AccessibilitySkip to Top NavigationSkip to Main ContentHome  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 8. Employee Plans and Exempt Organizations Penalties

20.1.8  Employee Plans and Exempt Organizations Penalties

20.1.8.1  (08-23-2006)
Introduction

  1. This Section covers the penalty provisions of the Internal Revenue Code (IRC) that apply to Employee Plans (EP) and Exempt Organizations (EO).

  2. Decisions on penalty issues are to be guided by the applicable statutes, regulations, and procedural instructions issued by the Service. All employees should keep in mind the objectives in this handbook and the Penalty Policy Statement 20-1 (formerly P–1–18) when handling each penalty case.

  3. Other civil penalties that are common to EP/EO returns are discussed in the following Sections of IRM 20.1:

    1. Introduction and Penalty Relief, IRM 20.1.1

    2. Failure to File and Failure to Pay, IRM 20.1.2

    3. Estimated Tax Penalty, IRM 20.1.3

    4. Failure to Deposit, IRM 20.1.4

    5. Return Related Penalties, IRM 20.1.5

    6. Return Preparer Penalties, IRM 20.1.6

    7. Information Return Penalties, IRM 20.1.7.

20.1.8.1.1  (08-23-2006)
Failure to File and Failure to Pay

  1. When a delinquent income or excise tax return is received from an entity during an examination, the EP/EO employee will determine whether the failure to file and/or failure to pay penalties under IRC section 6651(a)(1) and (2) should be asserted. See IRM 20.1.2, Failure to File/Failure to Pay. The excise tax returns required to be filed in connection with employee plans and exempt organizations are:

    • Form 5330, Return of Excise Taxes Related to Employee Benefit Plans

    • Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC.

  2. The income tax returns required of certain exempt organizations and trusts are:

    • Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation

    • Form 990-T, Exempt Organization Business Income Tax Return

    • Form 720, Quarterly Federal Excise Tax Return

    • Form 1041, U.S. Income Tax Return for Estates and Trusts

    • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.

  3. There is no statutory prohibition against asserting the fraud penalty under section 6663 and the fraudulent failure to file penalty under section 6651(f) for the same year. Both penalties, however, should be asserted only in the most egregious cases. The court is not likely to sustain the assertion of both penalties unless compelling facts support the Service's position. Area Counsel should be consulted before asserting both of these penalties on the same return. For more information regarding restrictions on the assertion of the civil fraud penalty with respect to the failure to file and fraudulent failure to file, see IRM 20.1.2.

20.1.8.1.2  (08-23-2006)
IRC section 6662(f)—Accuracy-Related Penalty—Substantial Understatement of Pension Liabilities

  1. IRC section 6662(a) imposes a penalty on a taxpayer equal to 20 percent of any underpayment to which the section applies. Under IRC section 6662(b)(4) and (f), this section applies to underpayments attributable to deductions for employer contributions to a defined benefit plan or retirement annuity plan where such deductions are based on a substantial overstatement of liabilities under the plan.

20.1.8.1.2.1  (08-23-2006)
Penalty Assertion

  1. In general there is an overstatement of pension liabilities if the actuarial determination of pension liabilities taken into account for deduction purposes, under IRC section 404(a)(1) or (2), exceeds the amount determined to be the correct amount of such liability. Examples of when an overstatement of pension liabilities may occur:

    1. When the valuation of such liabilities is based on unreasonable actuarial assumptions or methods that accelerate deductions either in a manner that is inconsistent with the regulations under IRC section 412, relating to acceptable funding methods, or by taking into account benefits in excess of those permitted under IRC section 415.

    2. When the Service has determined that deductions are to be disallowed because liabilities are overstated for other reasons based on the facts and circumstances.

  2. A substantial overstatement occurs when the actuarial determination of the liabilities taken into account for purposes of computing the deduction under IRC section 404(a)(1) or (2) is 200 percent or more of the amount determined to be the correct amount.

  3. Due Date. The accuracy-related penalty applies to an underpayment of tax reported on a return filed regardless of whether the return is timely. The penalty does not apply, however, to a substitute for return filed by the Secretary under IRC section 6020(b).

  4. Penalty Computation. The penalty under IRC section 6662(a) is computed by multiplying the underpayment of tax attributable to the substantial overstatement of pension liabilities by 20 percent. No penalty is imposed unless the portion of the underpayment for the taxable year attributable to the substantial overstatement of pension liabilities exceeds $1,000.

  5. The penalty under IRC section 6662(a) by reason of any substantial overstatement of pension liabilities is identified by the EP specialist.

20.1.8.1.2.2  (08-23-2006)
Penalty Relief

  1. IRC section 6664(c) provides a defense to the penalty with respect to any portion of the underpayment if it is shown that there was a reasonable cause for such portion and the taxpayer acted in good faith with respect to such portion. If the taxpayer can show reasonable cause and good faith, the penalty should not be asserted.

  2. See IRM 20.1.1 for a discussion of penalty relief.

20.1.8.1.3  (08-23-2006)
How to Assess and Abate—EP Procedures

  1. Penalties on Employee Benefit Plan forms are assessed on Non-Master File.

    To assess penalties... The EP specialist must complete...
       
    Associated with income tax forms Form 5734, Non-Master File Assessment Voucher. Form 5734 and the case file (source documents) will be sorted by MFT code and forwarded to the service center Receipt and Control function on Form 3210, Document Transmittal.
       
    NOT associated with an income tax return Form 8278, Computation and Assessment of Miscellaneous Penalties.

20.1.8.1.4  (08-23-2006)
Section Outline

  1. The following penalties are discussed in IRM 20.1.8.2, Exempt Organizations and Certain Trusts:

    • IRC section 6652(c)

    • IRC section 6684

    • IRC section 6685

    • IRC section 6710

    • IRC section 6711

    • IRC section 6714.

  2. The following penalties are discussed in IRM 20.1.8.3, Employee Plans:

    • IRC section 6652(d)

    • IRC section 6652(e)

    • IRC section 6652(h)

    • IRC section 6652(i)

    • IRC section 6690

    • IRC section 6692

    • IRC section 6693

    • IRC section 6704

20.1.8.2  (08-23-2006)
Exempt Organizations and Certain Trusts

  1. Organizations which are exempt from federal income tax are organized and operated for one or more of the purposes designated in IRC section 501. Examples include the following types of organizations:

    • charitable

    • religious

    • scientific

    • educational

    • social

    • business

  2. Under IRC sections 6033 and 6043(b) most exempt organizations are required to file one of the following:

    1. Form 990, Return of Organization Exempt from Income Tax

    2. Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts & Certain Related Person

    3. Form 990-PF, Return of Private Foundation or IRC section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.

  3. Certain Trusts under IRC section 6034 are required to file Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts.

20.1.8.2.1  (08-23-2006)
Failure to File Certain Information Returns—IRC section 6652(c)

  1. IRC section 6652(c) was added by Public law 91-172 and became effective for taxable years beginning after December 31, 1969.

  2. Public Law 104-168 amended IRC section 6652(c) for tax years ending on or after July 30, 1996.

  3. Public Law 109-222 created new IRC section 4965 and amended IRC sections 6652(c)(3), 6033(a)(2) and 6011(g) effective for taxable years ending after May 17, 2006.

20.1.8.2.1.1  (08-23-2006)
Returns by Exempt Organizations—IRC section 6652(c)(1)

  1. IRC section 6652(c)(1)(A) — Penalty Imposed on the Organization.

    1. IRC section 6033(a)(1) and 6043(b) require exempt organizations to file returns, and IRC section 6034 requires certain trusts to file returns on the date and in the manner prescribed. IRC section 6652(c)(1), (2) and (3) impose a penalty on organizations failing to meet the requirements of IRC section 6033(a)(1), 6034 and 6043(b).

    2. IRC section 6652(c)(1)(A) imposes a penalty on exempt organizations required to file returns under IRC section 6033(a)(1) of $20 for each day, during which a failure to file continues (determined with regard to extensions) or for a failure to include any of the information required to be shown on a return filed under IRC section 6033(a)(1) or to show the correct information. The penalty is not to exceed $10,000 or 5 percent of the gross receipts of the organization for the year, whichever is less.

    3. IRC section 6652(c)(1)(A) imposes a penalty on an organization having gross receipts exceeding $1,000,000 for any year, with respect to the return required under IRC section 6033(a)(1) for such year, of $100 per day with the maximum penalty of $50,000 per return.

  2. IRC section 6652(c)(1)(B) — Penalty Imposed on the Manager or Person Failing to Comply.

    1. IRC section 6652(c)(1)(B) requires organization manager(s) to file returns required under IRC section 6033 after the Secretary has made demand for filing under that provision.

    2. A penalty of $10 is charged for each day after the expiration of the time specified in the written demand during which such failure continues.

    3. The maximum penalty imposed under this section on all persons for failure to file any one return is limited to $5,000.

  3. IRC section 6652(c)(1)(C) & (D) — Public Disclosure Requirements of Tax Exempt Organizations.

    1. IRC section 6104(d) provides the public disclosure requirements for tax-exempt organizations described in IRC section 501(c) or (d) and private foundations. On April 9, 1999, the Service issued regulations under IRC section 6104(d) (Regulations 301.6104(d)-3, -4 and -5) applicable to tax-exempt organizations, other than private foundations. On January 13, 2000, the Service amended these regulations to make them applicable to private foundations. IRC section 6104(d), as amended, became effective for tax-exempt organizations, other than private foundations, on June 8, 1999, and for private foundations on March 13, 2000.

    2. IRC section 6104(d)(3) describes the types of information not required to be disclosed under IRC section 6104(d).

    3. In addition to the requirement that an organization make a copy of the annual return and application for recognition of tax exempt status available for inspection, an organization, except as provided in IRC section 6104(d)(4), must provide a copy of its annual return and application, if requested.

    4. IRC section 6104(d)(4) provides that there are limitations on the requirement to provide copies of returns or an application to a requester. An organization is not required to fulfill a request for a copy if: (1) the organization makes its return and application widely available as defined in Regulation 301.6104(d)-4 or, (2) the organization can meet the criteria outlined in Regulation 301.6104(d)-5 and establish that the request for copies is part of a harassment campaign.

    5. IRC section 6652(c)(1)(C) imposes a penalty of $20 a day on the person (as defined in IRC section 6652(c)(4)(C)) who fails to either make the return available for inspection or to provide a copy of the annual return. The maximum penalty on all "persons" is $10,000 with respect to one annual return.

    6. IRC section 6652(c)(1)(D) imposes a penalty of $20 a day on the person (as defined in IRC section 6652(c)(4)(C)) who fails to either make the application available for inspection or to provide a copy of the application. The Code does not set a maximum limit on the penalty.

  4. IRC section 6652(c)(1)(D) — Public Inspection of Applications.

    1. As noted above, Public Law 105-277 made the public disclosure requirements applicable to private foundations consistent with the requirements applicable to other tax exempt organizations. The Service issued regulations under IRC section 6104(d), applicable to private foundations. However, for private foundation returns due before March 13, 2000, taking into consideration any extension for filing, the public inspection requirements of IRC section 6104(d) prior to the amendment apply to those returns.

    2. Prior to its amendment, IRC section 6104(d) required that foundation managers make the annual return available for inspection within 180 days after publication of a notice of its availability.

  5. Prior to asserting penalties for failure to allow public inspection of returns and applications required under IRC section 6104, the Service should receive, in writing, the name of the person(s) who is under a duty to provide the return or application as well as the date of the failure and a description of the facts of the failure.

20.1.8.2.1.2  (08-23-2006)
Trusts and Exempt Organizations—IRC section 6652(c)(2)

  1. IRC section 6652(c)(2)(A) — Penalty on the Organization or Trust.

    1. IRC section 6652(c)(2)(A) provides for a daily delinquency penalty to be asserted on the exempt organization or trust that fails to file a return required under IRC section 6034 (trusts) or IRC section 6043(b) (terminations, etc., of exempt organizations) on the date and in the manner prescribed.

    2. The daily delinquency penalty for any one return for this section shall not exceed $10 per day for each day the failure continues, with a maximum penalty of $5,000 per return.

  2. IRC section 6652(c)(2)(B) — Penalty on Managers.

    1. IRC section 6652(c)(2)(B) provides for a daily delinquency penalty to be asserted on the person that fails to comply with the demand that a return required under IRC section 6034 or 6043(b) be filed or information be furnished by a reasonable future date (90 days after the mailing date of the demand).

    2. The daily delinquency penalty for any one return for this section shall not exceed $10 per day for each day the failure continues, with a maximum penalty of $5,000 on all persons for the failure to file any one return.

20.1.8.2.1.3  (08-23-2006)
Disclosure Under IRC Section 6033(a)(2)—IRC section 6652(c)(3)

  1. IRC section 6652(c)(3)(A) — Penalty on Entities.

    1. IRC section 6652(c)(3)(A) provides for a penalty for each failure by a tax-exempt entity identified under IRC section 4965(c) (whether it is a Plan Entity or a Non-Plan Entity) to file a disclosure required under IRC section 6033(a)(2) with respect to such entity's involvement in any prohibited tax shelter transaction.

    2. The penalty is $100 for each day the failure continues, not to exceed $50,000 with respect to any one disclosure.

  2. IRC section 6652(c)(3)(B) — Written Demand.

    1. IRC section 6652(c)(3)(B) authorize the Secretary to make a written demand on any entity or manager subject to the penalty for nondisclosure under IRC section 6033(a)(2), specifying a reasonable future date by which the required disclosure must be filed.

    2. Failure to comply with the Secretary's demand is subject to an additional penalty in the amount of $100 for each day after the expiration of the time specified in the demand during which such failure continues, not to exceed $10,000 with respect to any one disclosure.

  3. The penalty is imposed on the tax-exempt entity of Non-Plan Entities and on the entity manager of Plan Entities for failure to file a disclosure and for failure to comply with the Secretary's demand for disclosure. Non-Plan Entities and Plan Entities are identified under IRC section 4965(c).

20.1.8.2.1.4  (08-23-2006)
Penalty Assertion

  1. Penalties for late filing of required returns are usually asserted at Service Campuses when returns are processed.

  2. Penalties may be asserted by examining officers for delinquent returns secured by them, or for failures described above.

    1. IRC section 6652(c)(1)(A) and (c)(2)(A) penalties should be assessed using Master File procedures.

    2. All other IRC section 6652(c) penalties discussed in this Section should be assessed using Non-Master File procedures.

20.1.8.2.1.5  (08-23-2006)
Penalty Computation

  1. "Person" refers to any officer, director, trustee, employee or other individual under a duty to perform the act which is the cause of the violation. This definition applies only to penalties imposed under IRC section 6652. IRC section 7701(a)(1) defines " person" for the purpose of other penalties.

  2. There is joint and several liability for these penalties whenever more than one person is liable.

20.1.8.2.1.6  (08-23-2006)
Penalty Relief

  1. No penalties should be asserted under IRC section 6652 if any failure is due to reasonable cause. Recent examination of criteria previously identified as reasonable cause was clarified. Penalty relief falls into four separate categories. They are:

    • Reasonable Cause

    • Statutory Exceptions

    • Administrative Waivers, and

    • Correction of Service Error.

  2. See IRM 20.1.8.1.3 for assessment procedures and IRM 20.1.1.4 for post-assessment appeal procedures.

  3. See IRM 20.1.1 and Exhibit 20.1.8–3 for a discussion of penalty relief.

20.1.8.2.2  (08-23-2006)
Assessable Penalties with Respect to Liability for Tax Under Chapter 42—IRC section 6684

  1. IRC section 6684 was added to the Code by Public Law 91-172 and affects private foundation managers after December 31, 1968.

  2. Public Law 100-203, effective after December 22, 1987, IRC section 6684, makes the provisions also applicable to managers of "other tax-exempt organizations."

20.1.8.2.2.1  (08-23-2006)
Penalty Assertion

  1. IRC section 6684 provides that a penalty may be asserted on any person, as defined by IRC section 7701(a)(1), liable for tax under Chapter 42, Private Foundations and Certain Other Tax Exempt Organizations (except IRC section 4940, Excise Tax Based on Investment Income, or IRC section 4948(a), Application of Taxes and Denial of Exemption with Respect to Certain Foreign Organizations) when they acted improperly or failed to act if:

    1. that person was previously liable for private foundation tax, or

    2. the act or failure to act is both willful and flagrant.

  2. The term "willful and flagrant" is defined in IRC section 507(a)(2)(A) as:

    1. Willful repeated acts (or failures to act), or

    2. Willful and flagrant acts (or failures to act).

  3. The penalty is assessed using Non-Master File (NMF) procedures. See IRM 20.1.8.1.3 for assessment procedures and IRM 20.1.1. 4 for post-assessment appeal procedures.

20.1.8.2.2.2  (08-23-2006)
Penalty Computation

  1. The penalty is equal to the amount of the excise tax for which it is determined the person is liable.

20.1.8.2.2.3  (08-23-2006)
Penalty Relief

  1. The penalty does not apply if reasonable cause for the act or failure to act can be affirmatively shown by the person upon whom the penalty is imposed.

  2. See IRM 20.1.1 and Exhibit 20.1.8–3 for a discussion of penalty relief.

20.1.8.2.3  (08-23-2006)
Assessable Penalty With Respect to Public Inspection Requirements For Certain Tax Exempt Organizations—IRC section 6685

  1. IRC section 6685 was added to the Code by Public Law 91-172 and became effective for taxable years beginning after December 31, 1969. IRC section 6685 was amended by Public Law 100-203, for years beginning after December 31, 1986. For a tax-exempt organization, other than a private foundation, the increase of the penalty to $5,000 became effective June 8, 1999. For private foundations, the increase of the penalty to $5,000 became effective May 12, 2000. This penalty applies to any officer, director, trustee, employee, or other individual who is under a duty to, and willfully fails to, comply with the public disclosure requirement of IRC section 6104(d). This amendment extended the penalty to managers of all tax-exempt organizations and for:

    1. Applications for exemption submitted to the Service after July 15, 1987, and

    2. Copies of applications for exemption on hand which were submitted prior to July 15, 1987.

  2. This penalty will be assessed using Non-Master File procedures. The EO specialist will prepare a Form 5734 and a Penalty Case File. See IRM 20.1.8.1.3.

  3. The civil penalty in IRC section 6685 is in addition to the criminal penalty imposed by IRC section 7207 (relating to Fraudulent Returns, Statements, or other Documents).

20.1.8.2.3.1  (08-23-2006)
Penalty Assertion

  1. IRC section 6685 provides that the penalty is asserted for the willful failure to comply with the public disclosure requirements of IRC section 6104(d).

  2. Before asserting penalties for failure to comply with the public disclosure requirements of IRC section 6104(d), the Service should obtain a statement from an individual denied inspection, or a copy of an application for recognition of exemption or an annual information return. The statement should describe the request, including the date the request was made and the reason for the individual's belief that the denial was in violation of the legal requirements. The Service should also obtain a response from the person required to disclose its application and annual information returns.

  3. For this IRC section, a person is defined as any officer, director, trustee, employee, member, or other individual whose duty it is to perform the act.

  4. See IRM 20.1.8.1.3 for assessment procedures and IRM 20.1.1.4 for post-assessment appeal procedures.

20.1.8.2.3.2  (08-23-2006)
Penalty Computation

  1. IRC section 6685 imposes a penalty of $5,000 with respect to each willful failure to disclose an application or return as required by IRC section 6104(d).

  2. For a person who is under a duty to comply with the IRC section 6104(d) disclosure requirements applicable to private foundations, IRC section 6685 imposes a penalty of $1,000 with respect to each willful failure to disclose an application or return as required by IRC section 6104(d). The penalty increased to $5,000 for private foundations effective May 12, 2000.

20.1.8.2.3.3  (08-23-2006)
Penalty Relief

  1. The penalty may not be waived for reasonable cause.

20.1.8.2.4  (08-23-2006)
Failure to Disclose that Contributions are Nondeductible—IRC section 6710

  1. IRC section 6710 was added by Public Law 100-203 and is effective for solicitations made after January 31, 1988.

  2. IRC section 6710 imposes a penalty on an organization that fails to disclose that contributions or gifts made to this organization (or on behalf of this organization) are not deductible as charitable contributions for federal income tax purposes (IRC section 6113).

20.1.8.2.4.1  (08-23-2006)
Penalty Assertion

  1. Each solicitation must disclose (in a conspicuous and easily recognized format) that contributions or gifts made to this organization are not deductible as charitable contributions for federal income tax purposes.

  2. Generally, the penalty applies to organizations which are not described in IRC section 170(c) but are described in IRC section 501(c) and are tax exempt under IRC section 501(a).

  3. The penalty also applies to a political organization (as defined in section 527(e)).

  4. When asserting the penalty use NMF procedures in IRM 20.1.8.1.3.

  5. See IRM 20.1.8.1.3 for assessment procedures and IRM 20.1.1.4 for post-assessment appeal procedures.

20.1.8.2.4.2  (08-23-2006)
Penalty Computation

  1. IRC section 6710(a) provides for a penalty of $1,000 per day each day the failure occurred up to a maximum of $10,000 during any calendar year.

  2. IRC section 6710(c) provides an exception to the maximum annual penalty of $10,000. When it is shown that the failure was due to intentional disregard, the penalty shall be the greater of:

    1. $1,000 per day or

    2. 50 percent of the daily combined cost of all the solicitations where a failure to disclose occurred,
      and the penalty shall not be taken into account in applying such limitations to other penalties under IRC section 6710(a).

  3. Consider the following when determining the day a failure to meet the requirement occurred.

    If the solicitation was... Then the failure occurs when the solicitation is...
         
    By television or radio televised or broadcast.
    By mail mailed.
    Not by mail but in written or printed form distributed.
    By telephone made.

20.1.8.2.4.3  (08-23-2006)
Penalty Relief

  1. IRC section 6710(b) provides that no penalty shall be imposed if the failure under IRC section 6710(a) was due to reasonable cause.

  2. IRC section 6710(c) does not provide a reasonable cause exception for the Intentional Disregard penalty.

  3. See IRM 20.1.1 and Exhibit 20.1.8–3 for a discussion of penalty relief.

20.1.8.2.5  (08-23-2006)
Failure to Disclose Availability of Information or Service from Federal Government—IRC section 6711

  1. IRC section 6711 was added by Public Law 100-203 and is effective for offers and solicitations made after January 31, 1988.

20.1.8.2.5.1  (08-23-2006)
Penalty Assertion

  1. IRC section 6711 provides that when a tax-exempt organization offers to sell (or solicits money for) specific information or offers to provide routine service for any individual that could be readily obtained by such individual free of charge (or for a nominal charge) from an agency of the Federal Government, the tax-exempt organization must, when making such offer or solicitation make "an express statement " that the information can be obtained from the Federal Government.

  2. This requirement applies only if the information to be provided involves the specific individual solicited. For example, the requirement applies with respect to obtaining the social security earnings record or the social security identification number of an individual solicited.

  3. Material and/or services available from the Federal Government for less than $2.50, including postage and handling costs, meet the nominal charge requirement.

  4. The failure to make such express statement is due to the intentional disregard of this requirement.

  5. This penalty is assessed using NMF procedures in IRM 20.1.8.1.3.

  6. See IRM 20.1.1.4 for post-assessment appeal procedures.

20.1.8.2.5.2  (08-23-2006)
Penalty Computations

  1. For each day a failure occurred, the penalty shall be the greater of:

    1. $1,000 per day or

    2. 50 percent of the daily combined cost for all the offers and solicitations where a failure to disclose occurred.

  2. Consider the following when determining the day a failure to meet the requirement occurred.

    If the solicitation was... Then the failure occurs when the solicitation is...
         
    By television or radio televised or broadcast.
    By mail mailed.  
    Not by mail but in written or printed form distributed.  
    By telephone made.  
         

20.1.8.2.5.3  (08-23-2006)
Penalty Relief

  1. The penalty may not be waived for reasonable cause.

20.1.8.2.6  (08-23-2006)
Failure to Meet Certain Disclosure Requirements—IRC section 6714

  1. IRC section 6714 was added by Public Law 103-66 and is effective for quid pro quo contributions made after December 31, 1993.

  2. IRC section 6714 provides for a penalty to be asserted against organizations that did not disclose quid pro quo contributions in excess of $75 as required under IRC section 6115(a).

20.1.8.2.6.1  (08-23-2006)
Penalty Assertion

  1. IRC section 6115(b) defines "quid pro quo contribution" as a payment:

    1. Made partly as a contribution and partly in consideration for goods or services provided to the payor (donor) by the donee organization; and

    2. Not made to a religious organization, in return for which the taxpayer received only an intangible religious benefit that generally would not be sold in a commercial transaction.

  2. IRC section 6115 provides that organizations described in IRC section 170(c) (except governmental instrumentalities described in IRC section 170(c)(1)) are required to provide a written statement to each donor in connection with the solicitation or receipt of the contribution.

    1. That statement must provide the donor with a good faith estimate of the amount of the contribution that is deductible for Federal income tax purposes.

    2. The amount of the deductible contribution is limited to the excess of any money (and the value of any property other than money) contributed by the donor, that exceeds the value of the goods or services received.

  3. The penalty is assessed using NMF procedures in IRM 20.1.8.1.3.

  4. See IRM 20.1.1.4 for post-assessment appeal procedures.

20.1.8.2.6.2  (08-23-2006)
Penalty Computation

  1. IRC section 6714 provides for a penalty of $10 per failure to provide the required written statement to the payor (donor). The maximum penalty per fund raising event or mailing shall not exceed $5,000.

20.1.8.2.6.3  (08-23-2006)
Penalty Relief

  1. The penalty does not apply if the organization can establish that the failure to provide the written statement was due to reasonable cause.

  2. When asserting the penalty use NMF procedures in IRM 20.1.8.1.3.

  3. See IRM 20.1.1 and Exhibit 20.1.8–3 for a discussion of penalty relief.

20.1.8.3  (08-23-2006)
Employee Plans

  1. In general, TE/GE penalties involve plans which are subject to the Employee Retirement Income Security Act of 1974 (ERISA) which defer the receipt of compensation. The TE/GE penalties which are frequently encountered are discussed in this section.

20.1.8.3.1  (08-23-2006)
Penalty Relief

  1. The criteria for establishing"reasonable cause" as a justification for penalty relief have been clarified in a recent review. See IRM 20.1.1 for a discussion of all forms of penalty relief. Penalty relief falls into four separate categories. They are:

    • Reasonable Cause

    • Statutory Exceptions

    • Administrative Waivers, and

    • Correction of Service Error.

  2. IRM 20.1.1.3.2.4.3 discusses reliance on the advice of a tax advisor which is limited to issues generally considered technical or complicated.

  3. United States v. Boyle, 469 U.S. 241 (1985), states that the responsibility to file, pay or deposit taxes cannot be excused by reliance on the advice of a tax advisor. It requires no special training or effort on a taxpayer's part to ascertain a deadline and ensure that it is met.


More Internal Revenue Manual