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Part 25. Special Topics

Chapter 6. Statute Of Limitations

Section 10. Civil Penalty Modules

25.6.10  Civil Penalty Modules

25.6.10.1  (10-01-2001)
Civil Penalty Overview

  1. This chapter provides guidelines for identifying and processing Statute Civil Penalty Tax Modules.

25.6.10.2  (10-01-2007)
What are Civil Penalties

  1. Penalties exist to encourage voluntary compliance by supporting the standards of behavior expected by the Internal Revenue Code. Although penalties support and encourage voluntary compliance, they also serve to bring additional revenues into the Treasury, impose remedial charges against taxpayers, and indirectly fund enforcement costs; however, these results are not reasons for creating or imposing penalties. Compliance is achieved when a taxpayer makes a good faith effort to meet the tax obligations defined by the Internal Revenue Code.

  2. Effective January 1, 1985, Civil Penalties (CVPN) assessed or abated, are on master file civil penalty modules (Master File Tax (MFT) 55 Individual Master File (IMF) and MFT 13 Business Master File (BMF)). Previously, most of these penalties were assessed on NMF. In addition to facilitating the assessment/abatement process, these procedures will allow for the tracking of assessment data through use of designated reference numbers. A transaction code (TC) 150 (return filed) will never post to a civil penalty file.

  3. The Examination, Collection and Information Returns Processing (IRP) functions assess civil penalties. The penalties are assessed or abated with a three digit reference number for the penalty amount and a TC 240 (assessment) or TC 241 (abatement) will post to the account. The reference number identifies the type of penalty as well as the function responsible for assessing the penalty.

  4. The Statute function will receive unpostable records for only those penalty assessments which have specific statute bar dates and the statute of limitations will expire within 120 days.

    Note:

    The Unpostable function resolves all other unpostable records.

  5. Some freezes on civil penalty modules were built into the Accounts Maintenance (AM) program on January 1, 1990. AM/STAT, AM/ST/–X 09, and AM/ST/–X 11 transcripts identify unresolved conditions from the AM program under MFT 13 or 55. The Statute function will receive and resolve these freezes on transcript cases identified as CVPN if the statute expiration is imminent.

  6. A Statute Control Date (SCD) cannot be computed with a "normal" Assessment Statute Expiration Date (ASED) on CVPN transcript cases because the statute bar date depends on action or non-action by the taxpayer. A "dummy" ASED date is established for CVPN transcript cases.

  7. See IRM 21.2.4.4.8, Civil Penalty Modules, for additional information.

25.6.10.3  (04-01-2007)
Civil Penalty Research

  1. To handle Civil Penalty tax modules, you may need to refer to other Internal Revenue Manuals (IRMs) and Internal Revenue Code (IRC) Sections such as:

    • IRM 21.2.4, Master File Accounts Maintenance

    • IRM 20.1, Penalty Handbook

    • IRC Section 6652 Failure to file certain information returns, registration statements, etc

    • IRC Section 6679, Failure to file returns, etc., with respect to foreign corporations or foreign partnerships

    • IRC Section 6694(a), Understatements due to unrealistic positions

    • IRC Section 6695, Other assessable penalties with respect to the preparation of income tax returns for other persons

    • IRC Section 6702, Frivolous income tax return

    • IRC Section 6707, Failure to furnish information regarding tax shelters

25.6.10.4  (10-01-2007)
Civil Penalty Procedures

  1. The Omnibus Budget Reconciliation Act (OBRA) of 1989 consolidated and renumbered several IRC provisions containing penalties relating to information shown on or omitted from the return. The proscribed conduct is now addressed in I.R.C. § 6662 under the Accuracy-Related Penalty. See IRM 20.1.5.1, Background, for a list of the penalties. The penalty is assessed through the use of RN 680 (positive dollar amount) and abated with RN 680 (negative dollar amount). When the penalty posts to MF, IMFOL or BMFOL it will reflect TC 240 (assessment) or TC 241 (abatement) along with the reference number 680.

    Note:

    The civil fraud penalty was also renumbered as I.R.C. § 6663 by OBRA 89 and made applicable only to return-related conduct. An increase to the penalty for a fraudulent failure to file was enacted at I.R.C. § 6651(f).

  2. The examining officer in the area office will determine the SCD for civil penalty assessments under the following code sections:

    IRC 6652 REF# 600/601
    IRC 6676 REF# 605/606
    IRC 6679 REF# 613/614/619
    IRC 6694(a) REF# 622
    IRC 6695 REF# 624/626
    IRC 6702 REF# 665
    IRC 6707 REF# 634

    Note:

    The Unpostable function will correct unpostable documents where there is no statute issue involved.

  3. A taxpayer may voluntarily pay the penalty imposed by IRC Section 6723 and IRC § 6724 for failure to provide a Taxpayer Identification Number (TIN). If a case is referred to the Statute function with an imminent statute, you must do the following:

    1. Prepare Form 5734 to assess the payment amount using TC 200 in item 9 to indicate a penalty assessment.

    2. Staple the source document to the case file.

    3. Route to the Non Master File (NMF) Accounting Function.

25.6.10.4.1  (04-01-2007)
The Period of Assessment

  1. In general, the delinquency penalties, the accuracy-related penalty and information reporting penalties are assessed, collected, and paid in the same manner as taxes pursuant to I.R.C. §§ 6665(a) and 6671(a). The general rules for determining the period for assessment are provided at IRM 25.6.5, Assessments, and the guidance for when a return is filed at IRM 25.6.2.4.15, When a Document is Treated as Filed Under the IRC.

    Note:

    The Service is not required to make a separate assessment of the accruals on the I.R.C. § 6651(a)(2) and § 6651(a)(3) delinquency penalties to collect the accruals. See United States v. Krasnow, 548 F. Supp. 686 (S.D.N.Y. 1982) (involving collection action to collect accruals for the addition to tax under I.R.C. § 6651(a)(3)). These penalties could not be given full effect if the Service were required to assess within three years from the filing of the tax return because they can accrue over a 50 month period, which is longer than three years.

  2. The Preparer Penalties are penalties under I.R.C. § 6694(a) or §6695 may be assessed within three years after the filing of the return or claim for refund with respect to which the penalty is assessed. There is no period of limitations regarding a willful attempt to understate tax or a reckless or intentional disregard of the rules or regulations under I.R.C. § 6694(b). See I.R.C. § 6696(d).

  3. Promoter Penalties are penalties for promoting abusive tax shelters under I.R.C. § 6700 or abetting an understatement of tax liability under I.R.C. § 6701 may be assessed at any time because they do not relate to a return.

25.6.10.4.2  (10-01-2007)
Resolution-CVPN STAT/AM-X Transcripts

  1. Civil Penalty STAT transcripts are extracted using the minimum amount of time until the ASED. The "dummy" ASED date established for civil penalty accounts is 2 years and 6 months from the date of the control DLN in the module.

  2. You will request a hard copy MFTRA transcript for all civil penalty cases (complete entity and all active modules). You must establish a civil penalty name line by using Form 2363 and TC 013, if the master file name line of the taxpayer being assessed is joint. DO NOT change the name line of the MFT 30 account.

  3. A Master File (MF) entity must be established using Form 2363 for MFT 13 or 55, if MFTRA shows no record.

    Note:

    Each service center will establish local procedures with the Entity function to accomplish the establishment of entities described above.

  4. The Trust Fund Recovery Penalty Cases under IRC § 6672 (The 100% penalty) are processed in the Compliance Service Collection Operation (CSCO). The Statute function will route any 100% penalty cases received to CSCO.

  5. If there is a TC 240 in the account and research does not result in resolution, contact the area responsible for assessing the penalty for assistance in resolving the condition. If unable to determine the area responsible for assessing the penalty, and all other efforts have been exhausted to determine where the credit belongs, transfer the credit(s) to XSF as indicated in this IRM and IRM 3.17.22, Excess Collection File.

  6. If there are multiple penalties in the account, contact the area responsible for the last assessed penalty. (A TC 240 in a 59 blocking series indicates a computer generated IRP civil penalty).

  7. If there is credit and no TC 240 on the account module, see the procedures in IRM 21.2.4.4.8.1, Civil Penalties Processing for resolution.


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