20.1.8  Employee Plans and Exempt Organizations Miscellaneous Civil Penalties

Manual Transmittal

August 16, 2011

Purpose

(1) This transmits revised IRM 20.1.8, Penalty Handbook, Employee Plans and Exempt Organization Miscellaneous Civil Penalties.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Also, website addresses, legal references, and IRM references were reviewed and updated as necessary. Several sections within this IRM have been rearranged for clarity. Other significant changes to this IRM include the following:

Reference Description
IRM 20.1.8.1.1 Added additional forms relating to employment taxes
IRM 20.1.8.2.2.1 Defined the term willful and flagrant for IRC 6684 penalty
IRM 20.1.8.2.3 Delete reference to Public Law 91-172
IRM 20.1.8.2.3 Deleted reference to Public Law 100-203
IRM 20.1.8.2.3 Deleted alphabetical list
IRM 20.1.8.2.4 Deleted reference to Public Law 100-203
IRM 20.1.8.2.5 Deleted section due to outdated references. In new section 20.1.8.2.5 increased the nominal amount from $2.50 to $10.00 due to inflation over the years.
IRM 20.1.8.2.6 Deleted reference to Public Law 103-66
IRM 20.1.8.2.7 Clarified information on the IRC 527(j) penalty provision, assertion, computation, and relief.
IRM 20.1.8.3.2 Included instructions for filing Form 8955-SSA for returns due after 2009
IRM Exhibit 20.1.8-3 Deleted examples

Effect on Other Documents

This material supersedes IRM 20.1.8, dated April 17, 2009.

Audience

All operating divisions and functions that work with penalties associated with employee plans and exempt organizations.

Effective Date

(08-16-2011)

Duane Gillen
Director, Exam Policy
SE:S:E:EP

20.1.8.1  (08-16-2011)
Introduction

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

  2. Decisions on penalty issues are to be guided by the applicable statutes, rules, and regulations addressed within the IRC.

  3. Managerial approval is required on most penalty assessments in this IRM. IRC 6751(b) requires that for the assessments of all Title 26 (26 U.S.C.) civil penalties, the immediate supervisor of the individual making the determination (or a higher level official the Secretary may designate) must personally approve the assessment in writing. See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments, for more discussions on managerial approval for penalty assessments and the exceptions.

    Exception:

    Additions to tax under IRC 6651 (excluding IRC 6651(f)), IRC 6654, IRC 6655), or any other penalty automatically calculated through "electronic means" do not require written managerial approval.

20.1.8.1.1  (08-16-2011)
Common Features

  1. In general, each penalty discussed in this chapter is unique and will stand alone unless otherwise indicated. Exceptions and additional information are noted in the discussions of the specific penalties; however some general procedures apply.

  2. Statute of Limitations: In general, the additions to tax, additional amounts, and assessable penalties are assessed, collected, and paid in the same manner as taxes. To the extent such an item pertains to a tax return, the assessment is subject to the statute of limitation per IRC 6501, Limitations on Assessment and Collection (generally, three years from the later of the due date (unextended) or the filing of the return).

  3. Reasonable Cause: Determination as to whether or not reasonable cause exists must be based on careful consideration of the facts and circumstances of each case prior to the assertion of a penalty. Examiners should consider any reason a taxpayer provides in conjunction with the guidelines, principles, and evaluating factors identified in IRM 20.1.1.3.2. Reasonable Cause.

  4. Abatements: Information on penalty abatements, penalty reason codes (PRC), and penalty reference numbers (PRN) is provided in IRM 20.1.1.3, Criteria for Relief from Penalties.

  5. Penalty reference numbers (PRN) are used to assess non-tax return related penalties (conduct or information returns).

    1. Generally, the "500" series penalty reference numbers are assigned to penalties for computer-matching programs and are used to identify a failure to comply. They are usually asserted by the Campus.

    2. Generally, the "600" series penalty reference numbers are assigned to penalties as the result of an examination or other compliance activity. They are usually asserted by area examination.

    3. See Document 6209, IRS Processing Codes and Information, or Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for a complete list of the current penalty reference numbers.

  6. Other civil penalties common to EP/EO returns are discussed in the following handbooks:

    1. IRM 20.1.1, Introduction and Penalty Relief

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

    3. IRM 20.1.3, Estimated Tax Penalty

    4. IRM 20.1.4, Failure to Deposit

    5. IRM 20.1.5, Return Related Penalties

    6. IRM 20.1.6, Preparer/Promoter/Material Advisor Penalties

    7. IRM 20.1.7, Information Return Penalties

    8. IRM 20.1.10, Miscellaneous Penalties

    9. IRM 20.1.11, Excise Tax and Estate and Gift Tax Penalties

20.1.8.1.2  (08-16-2011)
Failure to File and Failure to Pay Provisions

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

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

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

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

    • Form 730, Monthly Tax Return for Wagers

    • Form 720, Quarterly Federal Excise Tax Return

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

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

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

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

  3. The employment tax returns required of certain exempt organizations are:

    • Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return

    • Form 941, Employer's Quarterly Federal Tax Return

    • Form 944, Employer's ANNUAL Federal Tax Return

  4. There is no statutory prohibition against asserting the fraud penalty under IRC 6663 and the fraudulent failure to file penalty under IRC 6651(f) for the same year. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

20.1.8.1.3  (08-16-2011)
IRC 6662 - Imposition of Accuracy-Related Penalty on Underpayments

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

20.1.8.1.3.1  (08-16-2011)
Accuracy-Related Penalty Assertion

  1. In general there is an overstatement of pension liabilities if the actuarial determination of pension liabilities taken for deduction purposes, under IRC 404(a)(1) or IRC 404(a)(2) exceeds the amount determined to be the correct amount of such liability. The IRS has determined that deductions are to be disallowed when liabilities are overstated for reasons not reasonably based on the facts and circumstances. For example:

    1. Valuation of liabilities based on unreasonable actuarial assumptions, or

    2. Valuation of accelerated deductions in a manner inconsistent with IRC 412 regulations (relating to acceptable funding methods), or,

    3. Taking benefits in excess of those permitted under IRC 415.

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

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

  3. Penalty Computation -The penalty under IRC 6662(a) is computed by multiplying the underpayment of tax attributable to the substantial overstatement of pension liabilities by 20 percent.

    1. No penalty is imposed under IRC 6662(f)(2) unless the portion of the underpayment for the taxable year attributable to the substantial overstatement of pension liabilities exceeds $1,000.

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

20.1.8.1.3.2  (08-16-2011)
Penalty Relief

  1. IRC 6664(c) provides penalty relief for IRC 6662 violations with respect to any portion of the underpayment if it can be shown that there was a reasonable cause for such portion and the taxpayer acted in good faith with respect to such portion. If the taxpayer can substantiate reasonable cause and good faith, the penalty should not be asserted.

  2. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.1.4  (08-16-2011)
How to Assess and Abate - Exempt Plan Procedures

  1. Penalties on employee benefit plan forms are assessed as follows:

    1. Penalty adjustment case files associated with income tax forms are forwarded via Form 3210, Document Transmittal, to the servicing campus Receipt and Control function. The case file and related source documents should be accompanied by Form 5734, Non-Master File Assessment Voucher;

    2. Penalties not associated with income tax forms are forwarded via Form 3210 to the servicing campus Receipt and Control function. Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, should be kept with the relevant source documents.

      Reminder:

      Ensure that the most current form is used with the appropriate IRC sections and penalty reference numbers indicated.

20.1.8.2  (08-16-2011)
Exempt Organizations and Certain Trusts

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

    • Charitable

    • Religious

    • Scientific

    • Educational

    • Not-for-profit membership organizations

    • Business leagues

    • Certain cooperative organizations.

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

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

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

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

    4. Form 990-EZ, Short Form Return of Organization Exempt from Income Tax

    5. Form 990-N, e-Postcard

  3. The following IRC sections contain relevant information impacting the tax treatment of Exempt Organizations and Certain Trusts when considering penalty application:

    • IRC 527(j)(1), Failure to Disclose Certain Information by Political Organizations

    • IRC 6652(c), Failure to File Certain Information Returns
      Public Law 109-222 created IRC 4965 and amended IRC 6652(c)(3), IRC 6033(a)(2), and IRC 6011(g) effective for taxable years ending after May 17, 2006

    • IRC 6684, Assessable Penalties with Respect to Liability for Tax Under Chapter 42

    • IRC 6685, Assessable Penalty With Respect to Public Inspection Requirements For Certain Tax Exempt Organizations

    • IRC 6710, Failure to Disclose that Contributions are Nondeductible

    • IRC 6711, Failure to Disclose Availability of Information or Service from Federal Government

    • IRC 6714, Failure to Meet Certain Disclosure Requirements (for quid pro quo contributions)

  4. Certain trusts are required to file Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts.

20.1.8.2.1  (08-16-2011)
IRC 6652(c)(1) - Exempt Organization Returns and Related Penalty Provisions

  1. IRC 6652(c)(1)(A) - outlines the penalty provisions related to the failure to file returns required by IRC 6033(a)(1) (exempt organizations) and IRC 6012(a)(6) (political organizations). It also addresses the failure to file returns required by IRC 6652(c)(2)(C), which applies to certain split-interest trusts.

    1. IRC 6033(a)(1) and IRC 6012(a)(6) require certain exempt organizations, including political organizations, to file returns on the date and in the manner prescribed.

    2. IRC 6652(c)(1)(A) imposes a penalty on exempt organizations required to file under IRC 6033(a)(1) and IRC 6012(a)(6) of $20 for each day, during which a failure to file continues (determined with regard to extensions), or for a failure to include any of the information required to be shown on a return filed under IRC 6033(a)(1) or IRC 6012(a)(6) to show the correct information.

    3. IRC 6652(c)(1)(A) imposes a penalty on an organization having gross receipts exceeding $1,000,000 for any year, with respect to the return required under IRC 6033(a)(1) or IRC 6012(a)(6) for such year, of $100 per day with the maximum penalty of $50,000 per return.

    4. The penalty is not to exceed $10,000 or five percent of the gross receipts of the organization for the year, whichever is less.

  2. IRC 6652(c)(1)(B) - Penalty Imposed on the Manager or Person Failing to Comply imposes a penalty on the manager or other person who fails to comply with a written demand from the IRS that the organization file required returns or furnish particular information. The penalty for failure to file or furnish returns is $10 daily after the expiration of the time specified in the demand. The maximum penalty under this section on all persons for failure to file any one return is limited to $5,000.

  3. IRC 6652(c)(1)(C) - Public Inspection of Annual Returns and Reports Required of Tax Exempt Organizations:

    1. IRC 6104(d)(3) describes the types of information not required to be disclosed under IRC 6104(d). The Pension Protection Act of 2006, added IRC 6104(d)(1)(A)(ii), which provides that tax exempt organizations described under IRC 501(c)(3) must make Form 990-T, available for public inspection effective for returns filed after August 17, 2006.

    2. In addition to the requirement that an organization make a copy of the annual returns filed during the 3 year period beginning after the last day prescribed for filing the return and the application for recognition of tax exempt status, including the report under IRC 527(j) by political organizations disclosing expenditures and contributions, available for inspection, an organization, except as provided in IRC 6104(d)(4), must provide a copy of its annual return and application, if requested. See IRC 6104(d)(1)(B) regarding the requirement to provide copies to requesters.

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

    4. IRC 6652(c)(1)(C) imposes a penalty of $20 a day on the person (as defined in IRC 6652(c)(5)(C)) who fails either to make the return, or the report required by IRC 527(j), available for inspection or to provide a copy of the annual return or report. The maximum penalty on all "persons" is $10,000 with respect to one annual return.

  4. IRC 6652(c)(1)(D) - Public Inspection of Applications for Exemption and Notice of Status Required of Tax Exempt Organizations

    1. IRC 6652(c)(1)(D) imposes a penalty of $20 a day on the person (as defined in IRC 6652(c)(4)(C)) who fails to either make the application available for inspection or to provide a copy of the application as required by IRC 6104(d). Unlike the penalty for failure to provide public inspection of annual returns and reports under IRC 6652(c)(1)(C), the penalty under IRC 6652(c)(1)(D) relates to applications for exemption and notices of exempt organizations, including private foundations and political organizations.

    2. IRC 6104(d)(6) provides that the term "notice materials" means the notice of status filed by political organizations under IRC 527(i), along with associated documents.

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

20.1.8.2.1.1  (08-16-2011)
IRC 6652(c)(2) - Trusts and Exempt Organizations

  1. IRC 6652(c)(2)(A) - Penalty on the Exempt Organization or Trust

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

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

  2. IRC 6652(c)(2)(B) - Penalty on Managers

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

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

  3. IRC 6652(c)(2)(C) - Split-Interest Trusts

    1. IRC 6652(c)(2)(C) provides a penalty for split-interest trusts that fail to file Form 1041-A, U.S. Information Return - Trust Accumulation of Charitable Amounts, as required by IRC 6034 or IRC 6043(b). See IRC 6034(a) for special tax treatment of a split-interest trust.

    2. The daily delinquency penalty for any one return is $20 for each day during which the failure to file continues, not to exceed $10,000. For any trust with gross income exceeding $250,000, the penalty for any one return is $100 for each day the failure continues, not to exceed $50,000.

20.1.8.2.1.2  (08-16-2011)
Disclosure Requirements for Tax-Exempt Entities

  1. IRC 6652(c)(3)(A) - Penalty on Entities: provides for a penalty for each failure by a tax-exempt entity identified under IRC 4965(c) (whether it is a plan entity or a non-plan entity) to file a disclosure required under IRC 6033(a)(2) with respect to such entity's involvement in any prohibited tax shelter transaction. The penalty is $100 for each day the failure continues, not to exceed $50,000 with respect to any one disclosure.

  2. IRC 6652(c)(3)(B) - authorizes the Secretary to make a written demand on any entity or manager subject to the penalty for nondisclosure under IRC 6033(a)(2), specifying a reasonable future date by which the required disclosure must be filed.
    Failure to comply with the Secretary's demand is subject to an additional penalty in the amount of $100 for each day after the expiration of the time specified in the demand during which such failure continues, not to exceed $10,000 with respect to any one disclosure.
    The penalty is imposed on the tax-exempt entity of non-plan entities and on the entity manager of plan entities for failure to file a disclosure and for failure to comply with the Secretary's demand for disclosure. Non-plan entities and plan entities are identified under IRC 4965(c).

  3. IRC 6652(c)(4) provides that no penalties should be asserted if any failure is due to reasonable cause. Penalty relief falls into four separate categories. They are:

    • Reasonable Cause

    • Statutory Exceptions

    • Administrative Waivers

    • Correction of Service Error

  4. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3.

20.1.8.2.2  (08-16-2011)
Failure to Act Due to Reasonable Cause for Private Foundations and Certain Other Tax-exempt Organizations

  1. IRC 6684 provides that a penalty may be asserted on any person (as defined in IRC 7701) liable for tax under Chapter 42, Private Foundations and Certain Other Tax Exempt Organizations. There are exceptions for IRC 4940, Excise Tax Based on Investment income, and IRC 4948(a), Application of Taxes and Denial of Exemption with Respect to Certain Foreign Organizations, for any act or failure to act which is not due to reasonable cause if:

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

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

  2. Treas. Reg. 1.507-1(b)(9)(c) defines the terms willful and flagrant as:

    1. Willful repeated acts (or failures to act) - at least two acts or failures to act both of which are voluntary, conscious, and intentional, or

    2. Willful and flagrant acts (or failures to act) - an act which is voluntarily, consciously, and knowingly committed in violation of any provision of Chapter 42, and which appears to a reasonable man to be a gross violation of any such provision.

  3. The IRC 6684 penalty:

    1. Is assessed on Form 8278 (see IRM 20.1.8.1.3 for assessment procedures and IRM 20.1.1. 4 for post-assessment appeal procedures.)

    2. Is equal to the amount of the excise tax for which it is determined the person is liable.

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

20.1.8.2.3  (08-16-2011)
IRC 6685 - Failure to Comply with the Public Inspection Requirements for Certain Tax Exempt Organizations

  1. For a tax-exempt organization, the IRC 6685 $5000 penalty applies to any officer, director, trustee, employee, or other individual who is under a duty to, and willfully fails to, comply with the public disclosure requirement of IRC 6104(d). This section extended the penalty to managers of all tax-exempt organizations.

    1. This penalty will be assessed on Form 8278.

    2. The civil penalty in IRC 6685 is in addition to the criminal penalty imposed by IRC 7207 (relating to fraudulent returns, statements, or other documents).

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

  3. There is no maximum amount of penalty.

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

20.1.8.2.4  (08-16-2011)
IRC 6710 - Failure to Disclose that Contributions are Nondeductible

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

  2. Each fund-raising solicitation must disclose (in a conspicuous and easily recognized format) that contributions or gifts made to the organization are not deductible as charitable contributions for federal income tax purposes. The fund-raising disclosure requirement does not apply to organizations with annual gross receipts that do not exceed $100,000.

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

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

  5. This penalty is assessed on Form 8278.

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

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

    1. $1,000 per day or

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

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

    IF the solicitation was... THEN the failure occurs when the solicitation is...
    by television or radio televised or broadcast.
    by mail mailed.
    not by mail but in written or printed form distributed.
    by telephone made.

20.1.8.2.5  (08-16-2011)
IRC 6711 Failure to Disclose Availability of Information or Service from Federal Government

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

  2. Material and/or services available from the federal government for less than $10.00, including postage and handling costs, meet the nominal charge requirement.

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

  4. This penalty is assessed on Form 8278.

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

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

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

    1. $1,000 per day, or

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

  8. There is no maximum amount of penalty.

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

    IF the solicitation was... THEN the failure occurs when the solicitation is...
    by television or radio televised or broadcast.
    by mail mailed.
    not by mail but in written or printed form distributed.
    by telephone made.

20.1.8.2.6  (04-17-2009)
IRC 6714 - Failure to Meet Certain Disclosure Requirements

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

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

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

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

  3. IRC 6115 provides that organizations described in IRC 170(c) (except governmental instrumentalities described in IRC 170(c)(1)) are required to provide a written statement to each donor in connection with the solicitation or receipt of the quid pro quo contribution (indexed for inflation).

    1. That statement must provide the donor with a good faith estimate of the value of the goods and services provided by the organization.

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

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

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

  6. This penalty is assessed on Form 8278.

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

20.1.8.2.7  (08-16-2011)
IRC 527(j) - Failure to Disclose Certain Information by Political Organizations

  1. A political organization (except those described in IRC 527(i)(5)) that accepts a contribution or makes an expenditure for an exempt function during any calendar year shall file a disclosure with the Secretary.

  2. Such disclosure can be made either in semi-annual, quarterly, or monthly reports.

  3. IRC 527(j)(1) imposes a penalty for each failure equal to 35% multiplied by the amount to which the failure relates. It imposes a penalty on:

    1. A failure to make the required disclosures at the prescribed time frame and manner, or

    2. A failure to include any of the information required to be shown by such disclosures or to show the correct information.

  4. The amount imposed shall be assessed and collected in the same manner as penalties imposed by IRC 6652(c).

  5. IRC 527(l) provides that the Secretary may waive all or any portion of the:

    1. Tax assessed, or

    2. Amount imposed for a failure to comply, provided that such failure was due to reasonable cause and not due to willful neglect.

  6. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration, made by the appropriate individual, that the statement is made under penalties of perjury.

  7. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3.

20.1.8.3  (04-17-2009)
Employee Plans (EP)

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

  2. The following IRC sections contain relevant information impacting the tax treatment of Employee Plans when considering penalty application:

    • IRC 6652(d), Annual Registration and Other Notification by Pension Plan

    • IRC 6652(e), Information Required in Connection with Certain Plans of Deferred Compensation, Etc.

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

    • IRC 6652(i), Failure to Give Written Explanation to Recipients of Certain Qualifying Rollover Distributions

    • IRC 6690, Fraudulent Statement or Failure to Furnish Statement to Plan Participant

    • IRC 6692, Failure to File Actuarial Report

    • IRC 6693, Failure to Provide Reports on Certain Tax-Favored Accounts or Annuities; Penalties Relating to Designated Nondeductible Contributions

    • IRC 6704, Failure to Keep Records Required under Section 6047(d)

20.1.8.3.1  (08-16-2011)
EP Penalty Relief

  1. The criteria establishing "reasonable cause" justification for penalty relief are contained in IRM 20.1.1.

  2. Penalty relief falls into the following four categories:

    • Reasonable cause

    • Statutory exceptions

    • Administrative waivers

    • Correction of Service error

  3. IRM 20.1.1.3.3.4.3 discusses reliance on the advice of a tax advisor, which is limited to issues generally considered technical or complicated.

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

  5. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3.

20.1.8.3.2  (08-16-2011)
IRC 6652(d)(1) - Annual Registration and Other Notification by Pension Plan

  1. IRC 6652(d)(1) imposes a penalty on a plan administrator (see IRC 6057(a)(1)) for the failure to file by the due date). For plan years beginning after December 31, 2008, the Schedule SSA has been replaced by Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. In general, plans subject to this requirement are those that result in the deferral of compensation. For plan years beginning on or after January 1, 2009, the Form 8955-SSA should be used to comply with the reporting requirements of IRC 6057(a). In general, if a Form 8955-SSA must be filed for a plan year, it must be filed by the last day of the seventh month following the last day of that plan year (plus extensions).

  2. Plans subject to this requirement include all qualified plans under IRC 401(a) or annuities under IRC 403(a) that are subject to the vesting requirements of ERISA.

  3. Plans not subject to this requirement include:

    • IRC 414(d), government plans;

    • IRC 414(e), church plans where no IRC 410(d) election has been made;

    • Any plan which is established or maintained by a labor organization described in IRC 501(c)(5) and which has not provided employer contributions;

    • Any plan established and maintained by a society, order, or association described in IRC 501(c)(8) or IRC 501(c)(9), if no part of the contributions is made by employers of participants in such plan;

    • Any plans exempted pursuant to ERISA 201, such as top hat and excess benefit plans; and

    • Plans that cover only owners and their spouses.

  4. In general, IRC 6057(a) requires a plan administrator to file a registration statement for each plan year. This registration statement should include:

    1. The name of the plan;

    2. The name and address of the plan administrator;

    3. The name and taxpayer identification number of each participant in the plan, who— is separated from service covered by the plan during the plan year (if not reported in the year of separation, such separated participant must be reported in the following year); is entitled to a deferred vested benefit; and did not receive retirement benefits;

    4. The nature, amount and form of deferred vested benefit; and

    5. Other information the IRS may require in forms, instructions, and applicable guidance.

  5. Form 8955-SSA must be filed as a stand alone form with the IRS.

  6. Assess penalties under IRC 6652(d)(1) on the plan administrator (as defined in IRC 414(g), Plan Administrator).

  7. Form 5500 penalties, including those under IRC 6652(d)(1), will be assessed on BMF (MFT 74). The penalty is assessed as part of the CP-213 EP penalty process. See IRM 4.71.3, Employee Plans Examination of Returns - Unagreed, Delinquent and Substitute Form 5500 Examination Procedure, for more information.

  8. The penalty for failing to file on the due date is equal to:

    1. $1 for each participant for whom the required information was not filed multiplied by the number of days the failure continues.

    2. The penalty shall not exceed $5,000 for any plan year.

  9. For purpose of the penalty, the failure to report either the participant's name or social security number (SSN) is considered a failure to report the participant. Exceptions are granted for foreign nationals who are not required to have an SSN. For example:

    1. Form contains 10 names, but only eight of which show SSNs. The penalty would be $2 multiplied by the number of days the failure continues.

    2. Form contains 50 names, but it shows 60 SSNs. The penalty would be $10 multiplied by the number of days the failure continues.

  10. IRC 6652(d)(1) provides for non-assertion of the penalty if the plan administrator can show reasonable cause for the failure to timely file.

  11. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  12. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.3  (08-16-2011)
IRC 6652(d)(2) - Change of Status Notice

  1. IRC 6652(d)(2) imposes a penalty on the plan administrator for the failure to notify the IRS, by the due date, of changes in the status of a plan as required in IRC 6057(b).

  2. In general, the plans subject to this requirement are those plans that are covered by IRC 6057(a).

  3. Plans subject to this requirement include all qualified plans under IRC 401(a) or annuities under IRC 403(a) subject to the vesting requirements of ERISA.

  4. Plans not subject to this requirement include:

    • IRC 414(d) government plan;

    • IRC 414(e) church plan where no IRC 410(d) election has been made;

    • A plan which is established or maintained by a labor organization described in IRC 501(c)(5) and which has not provided employer contributions;

    • A plan established and maintained by a society, order, or association described in IRC 501(c)(8) or IRC 501(c)(9), if no part of the contributions is made by employers of participants in such plan;

    • Any plans exempted pursuant to ERISA 201 such as top hat or excess benefits plans; and

    • Any plans that cover only owners and their spouses.

  5. IRC 6057(b) requires the plan administrator to notify the IRS of:

    1. Any change in the name of the plan;

    2. Any change in the name and address of the plan administrator;

    3. Termination of the plan;

    4. Merger or consolidation of the plan with any other plan; or

    5. Division of the plan into two or more plans.

  6. Assess penalties under IRC 6652(d)(2) on the plan administrator (as defined in IRC 414(g), Plan Administrator).

  7. Penalties under IRC 6652(d)(2) will be assessed on BMF (MFT 74) as part of the CP-213 EP penalty process. They are computed after the return is processed on master file, or they may be asserted by the EP/EO specialist.

  8. The penalty for failing to file the form on the due date in the prescribed manner is equal to:

    1. $1 for each failure multiplied by the number of days the failure continues.

    2. The penalty shall not exceed $1,000 for failure to file any notification.

  9. IRC 6652(d)(2) provides for non-assertion of the penalty if the plan administrator can show reasonable cause for the failure to timely file.

  10. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  11. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.4  (08-16-2011)
IRC 6652(e) - Information Required in Connection with Certain Plans of Deferred Compensation, Etc.

  1. IRC 6652(e) imposes a penalty for failure to file annual returns and statements by the due date and in the prescribed manner required under:

    1. IRC 6058 relating to certain plans of deferred compensation, and

    2. IRC 6047(d) relating to certain trusts, annuities, and bond purchase plans.

  2. In general, IRC 6058(a) requires the employer or the plan administrator of each funded plan of deferred compensation, to file an annual return (Form 5500 (series), Annual Return/Report of Employee Benefit Plan). See Exhibit 20.1.8-1, Plans Filing Requirements, and Exhibit 20.1.8-2, Plans Exempt From Filing.

  3. In general, the due date for the Form 5500, Annual Return/Report of an Employee Benefit Plan, and appropriate schedules and attachments is:

    1. Full Plan Year: The appropriate Form 5500 and its applicable schedules and attachments must be filed by the last day of the 7th month after the plan year ends.

    2. Short Plan Year:Form 5500 and its applicable schedules and attachments must be filed by the last day of the 7th month after the short plan year ends.

  4. In general the extension of time to file is:

    1. A one time extension of time to file Form 5500 and its required schedules and attachments (up to the 15th day of the 10th month following the last day of the plan year) and will be granted by filing Form 5558, Application for Extension of Time to File Certain Employee Plan Returns.

    2. Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, starts the statute of limitations running with respect to particular excise taxes, including those under IRC 4975.

      Reminder:

      The filing of Form 5330 may be extended for up to six months.

    3. Form 5558 must be filed on or before the original due date for filing the Form 5500 (series) and Form 5330.

  5. Plans are automatically granted extensions of time to file Form 5500 and its required schedules until the extended due date of the federal income tax return of the employer and are not required to file Form 5558, if all the following conditions are met:

    1. The plan year and the tax year of the employer are the same;

    2. The employer has been granted an extension of time to file its federal income tax return to a date later than the normal due date for filing the Form 5500; and

    3. A copy of the extension of time to file the federal income tax return is no longer required to be attached to the Form 5500 or Form 5500-SF, "The Short Form Annual Return/Report of Small Employee Benefit Plan," when filed electronically. However, a copy of the extension should be kept with the plan's records.

  6. Plans granted an extension under the conditions in (5) above, cannot further extend the due date by filing a Form 5558.

  7. The penalty is imposed against the person responsible for the failure to file as reflected in the chart below:

    IF failure to file the... THEN the party liable for the penalty is...
    Form 5500 series (annual return) the plan administrator (within the meaning of IRC 414(g)) or the employer (who may be jointly and severally liable).
    Form 5310-A in the case of a merger, consolidation, or transfer of plan assets or liabilities. the plan administrator
    Form 1096 or Form 1099-R
    • trust - trustee

    • custodial account - custodian

    • annuity contract - issuer

  8. In general, IRC 6058(b) requires a plan administrator to file an actuarial statement of valuation evidencing compliance with IRC 401(a)(12), in the case of a merger, consolidation, or transfer of assets or liabilities from one plan to another.

    1. Form 5310-A, Notice of Plan Merger or Consolidation, Spin-off, or Transfer of Plan Assets or Liabilities, Notice of Qualified Separate Lines of Business, has been designated by the IRS as the form to be used for satisfying this requirement.

    2. Form 5310-A should be filed when there is a plan merger, consolidation, spin-off, or when there is a transfer of assets or liabilities to another plan. When meeting this criteria, Form 5310-A should be filed by the plan administrator or plan sponsor for a pension plan, profit-sharing plan, or a deferred compensation plan (except a multi-employer plan covered by the Pension Benefit Guaranty Corporation (PBGC) insurance).

    3. Form 5310-A must be filed at least 30 days prior to a plan merger, consolidation, spin-off, or transfer of liabilities to another plan. The form is late if not filed at least 30 days before any of these referenced activities.

  9. The instructions for Form 5310-A provide that a Form 5310-A is not required to be filed for:

    1. An eligible rollover that is paid directly to an eligible retirement plan in a direct rollover as described in IRC 401(a)(31), Optional Direct Transfer of Eligible Rollover Distributions; or

    2. Any plan merger, consolidation, spin-off, or transfer of plan assets and liabilities complying with:
      Treas. Reg. 1.414(l)-1(d), Merger of Defined Contribution Plans;
      Treas. Reg. 1.414(l)-1(h), De Minimus Rule for Merger of Defined Benefit Plan;
      Treas. Reg. 1.414(I)-1(m), Spin-off of a Defined Contribution Plan; or
      Treas. Reg. 1.414(I)-1(n)(2), Spin-off of a Defined Benefit Plan, De Minimus Rule.

  10. In general, IRC 6047(d) requires Form 1096, (Annual Summary and Transmittal of U.S. Information Returns) and Form 1099-R, (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc.) to be filed by:

    1. The employer maintaining the plan from which designated distributions may be made;

    2. The plan administrator of a plan from which designated distributions may be made; or

    3. The issuer of a contract under which such distributions may be made.

    or

  11. Designated distributions are defined in IRC 3405(e)(1) and include, generally, any includible non-wage distributions from an employer deferred compensation plan, an IRA, or a commercial annuity.

  12. A separate Form 1099-R must be made for each payee, but is not required if the aggregate payment to the payee is less than $10.

  13. Form 1099-R is required to be furnished to the payee by January 31 following the year of the distribution.

  14. Form 1096 is required to be filed with the IRS by February 28 following the year of the distribution.

  15. Assess penalties under IRC 6652(e) on the plan administrator as defined in IRC 414(g), Plan Administrator.

  16. The penalty under IRC 6652(e) will be assessed on BMF (MFT 74) as part of the CP-213 EP penalty process. It is computed after the return is processed on the master file, or it may be asserted by an EP/EO specialist.

  17. The penalty imposed by IRC 6652(e) for failing to file any form required under IRC 6058 and IRC 6047 on the due date in the prescribed manner is equal to:

    1. $25 for each failure multiplied by the number of days the failure continues.

    2. The penalty shall not exceed $15,000 for the failure to file any return.

  18. IRC 6652(e) provides for non-assertion of the penalty if reasonable cause can be shown.

  19. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  20. In Alton OB-Gyn, Ltd. v. United States, 789 F. 2d 515 (7th Circuit 1986), the taxpayer's reliance on a bank, as plan trustee, to handle ministerial duties of taxpayer's pension and profit-sharing plans, did not constitute reasonable cause for the failure to timely file the required Form 5500 series return.

  21. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.5  (08-16-2011)
IRC 6652(h) - Failure to Give Notice to Recipients of Certain Pension, Etc., Distributions

  1. IRC 6652(h) imposes a penalty for each failure to give notice concerning withholding to recipients of distributions from an employer's deferred compensation plan or an Individual Retirement Account (IRA) as required by IRC 3405(e)(10)(B). The penalty is imposed on the payor.

  2. In general, IRC 3405(e)(10)(B) requires that the "payor" of:

    1. Any annuity or similar periodic payment must provide the "Payee" a notice of the right to elect not to have withholding made on such payment; or

    2. Any distribution which is not in the form of an annuity or a periodic distribution must provide the "Payee" a notice of the right to elect not to have withholding made on such payment.

  3. In general, these requirements pertain to payments and distributions made from employer deferred compensation plans, individual retirement plans, and commercial annuities.

  4. Due Date: The notice of election must be transmitted no earlier than six months before the first payment and no later than when the first payment is made. For periodic payments, notice must also be provided at least once in each calendar year of the right to make and revoke the election. Treasury Regulation (Treas. Reg.) 35.3405-1T see D-21, D-22, D-25, and D-26 for examples of notices that can be used to satisfy the notice requirements.

  5. The penalty under IRC 6652(h) is identified by the Tax Exempt/Government Entities (TE/GE )specialist.

  6. The penalty is assessed on BMF (MFT 74) as part of the CP-213 Employee Plan (EP) penalty process. It is computed after the return is processed on the master file, or it may be asserted by an Employee Plan/Exempt Organization (EP/EO) specialist.

  7. The penalty under IRC 6652(h) is $10 for each failure to give notice, up to a maximum penalty of $5,000 for all such failures per calendar year.

  8. IRC 6652(h) provides for non-assertion of the penalty if the payor can show that the failure was due to reasonable cause and not due to willful neglect.

  9. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.6  (04-17-2009)
IRC 6652(i) - Failure to Give Written Explanation to Recipients of Certain Qualifying Rollover Distributions

  1. IRC 6652(i) imposes a penalty for each failure to timely provide a written explanation of an eligible rollover distribution as required by IRC 402(f), Written Explanation to Recipients of Distributions Eligible for Rollover Treatment.

  2. In general, IRC 402(f) requires plan administrators of qualified plans to provide a written explanation to recipients of eligible rollover distributions that explains:

    1. The rules under which a recipient may elect a direct rollover to an eligible retirement plan;

    2. Withholding of income tax if there is no direct rollover;

    3. The rules which permit tax deferral on the distribution if it is rolled over into an eligible retirement plan within 60 days of distribution;

    4. If applicable, the notice must also contain information regarding IRC 402(d), Tax on Lump Sum Distributions; and

    5. Other rules applicable to exempt trusts.

  3. In general an eligible retirement plan includes the following:

    • IRC 408(a), Individual Retirement Accounts

    • IRC 408(b), Individual Retirement Annuity (other than an endowment contract)

    • IRC 401(a), Trusteed Pension Plans

    • IRC 403(a), Annuity Plans

  4. An eligible rollover distribution means any distribution to an employee of all or part of the balance to the credit of the employee in a qualified trust, other than certain periodic payments, hardship distributions, and distributions required by IRC 401(a)(9).

  5. Due Date: The explanation must be provided no less than 30 days and no more than 90 days before the date of the distribution.

  6. The penalty under IRC 6652(i) is identified by the EP specialist.

  7. The penalty is assessed on Business Master File (BMF) Master File Transaction (MFT 74) as part of the Computer Paragraph (CP) 213 EP penalty process. It is computed after the return is processed on the master file, or it may be asserted by an EP/EO specialist.

  8. The penalty under IRC 6652(i) is $100 for each failure to provide a written explanation, up to a maximum penalty of $50,000 for all such failures per calendar year.

  9. IRC 6652(i) provides for non-assertion of the penalty if the payor can show that the failure was due to reasonable cause and not due to willful neglect.

  10. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.7  (04-17-2009)
IRC 6690 - Fraudulent Statement or Failure to Furnish Statement to Plan Participant

  1. IRC 6690 imposes a penalty on a plan administrator who:

    1. Willfully fails to furnish a statement to a plan participant showing the information at the time and in the manner required by IRC 6057(e), Individual Statement to Participant, or

    2. Willfully furnishes a false or fraudulent statement.

  2. In general, the individual statement to a participant required by IRC 6057(e) must include the following:

    1. A description of the participant's deferred vested retirement benefit;

    2. Information filed with respect to the participant on Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, and

    3. Notice to the participant of any benefits that are forfeitable in the event the participant dies before a certain date. See IRC 6057(a).

  3. Due Date: The due date for delivering the statement to the individual is no later than the due date (including extensions) for the Schedule SSA that reports information with respect to the individual.

  4. The penalty under IRC 6690 can be identified by the EP specialist.

  5. The penalty is assessed on BMF (MFT 74) as part of the CP-213 EP penalty process. It is computed after the return is processed on the master file, or it may be asserted by an EP/EO specialist.

  6. The penalty under IRC 6690 is not subject to deficiency procedures described in IRM 20.1.1.4.

  7. The penalty is imposed at $50 for each act or failure with no maximum.

  8. IRC 6690 provides a penalty for willfully failing to provide the statement, or willfully furnishing a false or fraudulent statement. Therefore, this code section does not provide for reasonable cause consideration.

20.1.8.3.8  (08-16-2011)
IRC 6692 - Failure to File Actuarial Report

  1. IRC 6692 imposes a penalty on the plan administrator of a defined benefit plan to which IRC 412, Minimum Funding Standard, applies, when the plan administrator fails to file an actuarial report (Form 5500, Schedule SB or MB), in the time and manner as required by IRC 6059, Periodic Report of Actuary.

  2. The penalty under IRC 6692 is imposed if there is a failure to file Schedule SB, Single Employer Defined Benefit Plan Actuarial Information, or Schedule MB, Multi-employer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information, which must be filed as an attachment to the appropriate Form 5500 (series) return.

  3. The penalty is imposed on the plan administrator. If more than one plan administrator is responsible for the failure, all are jointly and severally liable.

  4. The penalty under IRC 6692 is assessed on BMF (MFT 74) as part of the CP-213 EP penalty process.

  5. The penalty may be computed when the return is filed or asserted by the EP specialist.

  6. The penalty is imposed at $1,000 for each failure to file with no maximum.

  7. The penalty is assessed on BMF (MFT 74) as part of the CP-213 EP penalty process. It is computed after the return is processed on the master file, or it may be asserted by an EP/EO specialist

  8. IRC 6692 provides for non-assertion of the penalty if the responsible party can show that the failure was due to reasonable cause.

    Note:

    The failure of an actuary to give the plan administrator a complete Schedule SB or MB on time is not reasonable cause.

  9. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration by the appropriate individual that the statement is made under penalties of perjury.

  10. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.3.9  (04-17-2009)
IRC 6693 - Failure to Provide Reports on Certain Tax-Favored Accounts or Annuities; Penalties Relating to Designated Nondeductible Contributions

  1. Covered under this sub-section are each of the penalties imposed by IRC 6693:

    1. IRC 6693(a), Reports - Person required to report or file a disclosure statement;

      Note:

      IRC 6693(a) provides that the penalty thereunder does not apply to information returns or payee statements regarding payments to other persons required by IRC 408(i). The failure to satisfy IRC 408(i) regarding payments to other persons is penalized under IRC 6721 and IRC 6722.

    2. IRC 6693(b)(1), - Overstatement of Designated Nondeductible Contributions;

    3. IRC 6693(b)(2), Failure to File Form; and

    4. IRC 6693(c), Penalties Relating to Simple Retirement Accounts.

  2. IRC 6693(a) imposes a penalty on the failure to furnish a report required by IRC 408(i) and IRC 408(l).

  3. IRC 408(i) requires that:

    1. Annual calendar year reports be made on Form 5498, IRA Contribution Information, concerning the status of the account or annuity.

    2. Each trustee or issuer required to file Form 5498 is also required to furnish the participant a statement containing the information required to be furnished on Form 5498 plus the value of the account or annuity at the end of the calendar year. A copy of the Form 5498 may be used to satisfy this requirement.

    3. The disclosure statements and copies of the governing instruments be provided to benefited individuals. A benefited individual is the individual for whom an individual retirement account, individual retirement annuity, or an endowment contract is established. A benefited individual also includes both the working and non-working spouse in the case of spousal individual retirement accounts.

      Note:

      The penalty for failure to satisfy these requirements of IRC 408(i) is imposed on the trustee of an individual retirement account or, in the case of an individual retirement annuity or endowment contract, the issuer. This includes an account or annuity that is part of a SEP or a SIMPLE IRA plan.

  4. IRC 408(l) requires that an employer who:

    1. Makes contributions to a simplified employee pension (SEP) on behalf of employees make reports to employees upon adoption of the SEP indicating its adoption, contribution requirements, and allocation basis.

    2. Adopts a SEP furnish employees a written statement each calendar year indicating the amount of employer contribution to the employee's IRA. This requirement is satisfied if the information is contained on the employee's W–2 for the calendar year in which the contribution is made.

      Note:

      The penalty for failure to satisfy these requirements of IRC 408(I) is imposed on the employer maintaining the SEP.

  5. Due Date - IRC 6693(a):

    1. The annual report is to be filed, accompanied by transmittal Form 1096, on or before May 31 following the calendar year for which the Form 5498 is required.

    2. In general, the disclosure statement and a copy of the governing instrument must be received by the benefited individual at least seven days preceding the earlier of the date of establishment or purchase of the account, annuity, or endowment contract.

    3. Reports required on the adoption of a SEP are to be furnished to an employee no later than a reasonable time after the later of the time the employee becomes employed or the time of the adoption of the simplified employee pension arrangement.

    4. SEP contribution reports made on Form W-2 are required to be furnished to the employee no later than the later of 30 days after the contribution or January 31 after the calendar year for which the contribution was made.

  6. IRC 6693(a) also applies to reports required to be filed under:

    1. IRC 220(h) relating to medical savings accounts ("MSAs" );

    2. IRC 529(d) (relating to qualified State tuition programs); and

    3. IRC 530(h) (relating to education individual retirement accounts).

  7. IRC 6693(b)(2) imposes a penalty on the failure to furnish information under IRC 408(o)(4).

  8. IRC 408(o)(4) requires that an individual who makes designated nondeductible contributions to any IRA for any taxable year or receives a distribution from any IRA to which nondeductible contributions have been made for any taxable year report such contributions or distribution, as well as other information, on Form 8606, Nondeductible IRAs.

  9. IRC 6693(b)(1) imposes a penalty on the overstatement of designated nondeductible contributions made on Form 8606.

  10. The penalty for failure to satisfy the requirements of IRC 408(o) is imposed on the taxpayer who made the contributions or received the distribution.

  11. Due Date.Form 8606, Nondeductible IRAs, is required to be filed as an attachment to the Form 1040 (series). If no 1040 return is required, the Form 8606 must still be filed by the due date of the Form 1040.

  12. The penalty under IRC 6693(a) and IRC 6693(b):

    1. Can be identified by the EP field agent;

    2. Is assessed on BMF (MFT 74) as part of the CP-213 EP penalty process; and

    3. Is not subject to deficiency procedures described in IRM 20.1.1.4.

  13. IRC 6693(c) imposes a penalty on the failure to furnish certain information required under IRC 408(i) and IRC 408(l)(2) to participants in SIMPLE IRA plans described in IRC 408(p).

    1. IRC 408(l)(2) requires that the trustee or issuer of IRA set up to receive contributions under an employer's SIMPLE IRA plan each calendar year furnish the employer a summary description containing information regarding the SIMPLE IRA plan, the employer maintaining the plan, and the trustee or issuer.

    2. IRC 408(l)(2) also requires that an employer maintaining a SIMPLE IRA plan notify eligible employees of their right to participate in the plan. Such notice must include a copy of the applicable summary description.

    3. IRC 408(i) requires that the trustee or issuer of SIMPLE IRAs provide the SIMPLE IRA owners within 31 days after each calendar year a statement showing the account balance at the close of the calendar year and the account activity during that calendar year. A copy of the Form 5498 may be used to satisfy this requirement.

  14. The penalty for failure to satisfy the requirement of IRC 408(i) and IRC 408(l)(2) described above is imposed on:

    1. The trustee or issuer of IRAs set up to receive contributions made under a SIMPLE IRA plan, in the case of the summary description and the statement requirement.

    2. The employer, in the case of the notice requirement.

  15. Due Date:

    1. The employer's notice to employees must be provided before the 60-day election period (during which eligible employees can make or change salary deferral elections) described in IRC 408(l)(2)(C).

    2. The summary description must be provided to the employer by the trustee or issuer in time for the employer to meet its notice requirement, described above. (In most cases the summary description will be due the employer shortly before the second day of November of each calendar year).

    3. The statement from the trustee or issuer is due the IRA owner no later than 31 days after the end of the calendar year.

  16. The computations for the penalties are as follows:

    IF the penalty is for... THEN the penalty is...
    failure to file a report, as described in IRC 6693(a) at the time and in the manner required $50 for each failure to file.
    failure to file Form 8606, nondeductible IRAs, as described in IRC 6693(b)(2) $50 for each failure to file.
    overstating designated nondeductible Contributions, as described in IRC 6693(b)(1) $100 for each overstatement.
    failure to provide one or more notices, statements or summary descriptions described in IRC 6693(c) $50 for each day such failure continues.

  17. IRC 6693 provides for non-assertion of the penalty if it is shown that the failure is due to reasonable cause.

    1. A penalty imposed on a trustee under IRC 6693(c) does not apply when the trustee timely provides the required information directly to the employee covered by the SIMPLE IRA plan.

    2. A penalty imposed on an employer under IRC 6693(c) does not apply when an employee covered by the SIMPLE IRA plan has selected his or her own trustee and the information regarding that trustee is not available at the time the employer is required to provide the notice containing such information to the employee, provided the employer takes steps to ensure the missing information reaches the employee as soon as reasonably possible.

  18. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration, made by the appropriate individual, that the statement is made under penalties of perjury. See IRM 20.1.1 for a discussion of penalty relief.

  19. See IRM 20.1.1.3.2 and Exhibit 20.1.8-3 for a discussion of reasonable cause penalty relief. See IRM 20.1.1 for a general discussion of penalty relief.

20.1.8.4  (08-16-2011)
IRC 6047(d) - Failure to Keep Records Necessary to Meet Reporting Requirements

  1. IRC 6047(d) requires the employer maintaining, or the plan administrator of a plan and any person issuing any contract under which designated distributions may be made, to make returns and reports regarding such plan or contract to:

    • The Secretary,

    • The participants, and

    • The beneficiaries.

  2. IRC 6704(a) imposes a penalty on any person who:

    1. Has a duty to report or may have duty to report any information under IRC 6047(d), and

    2. Fails to keep such records for the purpose of providing the necessary data base for either current reporting or future reporting.

  3. IRC 6704(b) provides that a penalty of $50, per each calendar year, multiplied by the number of individuals in relation to whom such failure occurred.

  4. The maximum amount of penalty shall not exceed $50,000.

  5. IRC 6704(c)(1) provides for non-assertion of the penalty if it is shown that the failure is due to reasonable cause and not due to willful neglect.

  6. The request for "penalty relief" due to reasonable cause must be made in the form of a written statement providing all the facts to substantiate reasonable cause. The statement must contain a declaration, made by the appropriate individual, that the statement is made under penalties of perjury. See IRM 20.1.1 for a discussion of penalty relief.

Exhibit 20.1.8-1 
Plans Filing Requirements

IRC 6058(a) - PLANS FILING REQUIREMENTS
Pension benefit plans required to file include defined benefits plans and defined contribution plans. The following are among the pension benefit plans for which a return/report must be filed:
1. Annuity Arrangements under IRC 403(b)(1).
2. Custodial Accounts established under IRC 403(b)(7) for regulated investment company stock.
3. Individual Retirement Accounts (IRAs) established by an employer under IRC.408(c).
4. Pension Benefit Plans maintained outside the United States primarily for nonresident aliens if the employer who maintains the plan is:
(a) A domestic employer, or
(b) A Foreign employer with income derived from sources within the United States (including foreign subsidiaries of domestic employers) if contributions to the plan are deducted on its U.S. income tax return. For this type of plan, see Code D on line 6c.
   
5. Church Plans electing coverage under IRC 410(d).
6. A plan that covers residents of Puerto Rico, the Virgin Islands, Guam, Wake Island, or American Samoa. This includes a plan that elects to have the provisions of 1022(1)(2) of ERISA apply.

Exhibit 20.1.8-2 
Plans Exempt from Filing

IRC 6058(a) - PLANS EXEMPT FROM FILING UNDER
Do not file a return/report for an employee benefit plan that is any of the following:
1. A pension benefit plan maintained outside the United States if it is a qualified foreign plan within the meaning of IRC 404A(e) that does not qualify for the treatment provided in IRC 404(e)(5).
2. An annuity arrangement described in 29 Code of Federal Regulations (CFR) 2510.3-2(f).
3. A simplified employer pension (SEP) described in IRC 408(k) that conforms to the alternative method of compliance described in 29 CFR 2520.104-48 or 29 CFR 2520.104-49. A SEP is a pension plan that meets certain minimum qualifications regarding eligibility and employer contributions.
4. A church plan not electing coverage under IRC 410(d).
5. A governmental plan.

Exhibit 20.1.8-3 
EO REASONABLE CAUSE GUIDELINES

REASONABLE CAUSE GUIDELINES FOR TAX-EXEMPT ORGANIZATIONS

Note:

Generally, a relief from penalties is based on a Statutory Exception or an Administrative Waiver for oral advice rather than reasonable cause. Penalties under IRC 6685 and IRC 6711 may not be waived for reasonable cause. IRC 6404(f) provides statutory relief from penalties due to erroneous written advice from the IRS, if specific conditions are met. Examples where a relief may or may not be granted are:
The return was mailed in time but was returned to the sender due to insufficient postage, incorrect or missing address, etc.
The return was filed in time but erroneously sent or deposited to the wrong IRS office by the taxpayer.
Delay or failure to file was due to erroneous information or erroneous written advice given to the taxpayer by an IRS employee.
Delay was caused by death or serious illness of the taxpayer, or a death or serious illness in his/her immediate family (see Note below).
Delay was caused by unavoidable absence of the taxpayer (see Note below).

Note:

In the case of a corporation, estate, trust, etc., the death, illness or absence must have been of an individual (or a member of the individual's immediate family) having sole authority to execute the return.

Delinquency was caused by destruction by fire or other casualty of the taxpayer's place of business or business records.
Taxpayer requested the proper forms in a timely fashion but the forms were not furnished in sufficient time to permit the timely filing of the return.
Taxpayer provides proof that he/she personally visited an IRS office on or before the due date of the return for the purpose of securing information or advice, and was unable to meet with an IRS representative.
If the organization is a PRIVATE FOUNDATION: The organization has 90 days to file and pay after it receives a determination letter from the IRS.
If the organization is NOT A TAX-EXEMPT ORGANIZATION WITH UNRELATED BUSINESS INCOME TAX (UBIT) or NOT A PRIVATE FOUNDATION (Not a Form 990-T or Form 990-PF filer), is a membership organization (PTA, Boy Scout Troop, Garden Club, Homeowners Association, etc.), and has no full-time employee responsible for administering the organization's finances, reasonable cause may be granted if the organization:
a. Clearly shows it exercised normal care and prudence, but was unable to file the return timely due to little continuity or understanding of duties due to frequent officer changes, or
b. Has no prior history of late filing and claims ignorance of the law (new organizations or those not previously required to file).
See IRM 20.1.1 for additional discussion of Penalty Relief.

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