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Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 10. Excise Tax Penalties and Miscellaneous Penalties (Cont. 1)

20.1.10  Excise Tax Penalties and Miscellaneous Penalties (Cont. 1)

20.1.10.10 
IRC section 6705 Failure by broker to provide notice to payers

20.1.10.10.2  (01-01-2006)
Penalty Computation

  1. The penalty is computed at $500 per failure by the broker to provide the notice to the payor.

20.1.10.10.3  (01-01-2006)
Assertion / Assessment

  1. The penalty is assessed using PRN 632.

20.1.10.10.4  (01-01-2006)
Penalty Relief

  1. Reasonable cause does not apply. See Exhibit 20.1.10-1..

20.1.10.11  (01-01-2006)
IRC section 6706 Original Issue Discount Information Requirements

  1. IRC section 6706(a), Failure to show information on debt instrument, provides for a penalty of $50 for the failure to show information on a debt instrument.

  2. In the case of any debt instrument having original issue discount (OID), the following information must be shown on the debt instrument,

    1. Amount of the original issue discount, and

    2. The issue date.

  3. Statutory notice of deficiency procedures do not apply to this penalty.

20.1.10.11.1  (01-01-2006)
Who Asserts / Assesses

  1. This penalty is asserted by Compliance.

20.1.10.11.2  (01-01-2006)
Penalty Computation

  1. In the case of any debt instrument having original issue discount that does not contain the required information, a penalty of $50 per failure to show information on a debt instrument will be assessed.

20.1.10.11.2.1  (01-01-2006)
Assertion / Assessment

  1. The penalty is assessed using a civil penalty reference number.

20.1.10.11.2.2  (01-01-2006)
Penalty Relief

  1. Reasonable cause does apply. See IRM 20.1.1.3.

20.1.10.11.3  (01-01-2006)
IRC Section 6706(b) Failure To Furnish Information To Secretary

  1. ) IRC section 6706(b) Failure to furnish information to Secretary, provides for any issuer who fails to furnish Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments, required under IRC section 1275(c)(2) by the prescribed due date (determined with regard to any extension of time for filing.)

  2. An issuer of a publicly offered debt instrument (obligation) having Original Issue Discount (OID), such as a bond, debenture, or note, must file Form 8281.

  3. Form 8281 must be filed within 30 days of the date of issuance of an OID instrument.

  4. A separate Form 8281 must be filed for each issue.

  5. Statutory notice of deficiency procedures do not apply to this penalty.

20.1.10.11.3.1  (01-01-2006)
Who Asserts / Assesses

  1. The Multi-Functional Compliance Team (MFCT) in Detroit Data Center (DDC) has primary responsibility for this program.

20.1.10.11.3.2  (01-01-2006)
Penalty Computation

  1. A penalty of 1% of the aggregate issue price of a publicly offered original issue discount (OID) instrument, for the failure to notify the Service within the time specified will be assessed.

  2. This penalty is not to exceed $50,000.

20.1.10.11.3.3  (01-01-2006)
Assertion / Assessment

  1. The penalty is assessed using civil penalty reference number (PRN) 678.

20.1.10.11.3.4  (01-01-2006)
Penalty Relief

  1. Reasonable cause does apply. See IRM 20.1.1.3 .

20.1.10.12  (01-01-2006)
IRC Section 6707 Failure To Furnish Information Regarding Tax Shelters

  1. See IRM 20.1.6 .

20.1.10.13  (01-01-2006)
IRC Section 6708 Failure To Maintain Lists Of Investors In Potentially Abusive Tax Shelters

  1. See IRM 20.1.6 .

20.1.10.14  (01-01-2006)
IRC section 6709(c) Reports

  1. IRC section 6709(c) provides for a penalty of $200 for failure to file a report with respect to any mortgage credit certificates required by IRC section 25(g) , Reporting requirements.

  2. Any person (lender) who makes a loan that is a certified indebtedness amount on any Mortgage Credit Certificate (MCC) must provide IRS with information regarding the issuance of MCCs under IRC section 25 , Interest on certain home mortgages.

  3. Form 8329, Lender's Information Return for Mortgage Credit Certificates (MCC), is due by January 31 following the close of the calendar year in which the lender made certified indebtedness loans.

  4. Each issuer (states and political subdivisions) of MCCs are to provide IRS with information required by IRC section 25 and Treas. Reg. 1.25–8T(b).

  5. Form 8330, Issuer's Quarterly Information Return for Mortgage Credit Certificates (MCC), must be filed on a quarterly basis beginning with the quarter in which the election was made.

20.1.10.14.1  (01-01-2006)
Who Asserts / Assesses

  1. This penalty is asserted by Compliance.

20.1.10.14.2  (01-01-2006)
Penalty Computation

  1. Reserved.

20.1.10.14.3  (01-01-2006)
Assertion / Assessment

  1. The penalty is assessed using a civil penalty reference number.

20.1.10.14.4  (01-01-2006)
Penalty Relief

  1. Reasonable cause does apply. See IRM 20.1.1.3 .

20.1.10.15  (01-01-2006)
IRC section 6715 Dyed fuel sold for use or used in taxable use, etc.

  1. An excise tax is imposed on fuels used in transportation. The tax on diesel fuel and kerosene is collected at the producer (refinery) level rather than retail level (since the Tax Reform Act of 1986), IRC section 4081 . For example, the tax may be collected upon removal at a terminal rack, non-bulk entries into the United States, or removals or sales by blenders.

  2. Tax is not imposed if:

    1. the Secretary determines that the fuel is destined for a nontaxable use,

    2. the fuel is indelibly dyed in accordance with regulations prescribed by the Secretary, and

    3. the fuel meets marking requirements prescribed by the Secretary under IRC 4082 .

    Note:

    A nontaxable use is defined in IRC section 4082(b) which includes any use that is exempt from the tax imposed by IRC section 4041(a)(1) other than by reason of a prior imposition of tax (e.g., nonhighway business use (construction equipment), farming.)

  3. IRC section 6715 imposes an assessable penalty on the four types of misuse of dyed fuel as described below.

  4. "Dyed fuel" means any dyed diesel fuel or kerosene, whether or not the fuel was dyed pursuant to IRC 4082 . The penalty was enacted in OBRA '93 (effective 1/1/1994.) The Fuel Inspection Program is a direct outgrowth of the penalty that was needed to deal with presence of dyed fuel in the marketplace.

    1. Prior to January 1, 2005, see LEM 20.1.10

    2. After December 31, 2004, see IRC section 6717 , See IRM 20.1.10.17.2.

20.1.10.15.1  (01-01-2006)
Misuse

  1. Penalties are assessed for misuse.

20.1.10.15.1.1  (01-01-2006)
Improper Sale of Dyed Fuel

  1. The penalty is imposed if any dyed fuel is sold or held for sale by any person for any use that such person knows or has reason to know is not a nontaxable use of such fuel.

  2. "Nontaxable use" has the meaning given to the term by IRC section 4082(b) , Nontaxable use.

20.1.10.15.1.2  (01-01-2006)
Improper Use of Dyed Fuel

  1. The penalty is imposed if any dyed fuel is held for use or used by any person for a use other than a nontaxable use and such person knew, or had reason to know, that such fuel was so dyed.

20.1.10.15.1.3  (01-01-2006)
Willful Alteration of Dye Concentration

  1. The penalty is imposed if any person willfully alters, or attempts to alter, the strength or composition of any dye or marking done pursuant to IRC section 4082 in any dyed fuel.

    Note:

    As amended by the American Jobs Creation Act, the penalty is imposed for alterations or attempted alterations through chemical or other means. Effective for penalties assessed after 10/22/2004.

  2. This penalty does not apply in the following cases:

    1. Diesel fuel that is dyed pursuant to the regulations under IRC section 4082 is blended with any undyed liquid and the resulting product satisfies the dyeing requirements of the regulations under IRC section 4082 .

    2. Diesel fuel that is dyed pursuant to the regulations under IRC section 4082 is blended with any other liquid (other than diesel fuel) that contains the type and amount of dye required for diesel fuel dyed in accordance with the regulations under IRC section 4082 .

    3. Diesel fuel that is not dyed pursuant to the regulations under IRC section 4082 is blended with diesel fuel that is dyed pursuant to IRC section 4082 and the blending occurs as part of nontaxable use.

20.1.10.15.1.4  (01-01-2006)
Knowledge of alterations or attempted alterations

  1. The penalty is imposed if any person who has knowledge that a dyed fuel, which has been altered (as described in 20.1.10.15.1.3), sells or holds for sale such fuel for any use that the person knows or has reason to know is not a nontaxable use of such fuel.

20.1.10.15.2  (01-01-2006)
Who Asserts / Assesses

  1. This penalty is assessed as a civil penalty.

20.1.10.15.3  (01-01-2006)
Penalty Computation

  1. For the first violation, the amount of the penalty on each act is the greater of—

    1. $1,000, or

    2. $10 for each gallon of the dyed fuel involved.

  2. For additional violations, the amount in (1)(a) is determined by multiplying $1,000 times the number of prior penalties imposed by IRC 6715 on such person (or a related person or any predecessor of such person or related person).

    1. For example, if 50 gallons of dyed fuel is involved in a person’s first violation, the penalty would be $1,000 because that amount is greater than 50 X $10. If 150 gallons of dyed fuel is involved in that person’s second violation, the penalty would be $2,000 because that amount ($1,000 X 2 violations) is greater than 150 X $10.

20.1.10.15.4  (01-01-2006)
Assertion / Assessment

  1. The penalty is assessed using PRN 656 on forms requiring a civil penalty reference number.

  2. Notices issued after July 1, 2005, include AJCA section 855 and 856 provisions.

20.1.10.15.5  (01-01-2006)
Penalty Relief

  1. This is no reasonable cause exception to this penalty.

  2. In Revenue Procedure 2001–33, Internal Revenue Bulletin 2001–23 , 1322, the IRS provided guidance on how taxpayers should request an administrative appeal of this penalty. Basically, the IRS notifies the taxpayer in writing that it intends to impose the IRC section 6715 penalty. Within 30 days from the date of the notification, a taxpayer can contest the penalty by completing Form 12009, Request for an Informal Conference and Appeals Review. If, after the conference, the IRS still proposes to assert the penalty and the taxpayer still disagree with the penalty imposition, the taxpayer can request an Appeals review of the case.

    Note:

    American Jobs Creation Act, effective for penalties assessed after 10/22/2004, applies certain remedies for repeat offenders of the dyed fuel rules. Specifically, any person who is found to be subject to the IRC section 6715 penalty at least twice after 10/22/2004 will be denied the right to an administrative appeal unless claim asserts fraud or mistakes in the chemical analysis or in the mathematical calculation in the amount of the penalty, ) IRC section 6715(e) .

20.1.10.15.6  (01-01-2006)
Joint and Several Liability

  1. If the penalty is imposed on any business entity, each officer, employee, or agent of such entity, who willfully participated in any act giving rise to such penalty is jointly and severally liable with such entity for such penalty, IRC section 6715(d) .

20.1.10.16  (01-01-2006)
IRC Section 6715A Tampering with or failing to maintain security requirements for mechanical dye injection systems

  1. IRC Section 6715A provides for a penalty for tampering with or failing to maintain security requirements for mechanical dye injection systems. It was enacted in section 854 of the American Jobs Creation Act IRS regulations pre- section 6715A did not require that mechanical injection be used although fuel is usually dyed mechanically at a terminal rack. Manual dyeing is inherently difficult to monitor and does not automatically create a reliable record

  2. The penalty will be effective 180 days after the date Regulations are issued.

20.1.10.16.1  (01-01-2006)
Penalty Computation

  1. For tampering, the penalty is the GREATER of:

    1. $25,000 per act, or

    2. $10 per gallon of fuel involved.

  2. For failure to maintain security standards, the penalty is:

    1. $1,000, and

    2. $1,000 for each day that the violation is not corrected.

20.1.10.16.2  (01-01-2006)
Assertion / Assessment

  1. Reserved.

20.1.10.16.3  (01-01-2006)
Penalty Relief

  1. Reserved.

20.1.10.16.4  (01-01-2006)
Joint and Several Liability

  1. If the penalty is imposed on any business entity, each officer, employee, or agent of such entity, who willfully participated in any act giving rise to such penalty is jointly and severally liable with such entity for such penalty, IRC section 6715A(c)(1) .

  2. If a business entity described in paragraph (1) above, is part of an affiliated group (as defined in IRC section 1504(a) ), the parent corporation of such entity shall be jointly and severally liable with such entity for the penalty imposed under this section, IRC section 6715A(c)(2) .

20.1.10.17  (01-01-2006)
Fuel Tax Enforcement

  1. To aid in the enforcement of the fuel tax, the Internal Revenue Code provides penalties for refusing to allow entry to premises, failing to register (e.g., by terminal operators and vessel operators), failing to display a registration, and failing to file reports with the IRS.

20.1.10.17.1  (01-01-2006)
IRC section 7342 Penalty for refusal to permit entry or examination

  1. See below.

20.1.10.17.1.1  (01-01-2006)
Refusing entry for general examinations

  1. IRC section 7606 provides that the IRS may enter any building or place where any articles subject to tax are made, produced, or kept so far as may be necessary for the purpose of examining the articles.

20.1.10.17.1.2  (01-01-2006)
General Penalty

  1. IRC section 7342 penalizes any owner of a building or place, or person having agency or superintendence, who refuses entry to the IRS.

20.1.10.17.1.2.1  (01-01-2006)
Computation for General Penalty

  1. The penalty is $500 for each refusal.

20.1.10.17.1.3  (01-01-2006)
Refusing entry authorized by IRC section 4083(d)(1)

  1. The IRC IRC section 7342 penalty is increased when the IRS is refused entry for purposes of:

    1. examining the equipment used to determine the amount or composition of such fuel, and the equipment used to store such fuel,

    2. taking and removing samples of such fuel, or

    3. inspecting books and records as authorized by with IRC section 4083(d)(1)

20.1.10.17.1.4  (01-01-2006)
Computation for Penalty with IRC section 4083(d)(1)

  1. For refusing entry (or not permitting an action) authorized by IRC section 4083(d)(1) , the IRC section 7342 penalty is applied by substituting $1,000 for $500 for each refusal.

    Note:

    IRC section 4083(c)(1) was renumbered IRC section 4083(d)(1) by the American Jobs Creation Act effective for removals, entries or sales after 12/31/2004.

20.1.10.17.2  (01-01-2006)
IRC Section 6717, Penalty for Refusal of Entry

  1. IRC Section 6717, enacted by the American Jobs Creation Act, adds an asessable penalty for refusing entry (or not permitting an action) authorized by IRC section 4083(d)(1) . See IRM 20.1.10.17.1.3 regarding IRC section 4083(d)(1) .)

  2. This penalty is effective for penalties imposed after December 31, 2004.

20.1.10.17.2.1  (01-01-2006)
Penalty Computation

  1. One thousand dollars ($1,000) for each refusal (or for not permitting an action) authorized by IRC section 4083(d)(1) .

20.1.10.17.2.2  (01-01-2006)
Assertion / Assessment

  1. This penalty is asserted using PRN 655.

  2. Notices issued after July 1, 2005, include AJCA section 859 provisions

20.1.10.17.2.3  (01-01-2006)
Penalty Relief

  1. Reasonable cause does apply. See IRM 20.1.1.3 .


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