday or legal holiday, the return is considered timely if it is filed on the next succeeding day that is not a Saturday, Sunday, or legal holiday.

OFFER-IN-COMPROMISEAn agreement resolving a taxpayer’s account where it has been determined that there is either doubt as to collectibility, effective tax administration issues present or doubt as to liability.

ORAL EVIDENCENon-written information received from the taxpayer, authorized representative or other third party, providing additional facts for requesting penalty relief. See IRM 20.1.1.3.1 for additional information on acceptable oral evidence.

PENALTYA sanction primarily used to promote voluntary compliance of the tax laws.

PENALTY COMPUTATION CODE (PCC)A three-digit code which is used to denote the reasons why, or methods by which, a FTD penalty was charged.

PENALTY PERIODThe time for which a penalty is applicable.

PENALTY REASON CODEA three-digit code, entered in the 4th position reason code field, which is used to denote the reason for penalty removal or reduction. See Exhibit 20.1.1-2.

PENDING TRANSACTIONA transaction entered into IDRS which has not yet posted to the Master File. Pending transactions will affect the IDRS account balance, but will not change the Master File account balance.

PERIOD ENDINGThe ending year and month of the period covered by a tax return.

PINEXAn IDRS computer program used to produce penalty and interest explanations for taxpayers.

POSTASSESSMENT APPEALAn appeal of tax, penalty and/or interest made by the taxpayer after the tax and/or penalty has been assessed.

PREPAID CREDITSPayments of tax, such as withholding, estimated payments, etc., made prior to the due date of the return.

PRESCRIBED DUE DATEThe due date designated for filing a return, including any extension of time for filing.

PRESUMPTIVE DUE DATEThe due date designated for filing a return, not taking into account any extensions.

REASON CODEA three-digit code used when adjusting an account to denote which item on the tax return is affected by the adjustment. Document 6209 Section 8C.2–2.

REASONABLE BASISAs defined by Treas. Reg. 1.6662–3(b)(3), "Reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper. The reasonable basis standard is not satisfied by a return position that is merely a colorable claim...."

REASONABLE CAUSE ASSISTANT (RCA)See IRM 20.1.1.3.6.

REBATEA credit, refund or other repayment where too much tax was paid.

RECEIVED DATE:

  • Timely filed return—The original or extended due date of the return.

  • Late filed return—The IRS received date stamped on the face of the return.

REFILE DLNA new DLN assigned to a return or other document after an audit or tax adjustment has been completed. The tax return and related documents are filed under this refile DLN.

REFUNDMoney returned to the taxpayer as a result of overpayment of a tax liability.

REMITTANCE AMOUNTThe amount of money received in payment of a liability. This remittance may be by check, money order, cashier’s check, cash, credit card, or EFTPS.

SECURED DELINQUENT RETURNA return secured after a taxpayer has been contacted by the IRS but prior to an assessment made under Substitute for Return procedures.

SEIZED PROPERTYProperty of the taxpayer over which the IRS has exercised actual or constructive dominion and control for the purpose of satisfying outstanding tax liabilities.

SERVICE CENTER CONTROL FILE (SCCF)A magnetic tape control system record the receipt of returns/documents, to trace their progress through the processing system and finally to verify that all items have been completed. The SCCF systems maintain separate totals for revenue receipts and other items.

SOCIAL SECURITY NUMBERA unique nine-digit number used to identify an individual taxpayer account, in NNN-NN-NNNN format issued by the Social Security Administration.

SOURCE DOCUMENTBackup documentation used by IRS personnel to explain an adjustment to a taxpayer’s account; for example, taxpayer correspondence.

STATUS CODEA two-digit numeric code indicating the Master File and/or IDRS status of a tax module.

STATUTE OF LIMITATIONSA set of rules specifying the period in which actions may occur, or within which rights may be enforced.

SUBSEQUENT PAYMENTA payment received for an account that has been assessed and for which the taxpayer has been billed.

SUBSTANTIAL AUTHORITYThe objective determination that a position taken by a taxpayer is supportable.

SUBSTITUTE FOR RETURN (SFR)A return prepared on behalf of a taxpayer by the IRS pursuant to IRC 6020(b). The return is prepared when it has been determined that a taxpayer is liable for filing the tax return but has failed to do so upon due notice from the IRS.

SUPERSEDING RETURNAn amended return filed on or before the return due date. It is filed on an original return form, not an amended return form.

TAX CLASSA one-digit code which identifies the type of tax involved in a transaction.

TAX MODULEA record of one account for one taxpayer covering one type of tax for one tax period.

TAX PERIODThe period of time for which a return is filed.

TAXPAYER ADVOCATE SERVICE (TAS)An independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

TAXPAYER DELINQUENT ACCOUNT (TDA)An internal computer notice indicating the taxpayer has not responded to prior balance due notices or paid a balance due.

TAXPAYER IDENTIFYING NUMBER (TIN)A nine-digit number assigned to taxpayers for identification purposes. Depending on the nature of the taxpayer, the TIN is either an employer identification Number (EIN), a social security number (SSN), an adoption taxpayer identification number (ATIN), or an individual TIN (ITIN).

TAXPAYER INFORMATION FILE (TIF)The IDRS file which contains entity and module information.

TIMELY FILEDA return or document which was filed by the taxpayer and received by the IRS within specified time frames. A return is timely filed if postmarked by the original or extended due date, IRC 7502. Also see Rev. Rul. 73-133 and IRM 20.1.2.1.1.

TOLERANCEThe allowable deviation from standard in order to facilitate administration of a program. A tolerance can take the form of a dollar amount or a time volumetric allowance.

TRANSACTION CODE (TC)Three-digit code that identifies a specific action on a taxpayer’s account. Document 6209, IRS Processing Codes and Information, Section 8A.2, contains a complete listing of TCs.

UNDERPAYMENTIn general, the amount by which any tax imposed exceeds the tax shown by the taxpayer on the return, plus amounts previously assessed (or collected without assessment) before the return was filed in excess of any rebate.

UNDERSTATEMENTIn general, the excess of the amount of the tax required to be shown on the return over the amount of the tax imposed which is shown on the return (reduced by any rebate). See Treas. Reg. 1.6662–4(b)(2) for additional information.

UNDUE HARDSHIPIn general, an economic condition that is so severe that the taxpayer is, or would be financially debilitated if the tax or deficiency was paid. See IRM 20.1.1.3.3.3Undue Hardship.

VOLUNTARY COMPLIANCETaxpayers who freely obey the tax laws. Compliance is defined in the IRC as:

  1. Filing accurate and complete returns on time,

  2. Paying amounts due, and

  3. Reporting information required.

WAIVERA waiver is a limited form of penalty relief.

WILLFUL NEGLECTConscious, intentional failure to comply with the provisions of the IRC, or reckless indifference to such provisions.

 

 
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business tax debt representation 

We will file a power of attorney with the IRS and State Taxing Authority to negotiate a hold on all enforcement action such as bank and account receivable levies while we work on an appropriate resolution including Installment Agreements, Company Restructuring, Penalty Abatements, Offer in Compromises, and Currently Not Collectible Status.  We will also advise you if bankruptcy is an option. 


irs and state tax debt representation 

We will file a power of attorney with the IRS and State Taxing Authorities to negotiate an appropriate resolution for back tax debt including Installment Agreements, Penalty Abatements, Offer in Compromises, Innocent Spouse Requests, and Currently Not Collectible Status.  We will also advise you if bankruptcy is a option. 
 


new business entity formation 

We will educate you of the pros and cons of organizing an Limited Liability Company versus a Corporation, S-Corp., Limited Partnership, etc. and assist in the formation of the entity of your choosing.   


previous years tax returns

We will prepare your previous years tax returns to bring you back into compliance with the IRS and State. 


business tax return preparation 

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