Penalty proposal notices, Notice 972CG, are generated from the PMF. Assessments which result from the proposed notices are manually input to the Civil Penalty Module.

Penalties may also be proposed as the result of an examination of a filer's records. PMF data may be accessed by using CC PMFOL or PATRA as described below. See IRM 2.3 for additional information on IDRS research that can be beneficial in obtaining payer information.

The Filer entity information,

Filing History—indicators to show whether returns were filed or a penalty was proposed for the five most recent tax years, and

A record of each Form 1096 submitted by the filer, including (1) Documents—the type and number of forms submitted, the media used (paper, magnetic/electronic), whether returns were original, amended or replacement; (2) payments—the total payment for all payees for each type of form, (3) withholding—the total amount withheld for all payees, (4) received date—for late filed returns, (5) penalties—the number of returns for which a penalty was proposed for late filing, magnetic media, and TINs,

Return due date for each form type,

Extension—if the filer received an extension of time to file which extended the due date of the return,

Waiver—if the filer received a waiver exempting the returns from the requirement to be filed on magnetic or electronic media, and

Totals—summary for each form type filed, amounts reported, and penalties proposed.

The penalty indicators show which types of PMF generated penalties were assessed or proposed.

The penalty indicators do not consider any manual assertions and should be used in conjunction with TXMOD, BMFOL, IMFOL or MFTRA information to determine previous compliance history.

For YRS PNL a blank for a tax year indicates that no computer generated penalty was issued (or proposed) for that period. For YRS FILED a blank for a tax year indicates that no information returns were processed to the PMF for that period. See (4) above concerning manual assessments and (5) below concerning forms W-3/W-2.

Linked PMF accounts are verified annually and receive entity updates from the Master File on a weekly basis. This is the only way PMF can be updated.

Individual 1096/1099 filings will not update the PMF entity. A different entity may be shown on PMFOLD for individual 1096/1099 filings, however, these will not update the PMF entity on PMFOL or MF.

Approximately ninety-five percent of the PMF is linked.

The remaining five percent, which is not-linked, represents new filers or filers without BMF/IMF filing requirements.

This count will sometimes differ from the count entered by the filer on the Form 1096.

The "Subj" (Subject to Penalty) volume further excludes returns that are not required to be filed by law because of the amount being reported, e.g., Form 1099–INTs reporting less than $10 dollars are systematically dropped from the number of returns subject to penalty.

The aggregate volume of original, amended, and replacement returns, by return type, that were transmitted and the number subject to penalty based on all Forms 1098, 1099, 5498 and W–2G filed.

The gross penalty amounts applicable to the returns that were penalized by return type and the type of penalty (late, magnetic or electronic media, missing and incorrect TINs). These figures include all potential penalties identified for the tax year.

The "Civil Penalty Proposed" is the actual penalty amount proposed on the notice. This amount is limited by the penalty maximum of $250,000 per year and the $50 per return maximum.

A waiver of magnetic or electronic media filing is indicated by a "yes" or "no" entry. The extended due date (if applicable) is shown by return type. If no extension was granted, the date shown is the required due date for the return.

The date of sale and total sales price (Part I);

Allocation of sales price among seven asset classes and the aggregate Fair Market Value of each class of assets (Part II); and

Supplemental information statements to cover increases and decreases in consideration received by the Buyer (Part III).

This statement is filed with the income tax return for the year that includes the date of the acquisition.

The filer must show that it would cause an undue economic hardship if the filer were required to file either on magnetic or electronic media.

The request must be postmarked no later than the due date of the return.

If the extension request is for multiple filers, a listing providing the TINs, names and addresses of the filers must also be attached.

Extensions are initially granted for a maximum of 30 days.

A second 30 day extension may be granted. To obtain an additional extension, the filer must file a second Form 8809 before the first 30 day extension expires.

Both the first and second extensions must be approved by the Service (ECC-MTB).

The letter must contain:
1. The filer's name, TIN and address,
2. Type(s) of information returns,
3. Reason for delay, and
4. Signature of filer or authorized agent.

If approved, the extension is generally granted for a maximum of 30 days.

The request is made by submitting a letter or Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns, to the Campus serving the taxpayer's address. Extensions for Form 1042 or 1042S that will be filed magnetically or electronically must be sent to Martinsburg Computing Campus at P.O. Box 1359, Martinsburg, WV 25401. If the returns will be filed on paper, the request must be sent to the Philadelphia Campus, Philadelphia, PA 19255. The extension request must be postmarked by the due date of the return. If approved, the extension is granted for 90 days.

The request must include:
1. The filer's (or transmitter's) name, address and TIN,
2. The type of return, i.e., 1042 and the tax year for which the extension is requested,
3. If filing magnetically or electronically, the Transmitter Control Code (TCC), or other applicable designation of the organization or individual requesting the extension and the name of a contact person familiar with the request,
4. The reason for delay and the date the returns will be submitted, and
5. A list providing the withholding agents' names and TINs must be attached, if the extension request is for multiple filers

At the Campus, the penalty proposal may generate automatically based on returns posted to the PMF, or

Compliance Field Functions consider the penalty during an examination if it is found that the filer failed to file, filed late, or filed incorrectly.

Generally information return penalties are not asserted by collection actions, however collection personnel are not prohibited from making these types of assessments. During the course of an investigation or other contact with taxpayers it may be determined that required information returns have not been filed. The information returns should be secured from the taxpayer, and if appropriate, the applicable penalty recommended for assessment.

Across the bottom of Forms 1099, W–3 or 4804 write in red "Delinquent Returns—Secured by Collection—Penalty Considered." For Form(s) 1096, W-2 and W-2C enter "C" (Collection) in the first box under "Official Use Only."

A Civil Penalties Master file has been developed to accommodate most penalties using MFT 55 (for IMF) and MFT 13 (BMF). Form 8278 (Computation and Assessment of Miscellaneous Penalties) is used to forward the assessment/abatement action for input.

For penalties being recommended under IRC section 6721, 6722 or 6723, Form 3645 (Computation of Penalty for Failure to File Information Returns or Furnish Statements) should be prepared. (1) A determination as to reasonable cause should be entered under the caption "Recommendation of Examining Officer." (2) If reasonable cause does not exist, the penalty should be collected. The Form 3645 and information documents, should be attached to Form 8278 and submitted with the daily report for assessment.

Reference IRM 20.1.7.9 for waiver provisions due to reasonable cause for penalties under IRC section 6721, 6722 and 6723.

Penalties asserted by Examination will be identified by TC 240 with 600 series reference number. Prior to abating these penalties, collection employees will obtain the examination assessment file for any information previously presented by the taxpayer. This information should be reviewed and taken into consideration in making a reasonable cause determination.

When taxpayers request non-assertion or abatement of penalties due to reasonable cause, the taxpayer must submit a signed statement explaining the basis for non-assertion/abatement or sign Form 3870 (Request for Adjustment). (1) The signature must be executed under the penalty of perjury. This requires insertion of "under penalty of perjury the above information is true, correct and complete," on Form 3870 prior to obtaining the taxpayer's signature. (2) The penalty reason code (see Document 6209) for abating the penalty will be clearly annotated in red on the face of the Form 3870 "RC–" (fill in number corresponding to applicable reason code).

Requests for non-assertion/abatement of penalties for reasonable cause will be approved by the requesting employee's manager. Approval will be denoted by the employees manager's signature next to the work approved on the form requesting non-assertion/abatement.

If the taxpayer disagrees with the employees determination and maintains that the penalty should not be asserted, the employee should provide written notification of the denial to the taxpayer.

Form 9423, Collection Appeal Request will be sent to the taxpayer advising them of their pre-assessment appeal rights, and claim procedures and post assessment appeal procedures.

When a collection employee decides to deny reasonable cause and proceeds with assertion of the penalty, it is imperative that the decision be recorded in such a manner that other Service employees will be aware that reasonable cause has already been addressed.

For that reason, when reasonable cause is denied at the time the information return penalty is recommended for assessment, the reason code will be annotated on Form 8278 in column (e) opposite the penalty amount assessed. The penalty reason code (PRC) shall be entered in red in the following format "PRC–" (fill in number corresponding to applicable reason code).

If the taxpayer disagrees with the employee's determination and maintains that the penalty should be abated, written notification should be provided to the taxpayer using Letter 854(C). Collection personnel can request that Campuses send this notification to the taxpayer.

An appropriate input document will be used to request input of TC 290, Reason Code 92, blocking series 98. This is necessary to insure that, if subsequent claims of reasonable cause are received, the employee will be able to determine that the issue has been addressed before.

If the taxpayer submits a written appeal, the collection employee who rejected the abatement request will examine the appeal for additional information which may change the original determination not to abate the penalty.

Normally collection action will be suspended on the penalty portion of the assessment during the 15 day period granted to the taxpayer to file an appeal, or during the period the case is under consideration by Appeals. However, action need not be suspended if circumstances meriting continuation of collection action exist. The Collection Compliance Function employee must obtain managerial approval not to suspend collection of the penalty portion of the assessment.

A TC 290,

The appropriate reference number (see Exhibit 20.1.7–1),

The dollar amount of the penalty: (1) as a positive amount to assess, (2) as a negative amount to abate, or (3) as a zero amount to sustain (if no change), and

Blocking series: (1) 52X for the first assessment (full or partial change) on the module, (2) 53X for any subsequent adjustments on a module with a previous block 52 , (3) 98X for any full or partial disallowance, or (4) 15X for full waivers on BMF accounts or to file attachments, correspondence, etc., (5) 05 for full waivers on IMF accounts, or to file attachments, correspondence, etc.

Use Hold Codes, Priority Codes, Posting Delay Codes, and Penalty Reason Codes as applicable. See Document 6209 for additional information regarding these codes and indicators.

Onlyuse Letter 854C when the filer has submitted an explanation which can be fully evaluated to determine that the filer does not have reasonable cause to have the penalty abated or waived. Letter 854C should not be used to close a case which requires additional information to determine whether reasonable cause exists or for "no reply" cases.

Letter 854(C )should list the reason(s) the abatement request is being denied.

Replies to Letter 854(C) should be evaluated to determine if the information provided will allow the penalty unit to abate the penalty. If not, route the reply to Letter 854(C) to the Campus Penalty Appeals Coordinator.

If reasonable cause was considered and was either established or denied, enter RC 62 in the first reason code position, and

When waiving/abating a penalty due to reasonable cause, use the appropriate Penalty Reason Code (PRC) (as shown in Exhibit 20.1.1–3) in the fourth reason code position.

It may be necessary to establish the filer's entity on the Master File if it has not been established.

The Entity Control Unit must establish BMF entities.

The penalty unit will establish entities and create Civil Penalty Name Lines for IMF accounts as required.

Notify the penalty analyst in the headquarters office of any federal agency included in the penalty notice program.

For magnetic or electronic media returns, forward the 4804 and any other documentation provided by ECC-MTB.

Mark the Form 1096, 4804, or W–3 "Penalty Not Assessed."

Notices 972CG (IMF) that require special handling,

Notices 972CG with TIN listings,

Notices 972CG without TIN listings containing up to 15 pages,

Notices 972CG without TIN listings containing over 15 pages,

TIN listings containing up to 250 payee records

Suspense copies of all notices, including those mailed by ECC-MTB (see (4) below), and

CP 215A/15A, "Summary of Proposed Penalty" —to be mailed with Notices CP 215/15.

If one is found, stamp the current date on the notice and re-mail (include the original envelope),

Also stamp the new date on the file copy of the notice.

Campuses will return the listing to ECC-MTB indicating new addresses,

ECC-MTB will stamp a new date on the notice and notify the Campus of the new notice date,

If the Campus is unable to find a new address for notices mailed by ECC-MTB, the case history should be annotated to show that the notice was undeliverable.

If a new address is found, stamp a new date on Notice 972CG and re-mail (include the original envelope),

If no new address is found, assess the penalty.

A balance due and the date of the notice is no more than seven days prior to the current date (also see (3) below),

An even balance notice, regardless of the date,

A taxpayer inquiry, regardless of the date, or

An overpayment notice.

After entity is established on the CPM or the civil penalty name line (CVPN) is created, the penalty should be manually assessed following the appropriate instructions in this IRM.

In addition, correspondence should only be sent to the responsible individual. Ensure that the spouse's name is removed before sending out a notice.

Assess the appropriate penalty following the instructions in this IRM. Verify that this is not a duplicate assessment.

Once an account is established, Master File processing will establish a Civil Penalty Name Line (CVPN) on MFT 55 when the civil penalty assessment is input. Once created, the CVPN remains on the account and applies to all civil penalty periods.

The current account is, or has ever been joint,

The assessment will be against the primary taxpayer whose SSN controls the account, and

The account does not already have a CVPN.

EXAMPLE 1: A joint account is on Master File for John and Mary Doe (John's is the controlling SSN). A penalty is to be assessed against John. The account has no existing CVPN.
Action : Input a CVPN for "John Doe" using the special procedures for establishing a CVPN shown in the IDRS Handbook. The penalty may be assessed immediately.

EXAMPLE 2: On the same joint account as above, the penalty is to be assessed against Mary Doe. Mary has an account on Master File under her own SSN with the name line of Mary Jones because she filed individually before filing jointly with John Doe. There is no CVPN on her account because she is the secondary taxpayer.
Action : Input a name change (and address change, if appropriate) to her existing Master File account, then assess the penalty. No CVPN needs to be input because she is the secondary taxpayer.

EXAMPLE 3: On a Joint account for John and Mary Doe, the penalty is to be assessed against Mary. However, Mary has no account under her SSN on the Master File.
Action : Establish an account for her on the Master File using her SSN with TC 000, as described in the IDRS Handbook, then assess the penalty. No CVPN needs to be input.

EXAMPLE 4: John Doe has a separate account without a CVPN on Master File and a penalty is to be assessed.
No special name line action is required, the penalty may be assessed and a CVPN will be generated by Master File.

EXAMPLE 5: John and Mary Doe do not have an account on the Master File since they are non-filers. A penalty is to be assessed against John. If a joint return is to be processed as a delinquent or substitute, a joint name line should be established before establishing a CVPN. Once the joint entity is established, follow the special CVPN name line procedures to establish CVPN for John.