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Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 1. Introduction and Penalty Relief (Cont. 1)

20.1.1  Introduction and Penalty Relief (Cont. 1)

20.1.1.3 
Relief From Penalties

20.1.1.3.4  (02-22-2008)
Requesting Penalty Relief

  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(s) and notification issued to the taxpayer.

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

  3. Each request must be evaluated on its own merit including:

    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 Exception or Administrative Waiver).

  4. 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.

  5. Determine if the taxpayer’s explanation addresses the penalty 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.

  6. 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(s) 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. ( See IRM 20.1.1.3.5.1 for First-Time Abate)

  7. 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 their noncompliant behavior within a reasonable period of time.

  8. 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, i.e., a bankruptcy trustee or an accountant. The records were returned to the taxpayer well in advance of 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.

  9. Consider if the taxpayer could have anticipated the event that caused the non-compliance. See IRM 20.1.1.3.1.2.

20.1.1.3.4.1  (02-22-2008)
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.

  2. If the review of the account indicates that the taxpayer’s request for penalty relief was previously disallowed, review the circumstances of the previous denial:

    If And Then
    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(s) in accordance with See IRM 20.1.1.3.4.2.
    The facts presented in the new information do not meet 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.
    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.

  3. Generally, a Campus Penalty Appeals Coordinator will forward the cases to the Appeals Office ( See IRM 20.1.1.4.1.). Cases transferred to the Appeals Office must include the following documents:

    • The letter requesting an appeal, signed by the taxpayer or an authorized Power of Attorney (POA) (with a valid Form 2848 on file. A Form 8821, or Form 2848 Level H, is not considered an authorized POA).

    • A copy of the previous 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.

    • 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).

    • A cover sheet ( Form 12835) identifying the tax period and the type and amount of each penalty.

    • Form 3210, Document Transmittal.

    Note:

    Ensure the case is being routed to the correct Appeals office as identified by the 3-digit Appeals Office Code. Consult the Campus Case Routing page on the Appeals web site.

  4. 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.)

20.1.1.3.4.2  (02-22-2008)
Taxpayer Entitled to Relief

  1. If the taxpayer provides an explanation that supports their request for penalty relief, waive or abate the applicable penalty(s). If the explanation applies to only a portion of the penalty(s), only that portion of the penalty(s) 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(s) 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(s), use computer condition codes to suppress the automatic assertion of the penalty(s). Functional areas that forward returns to be processed must request that the service center campus prevent the assessment of the penalty(s). This may be done by:

    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 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 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 20.1.1-3.

  6. If relief is warranted for only a portion of the penalty, manually compute and assess or abate the applicable penalty amount. This will prevent automatic assertion of the penalty for the full amount. Follow applicable penalty procedures in IRM 20.1.

20.1.1.3.4.3  (02-22-2008)
Taxpayer Not Entitled to Relief

  1. If the criteria for penalty relief has not been established, determine if additional information would be helpful to evaluate the taxpayer’s request ( See IRM 20.1.1.3.1).

  2. If a final determination that the criteria for granting penalty relief was not established:

    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.

  3. 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 taxpayer’s appeal rights, regardless of whether the request was received:

    1. In person,

    2. Over the phone, or

    3. In writing.

  4. The notice should include:

    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.

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

    • IDRS Correspondex Letter 0854C, which is generally used by Campuses and Area Offices. If the Reasonable Cause Assistant (RCA) is used ( See IRM 20.1.1.3.5), letters 0852C(BMF) and 0853C(IMF) are generated through RCA and IDRS.

    • ACS LT38, which is used by the Automated Collection System.

    • Pattern letters 2413(P) and 2414(P), which are used by Collection Area Offices.

  6. 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.

  7. 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.

20.1.1.3.5  (02-22-2008)
Reasonable Cause Assistant (RCA)

  1. The Reasonable Cause Assistant (RCA) will be used 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, or researching for missing extensions of time to file, etc.) for the following penalties:

    • IMF Failure to File (FTF) and Failure to Pay (FTP)

    • BMF Failure to Deposit (FTD).

  2. RCA is a decision-support interactive software program developed to reach a reasonable cause determination. RCA is accessed through the Desktop Integration (DI) 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.

20.1.1.3.5.1  (02-22-2008)
First Time Abate (FTA)

  1. RCA provides an option for penalty relief for the FTF, FTP, and/or FTD penalties if the taxpayer has not previously been required to file a return or if no prior penalties (except the Estimated Tax Penalty, TC 17X) have been assessed on the same MFT in the prior 3 years. This First-time Abate (FTA) aspect is an Administrative Waiver and does not carry any Oral Statement Authority (OSA) dollar threshold. See IRM 20.1.1.3.5.3 for additional OSA information. Also, FTA carries its own PRCs, 018 for non-RCA/manual lookback, or 020 for RCA being used to make the determination. See IRM 20.1.1.3.5.2.

  2. The reasonable cause explanation provided by the taxpayer will be considered after RCA performs the First-time Abate/Clean Compliance History analysis. If FTA criteria does not apply based on reasons shown in (3) below, then the taxpayer’s explanation will be used to determine if reasonable cause penalty relief criteria is met. If the RCA determination is to abate the penalty(s), penalty relief can be granted as appropriate per the RCA conclusion (i.e., Reasonable Cause, Official Disaster Relief area, IRS Error, Statutory and Administrative Waivers). Using the First-time Abate/Clean Compliance History analysis up front was based on a request from HQ Customer Accounts Services.

  3. A First Time Abate conclusion WILL NOT apply if any of the following criteria applies:

    1. Any tax period in the prior 3 years, for the same MFT, is in TDI Status 02 or 03, or IMF Status 04

    2. An unreversed penalty for a significant amount (See LEM 20.1.1) is present (except the ES penalty) on any tax period in the prior 3 years, for the same MFT, and a notice was issued showing the assessed penalty(s).

      Note:

      A module balance cleared with a TC 606 indicates a notice showing the assessed penalty(s) was not issued.

    3. Any penalty reversal on any tax period in the prior 3 years, for the same MFT, was input with Penalty Reason Code (PRC) 018, 020, or 021. See Exhibit 20.1.1-3.

    4. The FTD penalty is charged for EFTPS Avoidance. Taxpayers required by law to deposit using EFTPS have received multiple notifications from the Treasury Financial Agent (TFA) and the Electronic Tax Administration (ETA), prior to their required EFTPS start date. Use RCA for normal penalty relief consideration.

    5. A CP 235 was issued in any tax period in the three-year penalty history for the same MFT. A tax period in which a CP 235 was issued is identified with the literal "FTD PEN WAIVER CD" and value of "24" on CC BMFOL definer ‘R’. RCA will consider the issuance of a CP 235 in the automatic check of the three-year penalty history.

    6. A CP 276A or 276B was issued in any tax period in the three-year penalty history for the same MFT. These notices are issued to alert the taxpayer they made one or more late deposits but IRS waived the FTD penalty per LEM 20.1.4.1.5.1 criteria. A tax period in which a CP 276A or 276B was issued is identified with the literal "FTD PEN WAIVER CD" and value of "25" on CC BMFOL definer 'R'. RCA will consider the issuance of a CP 276A or 276B in the three-year penalty history check.

  4. When checking the three-year penalty history, RCA does not recognize any module(s) that have moved to the retention register. This should not be a problem when using RCA on current tax periods; however, when using RCA for an older tax period, the employee must manually review any tax period(s) in the three-year penalty history that has gone to the retention register.

  5. If RCA determines a "First -Time Abate" is applicable, Correspondex letters 3502C for BMF FTD penalty relief, or 3503C for IMF FTF and/or FTP penalty relief can be generated through RCA and IDRS. Both letters contain a paragraph automatically selected by RCA informing the taxpayer that the penalty(s) was removed based on their history of compliance. The following is an example of this paragraph:

    We are pleased to inform you that your request to remove the (use applicable penalty, i.e. Failure to File, Failure to Pay, or Failure to Deposit) penalty(s) has been granted. However, this action has been taken based solely on your compliance history rather than on the information you provided. This type of penalty removal is a one-time consideration available only for a first-time penalty charge. Any future (Failure to File, Failure to Pay, Failure to Deposit) penalties will only be removed based on your providing information that meets reasonable cause criteria. You should receive a notice of penalty adjustment within the next few weeks.

    Note:

    Include an explanation that educates the taxpayer how to be compliant in the future.

  6. First-time abatement may be considered for FTF and/or FTP on all forms. The employee must check the three prior years and document the clean compliance history. If RCA is not used to consider first-time relief and relief is granted, use PRC 018 when making the adjustment. Notify the taxpayer that the penalty removal was based on their history of compliance rather than on the information they provided (see example paragraph above). Also include an explanation that educates the taxpayer about how to be compliant in the future.

    Note:

    If RCA does not offer FTA relief because the FTD penalty was charged for EFTPS Avoidance, FTA relief can still be granted for the FTF and/or FTP penalties, if applicable.

  7. If the tax is not paid in full on the tax period when the request for abatement is received, allow First-time Abate/Clean Compliance History on the Failure to Pay (FTP) penalty amount assessed. Use RC 062 with the TC 271 and PRC 018 or 020. This will allow the FTP penalty to start up when the TC 271 posts to Master File on the remaining tax due. While the First-time abatement is due to an Administrative Waiver, not Reasonable Cause, the RC 062 will not restrict the tax period and is to be used in this instance only. The proper use of the PRC will allow for the tracking of first-time/compliance history abatements.

    Note:

    The employee will need to use the open paragraph in the 3502C or 3503C letter to inform the taxpayer that the FTP penalty will start accruing again on the unpaid taxes and will continue until the tax is paid in full. After the tax is paid in full, the taxpayer may come back in requesting reasonable cause abatement of the additional FTP penalty.

  8. If the tax is fully paid, the First-time Abate/Clean Compliance History adjustment to the FTP (TC 271) may be done using RC 065 (IMF Accounts) with PRC 018 or 020 as the restrictive action won't have a negative affect. Adjustment notices will be sent in both abatement instances.

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

20.1.1.3.5.2  (02-22-2008)
Penalty Reason Codes

  1. When removing a penalty(s) based on First-time Abate criteria, use the following Penalty Reason Codes (PRC’s) in the 4th Reason Code (RC) position on CC ADJ54:

    1. PRC 020 will be used when using RCA and RCA determines FTA relief applies. RC 065 is also required on IMF accounts.

    2. PRC 018 will be used when considering First-time Abate penalty relief where RCA is not available, and for BMF FTF and/or FTP penalties if FTA for the FTD penalty does not apply (since RCA is currently not programmed for BMF FTF and/or FTP penalty consideration).

    3. A First-time abatement is not due to Reasonable Cause, so RC 062 is not used. See the FTP Exception in IRM 20.1.1.3.5.1.

  2. When removing the penalty(s) for a reason other than the First-time Abate, use the appropriate PRC in the 4th position in accordance with the PRC chart ( See Exhibit 20.1.1-3.). If reasonable cause has been established, use RC 062in the 1st, 2nd, or 3rd RC position and the appropriate PRC in the 4th position.

20.1.1.3.5.3  (02-22-2008)
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. Refer to LEM 20.1.1.3.

    Note:

    The Reasonable Cause Assistant (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 is met. The ceiling also applies to BMF FTF and FTP penalties (even though RCA is not programmed to consider these penalties at this time).

20.1.1.3.5.4  (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(s) 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 20.1.1.3.5.5.

    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.

20.1.1.3.5.5  (02-22-2008)
Documentation

  1. Specific circumstances within RCA require the taxpayer to provide documentation to support their 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 20.1.1.3.1.2.

20.1.1.3.5.6  (02-22-2008)
Attaching RCA Determination

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

  2. See LEM 20.1.1.3 for additional information concerning unsigned and oral requests.

20.1.1.3.5.7  (02-22-2008)
Reasonable Cause Penalty Relief Request Prior to Penalty Assessment

  1. Currently, RCA is unable to consider penalty relief on IMF accounts when a TC 150 has not 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 or without a posted TC 150.

  2. While the reasons for accessing RCA under these conditions vary, this functionality is most beneficial for:

    1. BMF CP 207(or 207L ) replies where the taxpayer knows they made one or more deposits late and request reasonable cause penalty relief prior to assessment of the FTD penalty, OR

    2. IMF accounts where the taxpayer is liable for accrued, but unassessed, FTP penalty (generally per IRC section 6651(a)(3)) and the taxpayer requests FTP penalty relief based on reasonable cause.

  3. For CP 207and 207Lreplies (see IRM 20.1.4.11.5), use CC FTDPN to compute the appropriate penalty prior to accessing RCA.

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

    2. If RCA determines reasonable cause criteria has 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 has not been met, follow normal CP 207 assessment procedures and normal penalty relief request denial procedures.

  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 can be accessed for a penalty relief determination in this situation, but RCA only recognizes assessed penalty amounts and may display a message that penalties applicable to RCA are not present.

    1. Although not necessary, a TC 290 for .00 with Priority Code (PC) 5 can be input to allow Master File to post the accrued FTP.

    2. If the RCA determination is to 'abate' the FTP penalty and a TC 290 .00 with PC 5 has not been input, input a TC 270 for .00 with applicable PRC (and RC 062 for reasonable cause, if applicable).


    Note:

    For either IMF or BMF condition referenced here, RCA WILL NOT perform the systemic First-time Abate (FTA) check. See IRM 20.1.1.3.5.1 for FTA criteria for a manual FTA determination.

20.1.1.3.5.8  (02-22-2008)
RCA Letter Generation

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

    1. Special Insert and Return Address Codes are required on the Letter 0852Cand 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 by selecting the 'Campus Penalty Appeal Coordinators' link under the "Who/Where" tab on SERP.

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

  2. RCA will transmit the required paragraphs and fill-ins to CC LPAGE. To generate the letter, RCA provides two options:

    1. Review/Manual Transmit(Recommended) - Allows a review of the letter to ensure an appropriate explanation and all letter information is correct. Requires manual transmission of the letter. After reviewing the letter, return to the first CC LPAGE screen and transmit.

    2. No Review/Systemic Transmit - After transmitting the appropriate paragraphs and fill-ins to CC LPAGE, RCA will automatically transmit the letter. The letter cannot be reviewed or changed with this option.


    Regardless of the option selected, the originator must ensure "Request Completed" is displayed on IDRS to ensure the letter transmitted. RCA cannot make this determination.

20.1.1.3.5.9  (02-22-2008)
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 FTD penalties, 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 should apply to all three penalties.

    2. If the RCA conclusion is to sustain the penalty and Letter 0852Cis 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.)

    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.

20.1.1.4  (02-22-2008)
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, they have 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:

    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 service center 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.

  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 having jurisdiction, or the United States Court of Federal Claims (as appropriate). See IRM 8.20, Appeals Records and Processing Manual.

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 considering if reasonable cause or other relief criteria exists.

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

20.1.1.4.1.1  (02-22-2008)
Preassessment 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 section 6672 (see IRM 4.23, Employment Tax Handbook, for Trust Fund Recovery penalty guidelines) or the preparer penalties under IRC section 6694 (see IRM 20.1.6 for an overview of preparer penalties), and/or

    3. The intentional disregard penalty of IRC section 6721(e) when it is asserted for failures to comply with the cash reporting requirements of IRC section 6050I.

  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 service center campus level.

  3. More detailed Appeals procedures are described in the Appeals Returns Processing and Control Handbook. Also see IRM 8.11.1 , Penalties.

20.1.1.4.1.2  (02-22-2008)
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 20.1.1.3.

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

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

20.1.1.4.2  (02-22-2008)
Deficiency Procedures

  1. IRC section 6211 generally defines a deficiency as the excess of the correct amount of income tax, estate tax, or gift tax owed, less the sum of the tax amount shown on the return, plus the amounts previously assessed (or collected without assessment) as a deficiency, less the amount of rebates. In general, deficiency procedures are used when additional income, estate, or gift taxes, and/or related penalties are proposed. The IRS generally:

    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 sections 6700, 6701, 6702) without providing a notice of deficiency;

    4. Can assess estimated tax penalties (IRC sections 6654 and 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 section 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, and gift tax, as well as 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" , see IRC section 6212, provides the taxpayer a method of appealing tax and/or penalties to the United States Tax Court prior to their assessment.

20.1.1.4.2.1  (02-22-2008)
Non-Deficiency Procedures

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

  2. Generally, non-deficiency procedures are as follows:

    IF AND THEN
    a. Penalties are proposed the taxpayer agrees the penalties are assessed.
    b. Penalties are proposed the taxpayer disagrees a 30-day letter is issued andthe taxpayer may file a protest with Appeals.
    c. Appeals sustains the penalty proposal   the penalties are assessed.

  3. 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.

  4. If a 30-day letter was not issued, or if a claim for refund was denied, the taxpayer should be given 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  (02-22-2008)
Master File 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 two categories:

    • Systemically generated, and

    • Manually input.

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

  4. If an abatement or partial abatement 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, Computation and Assessment of Miscellaneous 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 9120, Appeals Transmittal Memorandum and Supporting Statement—Penalty (ADJ54), and Form 8278, Computation and Assessment of Miscellaneous Penalties (ADJ54).

  5. There are four main categories of PRCs available for manual input.

    1. Penalty Relief, including reasonable cause, disaster relief, general penalty relief, or other specific penalty provisions provided throughout IRM 20.1. See IRM 20.1.1.3.

    2. 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 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).

    3. Statutory Exception or Administrative Waivers, to be used when written procedures have been established. PRC 044 identifies penalty relief based on a Statutory Exception, and PRC 043 identifies Administrative Waivers.

    4. Service Error, to be used when it is determined that the Service computed the penalty incorrectly or inappropriately. Generally, PRC 045 is to be used to identify penalty relief based on a Service error.

  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  (02-22-2008)
Penalty Transaction Codes

  1. Penalty Transaction Codes (TCs) indicate assessment or abatement actions. Generally, return-related penalties are based on an underpayment of tax. See Exhibit 20.1.1-4, 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 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 (civil) Penalty Reference Number (PRN) that identifies the type of penalty. These reference numbers are generally between 500 and 699. See Exhibit 20.1.1-5 and See 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, Failure to File (FTF) penalty:

    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  (02-22-2008)
Penalty Reference Numbers

  1. Generally, Penalty Reference Numbers (PRNs) 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 Internal Revenue Code (IRC). The penalty is usually assessed on MFT 13 (BMF) or 55 (IMF), and is identified by Transaction Code (TC) 240 and the appropriate PRN. However, assessment of a TC 240 and related PRN(s) is not limited to MFTs 13 and 55.

  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 section 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 699 are used to identify return-related penalties. For example: PRNs 680 and 681 are used to identify accuracy-related penalty assessments (per IRC sections 6662 and 6662A, respectively). See IRM 20.1.5. PRN 666 is used to identify a Frivolous Return penalty (per IRC section 6702(a)). See IRM 20.1.10.9.

  4. See Exhibit 20.1.1-5 and see Exhibit 20.1.1-6 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 section 6721, Failure to file correct information returns.

    Reference Number Description Source
    500 - 514 Used by Campuses to assess/abate penalties based on PMF information. IRM 20.1.7, Information Return Penalties
    549/550 Use to assess/abate penalties based on the CAWR Program IRM 4.19.4, CAWR Reconciliation Balancing
    600 series Use to assess/abate a penalty as the result of an examination or a determination made by a Compliance Field Function employee, e.g., .
    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

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 IMF and allows several screen displays based on an input definer code. These include:

    1. 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. A screen which shows entity type information (similar to INOLE).

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

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

    5. A screen which includes retention register account information.

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

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

    8. 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 4.4.13, IDRS Research, the Aims Handbook for IDRS Terminals Inquiries, or IRM 2.3, IDRS Terminal Responses.

Exhibit 20.1.1-1  (02-22-2008)
Penalty Policy Statement (20-1)

Policy Statement 20-1 ( IRM 1.2.20.1.1)
Effective Date: June 29, 2004
 
1. Penalties are used to enhance voluntary compliance.
 
2. The Internal Revenue Service has a responsibility to collect the proper amount of tax revenue in the most efficient manner. Penalties provide the Service with an important tool to achieve that goal because they enhance voluntary compliance by taxpayers. In order to make the most efficient use of penalties, the Service will design, administer, and evaluate penalty programs based on how those programs can most efficiently encourage voluntary compliance.
 
3. Penalties encourage voluntary compliance by:
(1) demonstrating the fairness of the tax system to compliant taxpayers; and
(2) increasing the cost of noncompliance.
 
4. In order to effectively use penalties to encourage compliant conduct, examiners and their managers must consider the applicability of penalties in each case, and fully develop the penalty issue when the initial consideration indicates that penalties should apply. That is, examiners and their managers must consider the elements of each potentially applicable penalty and then fully develop the facts to support the application of the penalty, or to establish that the penalty does not apply, when the initial consideration indicates that penalties should apply. Full development of the penalty issue is important for Appeals to sustain a penalty and for Counsel to successfully defend that penalty in litigation.
 
5. Abusive transactions, frivolous returns, and other abusive taxpayer conduct undermine the fairness and integrity of the federal tax system and undercut voluntary compliance. Thus, it is particularly important in those cases for examiners and their managers to consider the potential applicability of penalties, and to develop fully the facts to either support the application of the penalty or to demonstrate that penalties should not apply. Consistent development and proper application of the accuracy-related and fraud penalties in abusive transaction cases will help curb this activity by imposing tangible economic consequences on taxpayers who engage in those transactions. In addition, consistent development and proper application of the promoter and preparer penalties in abusive transaction cases will help curb this activity by providing an economic deterrent for promoting abusive transactions and preparing returns claiming tax benefits from abusive transactions. An abusive transaction is one where a significant purpose of the transaction is the avoidance or evasion of Federal tax.
 
6. Special Rule for Listed Transactions. The Service will fully develop accuracy-related or fraud penalties in all cases where an underpayment of tax is attributable to a listed transaction. For purposes of this Policy Statement, a listed transaction is a transaction the Service has identified as a listed transaction pursuant to the regulations under IRC section 6011.
 
7. In limited circumstances where doing so will promote sound and efficient tax administration, the Service may approve a reduction of otherwise applicable penalties or penalty waiver for a group or class of taxpayers as part of a Service-wide resolution strategy to encourage efficient and prompt resolution of cases of noncompliant taxpayers.
 
8. In considering the application of penalties to a particular case, all Service functions must develop procedures that will promote:

a. Consistency in the application of penalties compared to similar cases;

b. Unbiased analysis of the facts in each case; and

c. The proper application of the law to the facts of the case.
 
9. The Service will demonstrate the fairness of the tax system to all taxpayers by:

a. Providing every taxpayer against whom the Service proposes to assess penalties with a reasonable opportunity to provide evidence that the penalty should not apply;

b. Giving full and fair consideration to evidence in favor of not imposing the penalty, even after the Service's initial consideration supports imposition of a penalty; and

c. Determining penalties when a full and fair consideration of the facts and the law support doing so.
This means that penalties are not a "bargaining point " in resolving the taxpayer’s other tax adjustments. Rather, the imposition of penalties in appropriate cases serves as an incentive for taxpayers to avoid careless or overly aggressive tax reporting positions.
 
10. The Service will continue to develop, monitor, and revise programs to help taxpayers voluntarily comply with the law and avoid penalties.
 
11. To promote consistent development, consideration, and application of penalties, the Service prescribes guidelines in a Penalty Handbook that all operating divisions and functions will follow. The office of Servicewide Penalties must review and approve changes to the Penalty Handbook for consistency with Service Policy before making recommended changes.
 
12. The Service collects statistical and demographic information to evaluate penalties and penalty administration, and to determine the effectiveness of penalties in promoting voluntary compliance. The Service continually evaluates the impact of the penalty program on compliance and recommends changes when the Internal Revenue Code or penalty administration does not effectively promote voluntary compliance.
 
13. Approved: Mark E. Matthews, Deputy Commissioner for Services and Enforcement

Exhibit 20.1.1-2  (02-22-2008)
Penalty Relief—Application Chart

IRC Section    Type of Penalty Reasonable
Cause Relief		 Other
Relief
6651(a)(1) Failure to File Yes Yes
6651(a)(2) Failure to Pay tax when due Yes Yes
6651(a)(3) Failure to Pay within 10 Days of Notice of Additional Tax Due (Notices issued prior to 1/1/1997) Yes Yes
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) Yes Yes
6651(f) Fraudulent Failure to File No No
6652(a)(1)** Failure to File Information Returns Yes Yes
6652(c)(1) Failure to File Annual Return by Exempt Organization Yes Yes
6652(c)(2) Failure to File Returns under IRC Section 6034 or 6043(b) Yes Yes
6652(d)(2) Notification of Change in Status of a Plan Yes Yes
6652(e) Information Required in Connection with Certain Plans of Deferred Compensation—Form 5500 Yes Yes
6652(h) Failure to Give Notice to Recipients of Certain Pension, etc., Distributions Yes Yes
6652(i) Failure to Give Written Explanation to Recipients of Certain Qualifying Rollover Distributions Yes Yes
6653(a)* Negligence Yes Yes*
6653(b)* Fraud No No
6654 Estimated Tax Penalty on Individuals No Yes
6655 Estimated Tax Penalty on Corporations No No
6656(a) Failure to Deposit Yes Yes
6657 Bad Check Yes Yes
6659* Valuation Overstatement Yes Yes
6659A* Overstatement of Pension Liabilities Yes Yes
6661* Substantial Understatement Yes Yes
6662 Accuracy-Related Yes Yes
6663 Fraud No No
6692 Failure to File Actuarial Report Yes Yes
6698 Failure to File Partnership Return Yes Yes
6721 Failure to File Correct Information Reporting Returns Yes Yes
6722 Failure to Furnish Correct Payee Statements Yes Yes
6723 Failure to Comply with other Information Reporting Requirements Yes Yes
   *  Repealed for tax returns filed after December 31, 1989
** Repealed for tax returns filed after December 31, 1986

Exhibit 20.1.1-3  (02-22-2008)
Penalty Reason Code Chart

PENALTY REASON CODE (PRC) CHART
1st, 2nd, or 3rd
Reason Code (RC) Position 		4th Position
Penalty Reason Code (PRC) 		DEFINITION
IMF BMF    
REASONABLE CAUSE (Manual Input)
062 062 022 Normal business care and prudence followed, but taxpayer was still unable to comply due to circumstances beyond their control.
 
062 N/A 024 IMF - Death, serious illness, or unavoidable absence of the taxpayer or a member of their immediate family.  
062 062 025 Records inaccessible  
N/A 062 026 BMF - 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 their immediate family.  
062 062 030 Other - Combination of mistakes. Normal business care and prudence followed, but documentation shows non-compliance was due to circumstances beyond the taxpayer's control.  
062 062 046 Y2K Relief.  
None None 050/051 User Fee reversals.  
N/A 062 071 Limited to Form 990–PF(MFT 44) - Allows a private foundation reasonable cause for FTF & FTP 90 days after it received a determination letter from the Service stating the organization is a private foundation or it cannot be expected to be a public charity.  
N/A 062 072 Membership 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/A 062 073 Membership organization (MFT 67) has no full-time employees responsible for administering finances & has no prior history of late filing and claims ignorance of the requirement.  
APPEALS  
065 None 039 Appeals – Partial/Full abatement of penalties based on Third Party (Bulk & Batch Filers or Payroll Tax Service Bureaus) Settlement.  
065 None 040 Appeals Settlement based on Hazards of Litigation. Complete removal of penalty/penalties.  
065 None 041 Appeals sustains penalty/penalties.  
065 None 042 Appeals partial abatement.  
GENERAL PENALTY RELIEF (Manual Input)  
065 None 010 Amended/Corrected return or schedule. TP prepared original. (For example, FTD - Schedule B/CP 207 replies)  
065 None 013 Amended/Corrected return. Original prepared by IRS. (SFR/IRC § 6020B)  
065 None 014 Misdated 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 – Estimated Tax Penalties. 		 
065 None 016 Taxpayer computational error. (Forms 2210/2220)  
065 None 021 LEM Criteria Met– FTD, FTF, FTP & Estimated Tax Penalties  
065 None 023 Taxpayer relied on practitioner or third party advice.  
065 None 027 Timely mailed/timely filed  
065 None 028 Official Disaster Area  
065 None 029 Undue economic hardship/inability to pay (FTP)

Note:

Rarely Allowed on Employment Tax Deposits

 
N/A None 066 Cascading FTD Penalty Relief (1998 only)  
N/A None 067 Educational FTD Penalty Relief (i.e., ABCs of FTD)  
065 None 017 Bank Error caused Dishonored Check Penalty (TC 286). Banking documentation provided showing credit availability.  
065 None 018 First-time penalty relief. RCA not used-manual 3-year lookback for compliant behavior.  
065 None 019 Bulk/Batch Filer – Payroll Tax Service Bureau related penalty. Use restricted to the Penalty Prevention & Resolution Group (PPRG).  
065 None 020 RCA used– Good History of Compliance.  
ADMINISTRATIVE WAIVER (Manual Input)  
065 None 043 Service provided relief for a valid penalty. (i.e., RRA '98 IRC Section 3304(b) change in FTD deposit frequency for 1st quarter only starting in 1999)  
STATUTORY WAIVER (Manual Input)  
N/A None 012 Decrease to FTD penalty per RRA '98 IRC section 3304(a) Rev. Proc. 99-10, Taxpayer designated FTD applications; based on a valid ROFTL.  
065 None 044 Erroneous or Late Written Advice by IRS. Relief based on Revenue Procedures.  
SYSTEMIC (Computer Generated)  
065 None 001 Suppressed/Abated - Due to LEM Criteria  
065 None 002 Penalty adjusted due to computational error.  
065 None 003/066 Master File recovery  
N/A None 068 Systemic FTD penalty abatement per the EFTPS/FTD Penalty Refund Program.  
SERVICE (Manual Input)  
065 None 015 General IRS Error. Specific instructions for use of this code would be released in IRM Updates or SERP Alerts.  
065 None 031 Erroneous Oral Advice by IRS.  
065 None 032 Other Treasury Agency Errors (FMS or EFTPS Treasury Financial Agent (TFA) errors).  
065 None 045 IRS Error. Math Error in computing penalty(s). Extension to file not posted to Master File. Taxpayer complied with law but IRS did not recognize compliance.  

Exhibit 20.1.1-4  (02-22-2008)
Penalty Transaction Codes

TC IRC section Description
16X 6651(a)(1) Failure to File a Tax Return (FTF). The FTF penalty is equal to the appropriate percentage of the net tax due multiplied by each month or part of a month (not to exceed 5 months) the return is not filed:
4 1/2% — if the FTP penalty also applies (for the period the FTP applies), or
5% —  if only the FTF penalty applies.
17X 6654 Failure by an Individual to pay Estimated Income Tax, or
6655 Failure by a Corporation to pay Estimated Income Tax.
  The excess of the required installment (either individual or corporate) 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.
18X 6656 Failure to Deposit. The penalty is based on the:
— underpayment of the under deposited amount, 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 Penalty
Payments, made directly to the IRS, or deposits made to a bank when the employer is required to deposit electronically.
20X 6723 Failure to provide a Taxpayer Identification Number (TIN). The penalty is $50 per failure, not to exceed $100,000 per calendar year.
23X 6652(c) Daily Delinquency Penalty — Generally, $20 times the number of days the return was filed after the due date or extended due date, not to exceed the lesser of $10,000 or 5% of the gross receipts. See IRM 20.1.8.2.1.1 for additional information.
240**   Assesses a Miscellaneous Penalty generally associated with a Penalty Reference Number.
241**   Abates a Miscellaneous Penalty generally associated with a Penalty Reference Number.
246 6698 Assesses the Failure to File a Partnership return, or missing information associated with a partnership return, penalty. The penalty is $50 per partner, per month (or fraction thereof), for not more than 5 months.
247   Abates the Failure to File a Partnership return or missing information penalty associated with a partnership return.
27X 6651(a)(2) Failure to Pay (FTP) is 1/2 of 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, or
  6651(a)(3) Failure to Pay is 1/2 of 1% (.005) for each month or part of a month, from 10 days after notice and demand (for notices issued prior to 1/1/1997; 21 days for notices issued after 12/31/1996 (or 10 business days for amounts of $100,000 or more)) until the tax is paid or the maximum of 25% of the unpaid tax is reached.
  6651(d) Increases the penalty from 1/2 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 service has issued the notice of intent to levy.
28X 6657 Bad Check Penalty
If the check or money order:
— is $750 or more ($1,250 or more for payments received after 5/25/2007), the penalty is 2 percent of the amount of the check,
— is less than $750 (less than $1,250 for payments received after 5/25/2007), the penalty is the lesser of:
  • $15 ($25 for payments received after 5/25/2007), or
• the amount of the check.
31X* 6652(b) Failure to Report Tips Penalty—imposes a penalty on the 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.
32X* 6653(b)R Fraud Penalties assessed for returns with a due date prior to January 1, 1990.
  6663 Fraud Penalties assessed on returns due after December 31, 1989.
35X* 6662(c) Negligence penalties assessed for returns with a due date after December 31, 1989, are 20% of the underpayment of tax due to negligence.
R This IRC section was repealed , the law may or may not have been incorporated into another Code section.
   
* The penalty was assessed as the result on 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 Reference Numbers in Exhibit 20.1.1–5 and Exhibit 20.1.1–6.

Exhibit 20.1.1-5  (02-22-2008)
Penalty Reference Numbers (500 Series)

  Penalties assessed using the reference numbers 500 through 514 are assessed using the following computational formula. Only one penalty, per information return, can be assessed regardless of the number of failures associated with that return. Therefore, the computer paragraph associated with the respective reference number relates to the type of failure, not the way the penalty was computed.

Caution:

For current Reference Numbers, see Form 8278.

RN IRC section Description
  6721 Imposition of the Failure to Comply with Certain Information Reporting Requirements.
  ♦ These reference numbers should only be used for returns and statements due after December 31, 1989.
♦ $50 per failure/maximum $250,000.
♦ $15 per failure/maximum $75,000, If a failure is corrected within 30 days, after the due date of the information return, i.e., the penalty will be decreased to $15 per failure.
♦ $30 per failure/maximum $150,000, If the failure is corrected more than 30 days after the due date of the return, but on or before August 1 of the filing year, i.e., the penalty will be decreased to $30 per failure.
500 6721 Late Filing Penalty
  ♦ A penalty is charged for each Form 1098, 1099( 1), W–2G, or W–2 that was not correctly and timely filed.
501 6721 Magnetic Media Penalty
  ♦ A penalty is charged for each Form 1098, 1099, W–2G, or W–2 (after the first 250 forms of each type) required by IRC section 6011(e)(2)(a) not filed either electronically or by magnetic media.
502 6721 Missing or Incorrect TIN Penalty
  ♦ A penalty is charged for each Form 1098, 1099, W–2G, or W–2 submitted with missing or incorrect TINs.
503 6721 Improper Format Penalty
  ♦ A penalty is charged for each Form 1098, 1099, W–2G, or W–2 submitted in an improper format as provided for in the IRC, Treas. Regs, or SSA procedures.
  1 Any applicable suffix
504 6721 Late and Magnetic Media Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was not filed:
  ♦ correctly and timely, and
♦ either electronically or using magnetic media. (over 250 forms)
505 6721 Late and Missing or Incorrect TIN Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was not:
♦ correctly and timely filed, and
♦ submitted with a missing or incorrect TIN.
506 6721 Late and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was not:
♦ correctly and timely filed, and
♦ submitted in a proper format as provided for in the IRC, Treas. Regs, or SSA procedures.
507 6721 Magnetic Media and Missing or Incorrect TIN Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was:
♦ not filed either electronically or using magnetic media (over 250 forms), and
♦ filed with missing or incorrect TINs.
508 6721 Magnetic Media and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was not:
♦ filed either electronically or using magnetic media, and
♦ submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.
509 6721 Missing or Incorrect TIN and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was filed:
♦ with a missing or incorrect TIN, and
♦ in an improper format as provided for in either the IRC, Treas. Regs. or SSA procedures.
510 6721 Late, Magnetic Media, and Missing or Incorrect TIN Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was:
♦ not correctly and timely filed,
♦ not filed either electronically or by magnetic media (after the first 250 forms of each type) required by IRC section 6011(e)(2)(a), and
♦ filed with missing or incorrect TINs.
511 6721 Late, Magnetic Media, and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was not:
♦ correctly and timely filed,
♦ filed either electronically or by magnetic media (after the first 250 forms of each type) required by IRC section 6011(e)(2)(a), and
♦ submitted in the proper format as provided for in either the IRC, Treas. Regs. or SSA procedures.
512 6721 Late, Missing or Incorrect TIN, and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was:
♦ 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 6721 Magnetic Media, Missing or Incorrect TIN, and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was:
♦ not filed either electronically or using magnetic media,
♦ 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 6721 Late, Magnetic Media, Missing or Incorrect TIN, and Improper Format Penalty
  A penalty is charged for each Form 1098, 1099, W–2G, or W–2 that was:
♦ not correctly and timely filed,
♦ not filed either electronically or using magnetic media,
♦ 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.
527
(IMF) 		6652(c)(1)(D) Failure to Provide Public Inspection of Application as Required by IRC section 6104(d).
  ♦ $20 per day for each day the failure continues.
♦ No maximum penalty amount.
528
(IMF) 		6652(c)(1)(C) Failure to Provide Public Inspection of Annual Returns and Reports as Required by IRC sections 6104(d) and 527(j).
  ♦ $20 per day for each day the failure continues.
♦ Maximum penalty is $10,000 per return or report.
549 6721(e) Penalty in the Case of Intentional Disregard. (CAWR Penalty Program) See IRM 4.19.4.8
  A penalty is charged for each form W–2 that was not filed as required by IRC section 6051. The penalty is the greater of:
♦ $100 per missing Form W–2, or
♦ 10% of the total wages that were required to be reported.
550 6721(a) Late Filing Penalty (CAWR Penalty Program) See IRM 4.19.4.9
  ♦ The penalty is assessed at $50 for each Form W-2 secured by CAWR.

Exhibit 20.1.1-6  (02-22-2008)
Penalty Reference Numbers (600 Series)

RN IRC section Description
600 6721 Failure to File Correct Information Returns.
  ♦ This reference number should only be used for returns and statements due after December 31, 1989.
♦ $50 per failure/maximum $250,000.
♦ $15 per failure/maximum $75,000. If a failure is corrected within 30 days, after the due date of the information return, the penalty will be decreased to $15 per failure. The maximum annual penalty per filer shall not exceed $75,000.
♦ $30 per failure/maximum $150,000. If the failure is corrected more than 30 days after the due date of the return, but on or before August 1st of the filing year, the penalty will be $30 per failure. The maximum annual penalty per filer shall not exceed $150,000.
♦ For other circumstances that may apply, see IRM 20.1.7.
601 6723 Failure to Include Correct Information.
  ♦ For return periods beginning after December 31, 1985 and ending prior to January 1, 1990, $5 per failure with a maximum not to exceed $20,000.
♦ For return period beginning after Dec. 31, 1989, $5 per failure with a maximum not to exceed $100,000.
602 6676 Failure to Supply Identifying Numbers.
  ♦ This reference number should only be used for returns and statements due prior to January 1, 1990.
♦ The penalty was incorporated into IRC section 6723.
603 6038C Failure of Foreign Corporation Engaged in a U.S. Business to Furnish Information or Maintain Records.
  ♦ 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.
604 6652(f) Failure of Foreign Person to File Return Regarding Direct Investment in U.S. Real Property Interests.
  ♦ The penalty applies to returns required under IRC section 6039C.
♦ $25 per day. Maximum is the lesser of $25,000, or 5% of the aggregate fair market value of the real property investments.
605 6686 Failure to File Returns or Supply Information by DISC or FSC.
  ♦ $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,Form 1120-IC-DISC, or Form 1120-FSC .
606 6695A Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals.
  The penalty is the lesser of:
♦ the greater of:
•10% of the understatement attributable to the misstatement, or
•$1,000, or
♦ 125% of the gross income received by the appraiser from the preparation of the appraisal
607 6721 Failure to Timely File Information Return.
  ♦ $50 per failure. Maximum $250,000.
608 6721 Failure to Timely File Information Return (or Failure to File on Magnetic Media, as required).
  This reference number should only be used for Forms 1099-INT, 1099–DIV, 1099–OID, and 1099–PATR returns.
♦ $50 per failure. Maximum $250,000.
609   Reserved
610 6722 Failure to Furnish Payee Statement or Required Information.
  ♦ $50 per failure. Maximum $100,000.
611 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.
612 6722 Failure to Furnish Correct Payee Statement.
  For returns required to be filed after December 31, 1989, a penalty will be imposed for each failure to:
  ♦ furnish a payee statement on or before the due date to the person to whom the statement must be furnished,
♦ furnish all information required, and
♦ furnish correct information.
♦ The $50 penalty for failure to furnish payee statements is not reduced if returns are corrected or filed after the due date.
♦ Only one penalty per statement, regardless of the number of failures per statement.
♦ The total penalty for all such failures during any calendar year shall not exceed $100,000.
613 6679 Failure to File Returns, Etc., With Respect to Foreign Corporations or Foreign Partnerships.
  Failure to File Form 5471, Schedule O/Form 8865, Schedule P. See IRC section 6046 and IRC section 6046A.
♦ The 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 up to $50,000.
614 6679 Failure to File Returns, Etc., With Respect to Foreign Corporations or Foreign Partnerships.
  Failure to File Form 5471, Schedule N. See IRC section 6035.
♦ The penalty is assessed at $1,000 per failure.
616 6682 False Information with Respect to Withholding.
  ♦ False information on Form W–4.
♦ $500 for each false statement (W–4).
618 6672 Failure to Collect and Pay Over Tax, or an Attempt to Evade or Defeat Tax.
  ♦ 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 6679/6677/6038/6038A Failure to File Returns with Respect to Foreign Corporations or Foreign Partnerships.
  ♦ Continued failure to provide information after 90-day period.
♦ The penalty is assessed at $10,000 per 30-day period (or fraction thereof). Maximum $50,000.
620 6693(a) Failure to Provide Reports on Individual Retirement Accounts.
  ♦ $50 per failure to file report
621 6723 Failure to Comply with Other Reporting Requirements.
  For returns and statements required to be filed after December 31, 1989,
♦ A penalty of $50 per failure
  ♦ to comply timely with specified information reporting requirements, or
♦ to include correct information.
♦ The maximum penalty is $100,000 per year.
623 6038 Failure to Furnish Information with Respect to Certain Foreign Corporations and Partnerships.
  ♦ Failure to File Form 5471 and/or Form 8865.
♦ $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 up to $50,000.
624 6695 Other Assessable Penalties with Respect to the Preparation of Income Tax Returns for Other Persons.
    ♦ Any failure by the preparer to:
6695(a)   furnish a copy of the return to the taxpayer,
6695(b)   sign the return,
6695(c)   furnish the preparer’s identifying number,
6695(d)   retain a copy, return or list, as required by IRC section 6107(b),
6695(e)   file a correct information return or other requirement of IRC section 6060.
  ♦ These penalties are assessed at $50 per failure, not to exceed $25,000 per year.
625 6038A(d) Information with Respect to Certain Foreign owned Corporations.
  ♦ failure to furnish information or maintain records as required by IRC sections 6038A(a) and 6038A(b). Form 5472.
♦ $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 (or fraction thereof) during which the failure continues after the expiration of the original 90 day period.
626 6695(f) Negotiation of Check.
  ♦ endorses or otherwise negotiates a refund check (with respect to income tax) issued to a taxpayer.
♦ $500 per check.
627 6695(g) Failure by preparer to be diligent in determining eligibility for EIC.
  ♦ $100 per failure.
628 6700 Promoting Abusive Tax Shelters
  ♦ the lesser of $1,000 or 100% of gross income or 50% of gross income derived (or to be derived) from such activity after 12/31/1989.
♦ 50% of gross income derived (or to be derived) from such activity after 10/22/2004.
630 6720 Donee's failure to issue acknowledgement on used vehicle donation As required by IRC section 170(f)(12).
  ♦ Multiple calculations. See IRC sections 6720(1) and 6720(2) for calculations.
631 6701 Penalties for Aiding and Abetting Understatement of Tax Liability.
  ♦ Aiding and abetting— Preparer
♦ The penalty is assessed for each document that relates to the tax liability of:
  ♦ individual—at $1,000, or
♦ corporate—at $10,000.
632 6705 Failure by a Broker to Provide Notice to a Payor.
  ♦ $500 for each failure.
633 6713 Disclosure or Use of Information by Preparer of Returns
  ♦ $250 per disclosure or use. Maximum of $10,000 per calendar year.
634 6707 Failure to Furnish Information Regarding Tax Shelters Required by IRC section 6111(a).
  See IRC section 6707A(c) for definitions of "Reportable" and "Listed " transactions. For "Reportable" transactions, the penalty for returns due after 10/22/2004 is:
♦ $50,000 per failure
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.
635 6651(f) Fraudulent Failure to File
  See IRM 20.1.2.7 for additional information.
♦ 15% per month (14 1/2% per month for any month in which the Failure to Pay penalty also applies), up to 5 months.
♦ Maximum penalty is 75% (72 1/2% if Failure to Pay penalty also applies for all 5 months).
636 6708 Failure to Maintain Lists of Investors/Advisees in Potentially Abusive Tax Shelters Required by IRC section 6112(a).
  ♦ $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 6721(a)(1) or 6722(a) Failures for Returns Relating to Higher Education Tuition and Related Expenses as required by IRC section 6050S.
  ♦ $50 per failure to file return (IRC section 6721(a)(1)). Maximum $250,000.
♦ $50 per failure to furnish correct payee statement (IRC section 6722(a)). Maximum $100,000.
638 6721 Failures related to Form 8027 (Employer's Annual Information Return of Tip Income and Allocated Tips) as required by IRC section 6053.
  ♦ $50 per failure. Maximum $250,000.
♦ In the case of intentional disregard (IRC section 6721(e)), the penalty is the greater of $100 per failure, or 10% of the aggregate amount of items required to be reported.
643 6673(a) Sanctions and costs awarded by Courts
  ♦ A 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 6673(b) Sanctions and costs awarded by Courts (IRC section 7433).
  ♦ A Court (other than the Tax Court) determination that the taxpayer filed frivolous suit for damages against the United States.
♦ Court awarded sanctions, penalties, or costs not to exceed $10,000.
645 6694(a) Understatement of Taxpayer’s Liability by Income Tax Return Preparer.
  The penalty is assessed against a tax return preparer. The penalty is based on an understatement or return for which the preparer took a position that did not have a realistic possibility of being sustained on its merits, and which was not disclosed or was frivolous. No maximum penalty amount.
For returns or claims prepared on or prior to May 25, 2007, the penalty is:
♦ $250 per return or claim.
For 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.
648 6707A Failure to Include Reportable Transaction Information with Return (Form 8886, Reportable Transaction Disclosure Statement).
  For reportable transactions (see IRC section 6707A(c)(1)), the penalty is:
♦ $10,000 in the case of a natural person, or
♦ $50,000 in any other case
For listed transactions (see IRC section 6707A(c)(2)), the penalty is;
♦ $100,000 in the case of a natural person, or
♦ $200,000 in any other case
649 6652(l) Failure by Exempt Organization or Certain Trusts to file returns required by IRC section 6043(c) (Form 8806, Information Return for Acquisition of Control or Substantial Change in Capital Structure).
  ♦ $500 per day per failure. Maximum $100,000.
650 6694(b) Willful or Reckless Understatement of Taxpayer’s Liability by Income Tax Return Preparer.
  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 section 6694(a). No maximum penalty amount.
For returns or claims prepared on or before May 25, 2007, the penalty is:
♦ $1,000 per return or claim.
For returns or claims prepared after May 25, 2007, the penalty is the greater of:
♦ $5,000, or
♦ 50% of the income derived, or to be derived, per return or claim.
651 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.
  The penalty is assessed for each Form 8300 not timely and/or correctly filed as required by IRC section 6050I.
♦ $50 per failure. Maximum $250,000 per year.
652 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.
  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 $250,000 yearly limitation under IRC section 6721 shall not apply.
653 6722(a) Failure to Furnish Correct Statements Required by IRC section 6050I(e) — Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
  ♦ $50 per statement not timely furnished or containing incorrect or incomplete information.
♦ The maximum penalty shall not exceed $100,000 per year.
654 6722(c) Intentional Disregard of the Requirement to Furnish a Correct Statement Required by IRC section 6050I(e) — Form 8300.
  ♦ The intentional disregard penalty is the greater of $100, or 10 percent of the amount required to be reported correctly on the statement.
♦ The $100,000 yearly limitation does not apply.
655 6717(a) Penalty for Refusal to Permit Entry or Examination Allowed by IRC section 4083(d)(1).
  ♦ 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 6715 Dyed Fuel Sold For Use or Used in Taxable Use, Etc.
  The penalty is assessed on any dyed diesel fuel (nontaxable use), sold or held for sale as taxable use of such fuel.
1st offense, the penalty is the greater of:
♦ $1,000, or
♦ $10 for each gallon of dyed fuel involved
Subsequent violations:
♦ Multiply the number of prior violations times the greater of $10 per gallon per prior violation or $1,000 per prior violation.
657 6718 Failure to Display Tax Registration on Vessels
  The penalty is assessed on any vessel required to display proof of registration as required by IRC section 4101(a)(3). 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 6652(c)(2)(A) Failure to File Information Return Required by IRC section 6034 (relating to returns by certain trusts) or IRC section 6043(b) (relating to terminations, etc., of exempt organizations).
  ♦ $10 per day per return
♦ Maximum penalty is $5,000 per return.
659 6677 Failure to File Information With Respect to Certain Foreign Trusts as required by IRC section 6048 - Form 3520.
  ♦ 35% of gross reportable amount.
♦ 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.
♦ Total penalty cannot exceed gross reportable amount.
660 6677(b) Form 3520A Foreign Trusts with U.S. Owner - IRC section 6048(b)
  ♦ 5% of gross reportable amount.
♦ 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.
♦ Total penalty cannot exceed gross reportable amount.
661 6675 Excessive Claims Relating to Fuels not Used for Taxable Purposes - Per IRC section 6427.
  The penalty is the greater of:
♦ Two times the excessive amount, or
♦ $10
662
(BMF) 		527(j)(1) Failure to Make Required Disclosure of Expenditures and Contributions (Form 8872, Political Organization Report of Contributions and Expenditures).
  ♦ 35% of amount relating to failure.
Also see IRC section 6652(c)(1)(C).
663
(BMF) 		6652(c)(1)(A) Failures Related to Annual Returns Required by IRC section 6033(a)(1) (Exempt Organizations) and IRC section 6012(a)(6) (Political Organizations).
  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.
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.
665 6715A Tampering With, or Failing to Maintain Security Requirements, for Mechanical Dye Injection Systems.
  For IRC section 6715A(a)(1) (Tampering), the penalty is the greater of:
♦ $25,000, or
♦ $10 for each gallon of fuel involved.
For IRC section 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 6702(a) Frivolous Return - CAUTION: Only RN 666 assesses IRC section 6702 after 1/24/2005.
  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 6725 Failure to Report Information Under IRC section 4101.
  ♦ $10,000 per failure
668 6039F(c) Failure to File Form 3520 to Report Receipt of Foreign Gifts
  ♦ 5% of the amount of the foreign gift for each month the failure continues.
♦ Maximum penalty is 25% of the amount of the gift.
669
(IMF) 		6688 Failure to File Form 8898 Regarding Residence in a US Possession as Required by IRC section 937(c).
  ♦ $1,000 per failure.
670 6719 Failure to Register or Reregister as Required by IRC section 4101.
  ♦ $10,000 for each initial failure, and
♦ $1,000 for each day thereafter the failure continues.
671 (IMF) 6039G Failure to File Form 8854 regarding Expatriate/Residency Report.
  ♦ $10,000 per failure.
671 (BMF) 6714 Failure to Disclose Quid Pro Quo Contributions as Required by IRC section 6115.
  ♦ $10 per contribution
♦ Maximum penalty is $5,000 per fundraising event or mailing. No maximum penalty if failures are not attributed to a particular fundraising event or mailing.
672 6721 Failures in Regard to Information Returns Relating to Taxable Mergers and Acquisitions as Required by IRC section 6043A.
  ♦ $50 per failure. Maximum $250,000.
♦ In the case of intentional disregard, $100 per failure.
673 6720A Resale of Certain Adulterated Diesel Fuels.
  ♦ $10,000 for each transfer, sale, or holding out for resale.
674 6723 Failure to Provide Notice of Partnership Exchange as required by IRC section 6050K.
  ♦ 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 6038B Notice of Certain Transfers to Foreign Persons (Failure to File Form 926)(Failure to File Form 8865, Schedule O)
  ♦ 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.
678 6706(b) Failure to Furnish Information to Secretary Required by IRC section 1275(c)(2) (reported on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments)
  ♦ 1% of the aggregate issue price of debt instrument amount.
♦ Maximum $50,000.
679
(IMF) 		6039E Failure by Passport and Immigration Applicants to Provide Information Concerning Residence Status.
  ♦ $500 for each failure to provide the required information.
680 6662 Accuracy-related Penalties
  For IRC sections 6662(c) through (f), the penalty is:
♦ 20% of the underpayment.
For IRC section 6662(h) (Gross Valuation Misstatements), the penalty is:
♦ 40% of the underpayment.
681 6662A Accuracy-related Penalty on Understatements with Respect to Reportable Transactions.
  ♦ 20%/30% of reportable transaction understatement.
682 6662(g) Substantial Estate or Gift Tax Valuation Understatement.
  ♦ 20% of underpayment.
684 7519(f)(4) Required Payments for Entities Electing Not to Have Required Taxable Year (IRC section 444 Elections).
  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.
685 6712 Failure to Disclose Treaty-Based Return Position as Required by IRC section 6114.
  The penalty is assessed at:
♦ $1,000 per failure, or
♦ $10,000 per failure for C corporations.
686 6651(f) Increase in Penalty for Fraudulent Failure to File
  ♦ 15 percent per month, maximum of 5 months
♦ not to exceed 75 percent of the total tax.

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) for additional information.

Exhibit 20.1.1-7  (02-22-2008)
Table of Abbreviations and Acronyms

ABBR. DEFINITION
23C Assessment Date
ACH Automated Clearing House
ACR Audit Change Report
ADEPT Automated Deposit of Electronic Payments for Taxes
ADP Automatic Data Processing
AGI Adjusted Gross Income
AICPA American Institute of Certified Public Accountants
AIMS Audit Information Management System
AO Appeals Officer
AOC Advice of Credit
ASED Assessment Statute Expiration Date
ASFR Automated Substitute for Return
ATAO Application Taxpayer Assistance Order to Relieve Hardship
AT&F Bureau of Alcohol, Tobacco and Firearms
BMF Business Master File
BWH Backup Withholding
CPS Case Processing Support
CAF Centralized Authorization File
CADE Customer Account Data Engine
CAWR Combined Annual Wage Reporting
CBAF Commercial Bank Address File
CC Command Code
CCD Chief Compliance Division
CFR Code of Federal Regulations
CI Criminal Investigation
CP Computer Paragraph
CPA Certified Public Accountant
CPM Civil Penalty Module
CRS Communication Replacement System
CSED Collection Statute Expiration Date
CY Calendar Year
CVPN Civil Penalty Name Line
ECC-DET Enterprise Computing Center - Detroit
ECC-MEM Enterprise Computing Center - Memphis
ECC-MTB Enterprise Computing Center - Martinsburg
DLN Document Locator Number
DP Data Processing
EFC Electronic Filing Coordinators
EFP Electronic Filing Program
EIN Employer Identification Number
EMIS Enforcement Management Information System
EPMF Employee Plans Master File
EQTRAS Examination Quality Trends Analysis System
ERTA Economic Recovery Tax Act of 1981
ES Estimated Tax
CPS Case Processing Support
ETE Employment Tax Examiner
FFA Fiduciary FTD Avoidance
FICA Federal Insurance Contribution Act
FIFO First-In-First-Out Inventory Method
FFF Fraudulent Failure to File
FMS Financial Management Service
FRB Federal Reserve Bank
FRCS Federal Reserve Communication System
FTD Federal Tax Deposit
FTF Failure to File
FTP Failure to Pay
FUTA Federal Unemployment Tax Act
FY Fiscal Year
GBP Good Block Proof
IC Interagency Coordinator
IAC Interest Abatement Coordinator
IDRS Integrated Data Retrieval System
IDTCA Interest and Dividend Tax Compliance Act of 1983
IEP International Enforcement Program
IMF Individual Master File
IMPACT Improved Penalty Administration & Compliance Tax Act of 1989
IRA Individual Retirement Account
IRAF Individual Retirement Account File
IRC Internal Revenue Code
IRM Internal Revenue Manual
IR Regs Internal Revenue Regulations
IRS Internal Revenue Service
IRS NO. Abstract Number
LEM Law Enforcement Manual
LIFO Last-In-First-Out Inventory Method
LMQAS Line Management Quality Assurance System
MARS Manual Accounting Replacement System
MCR Master Control Records
MF Master File
MFT Master File Tax
MICRORAR Revenue Agent Report-Computer Generated
MSN Microfilm Serial Number
NASACT National Association of State Auditors, Comptrollers, and Treasurers
NMF Non-Master File
OBRA Omnibus Budget Reconciliation Act
OCR Optical Character Recognition
ODC Ozone Depleting Chemicals
OPI Office of Penalties and Interest
In Nov. 2006, OPI was split into Servicewide Penalties and Servicewide Interest
PAS Program Analysis System
PCC Penalty Computation Code
PFN Partnership Prefiling Notification
PIC Penalty Indicator Code
PIL Preparer’s Inventory Listing
PINEX Penalty and Interest Notice Explanations
PMF Payer Master File
PMIS Penalty Management Information System
PNL Prefiling Notification Letter
PNP Presumptive Negligence Penalty
POA Power of Attorney
PRC Penalty Reason Code
PSC Penalty Screening Committee
PVL Preparer’s Volume Listing
QAS Quality Assurance Staff
OBRA Omnibus Reconciliation Act
QR Quality Review
RAR Revenue Agent Report
RC Reason Code
RDD Return Due Date
RFC Regulated Futures Contract
REMIC Real Estate Mortgage Investment Conduit
ROFT Record of Federal Tax (deposit liability schedule)
RONT Record of Net Tax Liability—Form 720
RRTA Railroad Retirement Tax Act
RSED Refund Statute Expiration Date
RURT Railroad Unemployment Repayment Tax
SCCF Service Center Control File
SIC Schedule Indicator Code
SFR Substitute for Return
SRTP Statement on Responsibilities in Tax Practice
SSA Social Security Administration
SSN Social Security Number
STAUP Command code which stops collection activity
TAMRA Technical & Miscellaneous Revenue Act
TC Transaction Code
TDA Taxpayer Delinquent Account
TDD Telecommunications Device for the Deaf
TECS Treasury Enforcement Communication System
TEFRA Tax Equity & Fiscal Responsibility Act (1982)
TE/GE Tax Exempt/Government Entities
TIF Taxpayer Information File
TIN Taxpayer Identification Number
TLN Transmittal Locator Number
TP Taxpayer
TRA’86 Tax Reform Act of 1986
TSR Taxpayer Service Representative
TT&L Treasury Tax and Loan Account
TY Tax Year
UNISTAR Unified System for Time and Appeals Records
UPC Unpostable Code
URB Underreporter Branch (Service Centers)

Exhibit 20.1.1-8  (02-22-2008)
Dictionary of Key Terms

23C DATE The 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).
ABATEMENT A 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 NUMBER A 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.
ABSTRACTS Reports that identify the specific type of tax collected, corresponding to the proper appropriation account set by Congressional Act or Public Law.
ACCOUNT A record of a taxpayer’s assessments, abatements and credits.
ACCRUALS The 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 PAYMENT The payment made for an anticipated deficiency prior to the actual assessment.
ADVICE OF CREDIT (AOC) The transmittal, on Treasury Form 2284, of federal taxes paid to a depositary bank. See IRM 20.1.4.
ANNUAL ACCOUNTING PERIOD A 12-consecutive month period (calendar or fiscal year) adopted by the taxpayer for maintaining books and records.
ASSERT Determine that tax, penalty, or interest applies to a taxpayer account.
ASSESS Formal entry of tax debt including penalty, and/or interest that has been determined to be due and collectable by IRS.
ASSESSMENT A bookkeeping entry, recording the amount of tax, penalties, and/or interest charged to a taxpayer’s account.
ASSESSMENT DATE The date Form 23C is executed by the assessment officer.
AUDIT TRAIL Data 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 ADJUSTMENT A subsequent adjustment to an account which follows automatically from the previous adjustment.
BALANCE DUE The amount of tax, penalty, interest or other receivables that remain unpaid on a taxpayer’s account.
BLOCK Returns or documents that have been grouped together for processing and filing purposes. Blocks consist of one hundred or fewer documents.
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 PROOF The necessity of affirmatively proving a fact or facts in dispute on an issue.
CALENDAR YEAR A 12-consecutive month period beginning with January 1.
CHARITABLE DEDUCTION PROPERTY A taxpayer’s contribution of real or personal property to a charity for which a deduction can be claimed under IRC section 170.
CLAIM—FORMAL A request from the taxpayer on the proper form, such as Form 843, 1040X or 1120X, asking that a liability previously assessed be reduced.
CLAIM—INFORMAL A written request, other than on the proper form, signed by the taxpayer, requesting changes to obtain a correct and accurate reflection of his/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 PERSONNEL Any IRS employee who has direct contact with the taxpayer either on the telephone, in person, or by mail.
CYCLE One week’s processing at the service center and Martinsburg Computing Center.
DEBIT BALANCE The amount by which the balance due exceeds the total amount of credits.
DELINQUENT RETURN A return which is filed after the prescribed due date (determined with regard to any valid extension of time).
DISCLOSURE See IRC section 6103 and IRC section 6664(c).
DISHONORED CHECK A 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, ADP and IDRS Information 1992, Section 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 REGISTER A 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 DATE Date by which a return must be filed or a payment or deposit made.
DUMMY MODULE A tax module created on IDRS in order to record information when the true tax module is not present.
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 AREA The 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.
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 service center or district office that initiated a transaction. See Document 6209, Section 4 for a complete list of FLCs.
FINANCIAL MANAGEMENT SERVICE (FMS) The Federal agency responsible for the government’s cash management program.
FISCAL YEAR An accounting period of 12 consecutive months other than a calendar year.
FOREIGN-CONTROLLED CORPORATION A domestic corporation engaged in U.S. business and controlled by a foreign person.
FRAUD The intentional commission of an act or acts for the specific purpose of evading a tax believed to be owing.
FREEZE CODE A condition on an account which prohibits any further action being taken.
FRIVOLOUS Clearly lacking in substance, or clearly insufficient as a matter of law.
GENERATED DATA Information produced as a result of input to, or update of, IDRS or Master File.
HARDSHIP In general, an economic condition that is so severe that the taxpayer is, or would be financially debilitated if they satisfy their obligation. See IRM 20.1.1, reasonable cause.
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.
INTERAGENCY COORDINATOR (IAC) The designated employee in the FTD unit of the SC Accounting Branch who is a liaison between IRS, FRB, commercial banks and reporting agents.
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 DATE The numeric day of the year starting with 001 on January 1 and continuing sequentially to 365 (or 366).
LEVY An administrative means of collecting taxes by seizure of the taxpayer’s property and rights to property to satisfy delinquent taxes.
MASTER FILE TAX (MFT) CODE A two-digit code that identifies the type of return filed and the tax class. See Document 6209, Section 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.
NON-MASTER FILE The files maintained by the IRS which include transactions on tax accounts not included on the Master File.
NORMAL (LEGAL) DUE DATE The 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-COMPROMISE An agreement resolving a taxpayer’s account where it has been determined that there is either doubt as to collectibility, doubt as to liability, or both.
ORAL EVIDENCE Non-written information received from the taxpayer, authorized representative or other third party, providing additional facts for requesting penalty relief. See IRM 20.1.1 for additional information on acceptable oral evidence.
PENALTY A 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 PERIOD The time for which a penalty is applicable.
PENALTY REASON CODE A 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 20.1.1–3.
PENDING TRANSACTION A 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 ENDING The ending year and month of the period covered by a tax return.
PINEX An IDRS computer program used to produce penalty and interest explanations for taxpayers.
POSTASSESSMENT APPEAL An appeal of tax, penalty and/or interest made by the taxpayer after the tax and/or penalty has been assessed.
PREPAID CREDITS Payments of tax, such as withholding, estimated payments, etc., made prior to the due date of the return.
PRESCRIBED DUE DATE The due date designated for filing a return, including any extension of time for filing.
PRESUMPTIVE DUE DATE The due date designated for filing a return, not taking into account any extensions.
REASON CODE A three-digit code used when adjusting an account to denote which item on the tax return is affected by the adjustment.
REBATE A credit, refund or other repayment where too much tax was paid.
RECEIVED DATE:  
 a.  Timely filed return The original or extended due date of the return.
 b.  Late filed return The IRS received date stamped on the face of the return.
REFILE DLN A 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.
REFUND Money returned to the taxpayer as a result of overpayment of a tax liability.
REMITTANCE AMOUNT The amount of money received in payment of a liability. This remittance may be by check, money order, cashier’s check, or cash.
SECURED DELINQUENT RETURN A return secured after a taxpayer has been contacted by the Service but prior to an assessment made under Substitute for Return procedures.
SEIZED PROPERTY Property of the taxpayer over which the Service 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 NUMBER A unique nine-digit number used to identify an individual taxpayer account, in NNN-NN-NNNN format issued by the Social Security Administration.
SOURCE DOCUMENT Backup documentation used by Service personnel to explain an adjustment to a taxpayer’s account; for example, taxpayer correspondence.
STATUS CODE A two-digit numeric code indicating the Master File and/or IDRS status of a tax module.
STATUTE OF LIMITATIONS A set of rules specifying the period in which actions may occur, or within which rights may be enforced.
SUBSEQUENT PAYMENT A payment received for an account that has been assessed and for which the taxpayer has been billed.
SUBSTANTIAL AUTHORITY The 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 Service pursuant to IRC section 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 Service.
SUPERSEDING RETURN An amended return filed on or before the return due date. It is filed on an original return form, not an amended return form.
TAX CLASS A one-digit code which identifies the type of tax involved in a transaction.
TAX MODULE A record of one account for one taxpayer covering one type of tax for one tax period.
TAX PERIOD The period of time for which a return is filed.
TAXPAYER ADVOCATE SERVICE (TAS) A program within the IRS to which taxpayers’ problems can be referred if they cannot be resolved by normal procedures. The program cannot change the tax law or technical decisions.
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 IDENTIFICATION 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), or an Individual TIN (ITIN).
TAXPAYER INFORMATION FILE (TIF) The IDRS file which contains entity and module information.
TIMELY FILED A return or document which was filed by the taxpayer and received by the Service within specified time frames. A return is timely filed if postmarked by the original or extended due date (Rev. Rul. 73-133).
TOLERANCE The 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, ADP and IDRS Information, Section 8–1, contains a complete listing of TCs.
UNDERPAYMENT In 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.
VOLUNTARY COMPLIANCE Taxpayers who freely obey the tax laws. Compliance is defined in the IRC as:
  (a) filing accurate and complete returns on time,
(b) paying amounts due, and
(c) reporting information required.
WAIVER A waiver is a limited form of penalty relief.
WILLFUL NEGLECT Conscious, intentional failure to comply with the provisions of the IRC, or reckless indifference to such provisions.

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