4.23.9  Employment Tax Penalty and Fraud Procedures

4.23.9.1  (04-01-2011)
Overview

  1. This section explains the employment tax penalty procedures.

  2. It is important that taxpayers be treated equitably and that decisions regarding liability for penalties be based on sound analyses of the reasons advanced by the taxpayer for failing to act.

  3. ln accordance with Policy Statement 20-1, "Penalties are used to enhance voluntary compliance," the IRS administers a penalty system that is designed to:

    • Ensure consistency,

    • Ensure accuracy of results in light of the facts and the law,

    • Provide methods for the taxpayer to have his or her interests heard and considered,

    • Require impartiality and a commitment to achieving the correct decision,

    • Allow for prompt reversal of initial determinations when sufficient information has been presented to indicate that the penalty is not appropriate, and

    • Ensure that penalties are used for their proper purpose and not as bargaining points in developing or processing cases.
      See IRM 1.2.20.1.1, Policy Statements for Penalties and Interest Activities

  4. To ensure consistency, the Service prescribes and uses a single set of guidelines set out within IRM 20.1, Penalty Handbook, which will be followed by all operational and processing functions.

  5. Specific guidance on fraud indicators and the development of fraud may be found in the Fraud Handbook at IRM 25.1.1, Fraud Handbook - Overview/Definitions, and IRM 25.1.2, Fraud Handbook - Recognizing and Developing Fraud.

4.23.9.2  (05-14-2008)
Introduction

  1. This section discusses the penalties most frequently asserted in employment tax examinations. The penalties covered in this section should not be considered as all inclusive and research should be done on a case by case basis to ensure correct penalty assessment. Examiners should refer to the Penalty Handbook, IRM 20.1, for complete information on penalties. Specific guidance on fraud indicators and the development of fraud may be found in IRM 25.1.1 and IRM 25.1.2. For instructions on determining the statute of limitations on assessment for certain civil penalties, see Exhibit 4.23.9-1.

  2. Penalties are asserted in the same manner as the taxes to which they are applied. Although income taxes are subject to the deficiency procedures in IRC Subchapter B of Chapter 63, many penalties that relate to income taxes have been specifically exempted from the deficiency procedures. For an example, see IRC 6696(b).

  3. A Civil Penalties Master file has been developed to accommodate most penalties previously assessed on the Non-Master File (NMF) and the W–4 penalty previously assessed as MFT 30. These penalties are listed on Form 8278, Computation and Assessment of Civil Miscellaneous Penalties, which is used to forward the assessment/abatement action for input.

  4. When using the Civil Penalties Master File, the first assessment made on an entity will establish the module since there is no return filing to create the module prior to the first assessment. These MFT's will be single entity modules. No joint assessments can be made. Any joint penalty liabilities, such as a jointly filed frivolous return, must continue to be made on NMF utilizing existing instructions.

4.23.9.3  (04-01-2011)
Reasonable Cause

  1. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations.

  2. If it is determined that the failure to act was due to reasonable cause, a written statement setting forth the reason should be obtained from the taxpayer. See IRM 20.1.1.3.2, Reasonable Cause, for additional information.

4.23.9.4  (04-01-2011)
Managerial Approval

  1. IRC 6751(b) requires that penalty assessments be approved in writing by the examiner's immediate supervisor. The examiner is not required to provide a copy of the written approval to the taxpayer. However, the IRS may wish to provide the taxpayer with a courtesy copy of the document showing that a manager approved the penalties. Taxpayers are entitled to request these documents under the Freedom of Information Act. See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

  2. Penalties under IRC 6651 for failure to file tax return or to pay tax and penalties automatically calculated through electronic means are excepted from the approval requirement. This means that the penalty must be free of any independent determination by a Service employee as to whether or not the penalty should be imposed against a taxpayer. Despite the fact that IRC 6651 penalties are exempted by statute from the managerial approval requirement, examiners should seek management approval of the fraudulent failure to file penalty in IRC 6651(f) because that penalty is not automatically calculated through electronic means.

4.23.9.4.1  (05-14-2008)
Computation of Penalty Included in Notice

  1. IRC 6751(a) requires that each penalty notice include the name of the penalty, the code section imposing the penalty, and a computation of the penalty. The computation must include:

    1. the formula for computing the penalty,

    2. the amount of each of the variables in that formula,

    3. the change in each of these variables since the date of the last notice, and

    4. the bottom line amount of the penalty imposed.

  2. The penalties shown on the separate explanation sheet must agree with the penalty amounts shown on any employment tax reports, Form 2504, Form 2504-S, Form 2504-WC, and Form 4666, etc., issued to the taxpayer.

  3. A notice of penalty for purposes of IRC 6751(a) is any notice on which the Service asserts a penalty. Thus, a revenue agent's report, a thirty-day letter, a notice of determination of worker classification, a notice and demand, or a billing notice mailed subsequent to the notice and demand are all notices of penalty.

4.23.9.5  (05-14-2008)
Appeal Procedures

  1. The appeals procedures provided with respect to employment taxes are applicable to unagreed delinquency and other penalties proposed by an examiner. This is true where such penalties are in connection with unagreed adjustments to tax as well as where such penalties are the only items in issue.

  2. The appropriate standard preliminary 30-day letters identified in IRM 4.23.10.8, 30–Day Letters, will be used in all unagreed penalty cases.

4.23.9.6  (05-14-2008)
Fraud Penalty

  1. In imposing fraud penalties, it is necessary to differentiate between tax avoidance and tax evasion. To successfully maintain a charge of fraud in a tax case, it is necessary to establish that a part of the deficiency is due to a false material representation of facts by the taxpayer and that the taxpayer had knowledge of its falsity and intended that it be acted upon or accepted as the truth.

  2. The civil fraud penalty will be recommended only where there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud. Such evidence must show intent to evade payment of tax, which the taxpayer believed to be owing. This is distinguished from a mistake, inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness.

  3. Among the factors to be considered in recommending imposition of the civil fraud penalty are whether:

    1. the circumstances are of a flagrant nature, and

    2. the tax is diminutive.

  4. Recommendations for imposing the civil fraud penalty must receive careful scrutiny to make certain that such penalties are asserted only in appropriate cases. The Service bears the burden of proving civil fraud by clear and convincing evidence in the Tax Court. See IRC 7454, Burden of proof in fraud, foundation man­ager, and transferee cases.

4.23.9.6.1  (04-01-2011)
First Indications of Fraud

  1. A first indication of fraud can be described as a mere suspicion of fraud. Examiners are legally permitted and should endeavor to ask the taxpayer, the preparer, the representative, or any other involved party for an explanation of the "discrepancies" which are the basis of the examiner's suspicion of fraud and any other question(s) which will resolve the uncertainty of the taxpayer’s intent. Examples of fraud indicators can be found in IRM 25.1.2.3, Indicators of Fraud.

  2. The examiner's judgment will determine when certain techniques will be used, how far each should be followed and how far the examination should be extended. At the first indication of possible fraud, the examiner should review the Fraud Handbook, IRM 25.1. Investigative techniques can be found in IRM 25.1.2.4, Investigative Techniques.

  3. To be effective, examination techniques should be designed to disclose not only errors in accounting and application of law, but also irregularities such as backdated or forged documents that indicate the possibility of fraud. It is not suggested that an examiner deliberately set out to make a fraud case out of every assigned return or case file. However, indications of possible fraud should be recognized where they exist.

  4. When first indications of fraud are uncovered, the examiner will discuss the case with his/her manager. Determination of the civil fraud penalty is a shared responsibility of the examiner, the examiner’s group manager, and the Fraud Technical Advisor. See IRM 20.1.5.12.3, Penalty Referral. If the manager concurs that there is a possibility of fraud, a conference (either in person or over the phone) should be held between the examiner, the manager, and the Fraud Technical Advisor (FTA). When all three agree that there is a potential for fraud, then the case should be updated to Status Code 17. This decision is an important event in the examination and should be documented in the case file. Form 11661, Fraud Development Status, is used to document FTA involvement as well as the decision to update the case to Status Code 17. While in Status Code 17 (Fraud Development Status) and Status Code 18 (Accepted by CI), cycle time will be excluded from monthly "aging" reports to management (Month At a Glance Report). AIMS and ERCS data, however, will include all cases. In order to reconcile to the Month At a Glance Report, Status 17 and 18 cases must be excluded from the overage category and the overage percentage manually computed. Cases should be returned to Status Code 12 if it is later determined that fraud potential no longer exists.

  5. At this time a plan of action should be developed to establish and document the affirmative acts or firm indications of fraud. Refer to IRM 25.1.2.1 for information on the minimum plan for case development. The examiner should continue the audit being alert for other badges of fraud and follow up on initial suspicions of fraud. See IRM 20.1.5.12.1, Indications of Fraud, for a list of common badges of fraud.

  6. The FTA serves as a resource person and liaison to compliance employees to assist in fraud investigations and offer advice on matters concerning tax fraud in all the business organizations. The FTA will be consulted in all cases involving potential criminal fraud, as well as those cases that have potential for a civil penalty.

4.23.9.6.2  (05-14-2008)
Firm Indications of Fraud

  1. A firm indication of fraud must be distinguished from a first indication of fraud. A firm indication of fraud is a factual determination that can only be made on a case by case basis. An examiner who is in doubt should consult with the manager and the FTA to determine if the indicators of fraud are sufficiently developed. However, under no circumstances shall examiners or managers obtain advice and/or direction from Criminal Investigation for a specific case that is under examination. In addition, if a referral is being considered, an examiner should not solicit an agreement or solicit and receive delinquent returns prior to the submission of a fraud referral.

  2. If an examiner discovers firm indications of fraud, the examination should immediately be suspended without disclosing to the taxpayer the reason for such suspension. Examiners are cautioned not to carry the investigation beyond the point where a valid indication of fraud is adequately supported by the workpapers.

  3. If the case does not meet the guidelines for a criminal referral, then this should be documented in the case file and the examiner should then proceed with the civil examination.

  4. If the case does warrant a criminal referral, the examiner will prepare a referral on Form 2797, Referral Report of Potential Criminal Fraud Cases. See IRM 4.23.9.6.5. The referral will be forwarded through the referring examiner's manager to the FTA for approval by the FTA manager. From there, the referral is sent to Criminal Investigation for approval by the Criminal Investigation Special Agent in Charge and the Supervisory Special Agent (SSA) before assignment to the Special Agent.

4.23.9.6.3  (05-14-2008)
Cases Involving Possible Criminal Proceedings

  1. Information about the source or details of evidence relating to a potential criminal case must be safeguarded and withheld to the extent necessary to avoid prejudice to a case. This general rule is applicable not only during the investigation of a case, but also in any action taken with respect to the civil portions of a case having open criminal aspects. When appropriate, examiners are expected to coordinate proposed disclosures of information through established channels.

  2. Full cooperation among all levels of operations in the Internal Revenue Service must be maintained to ensure that there is no duplication in investigations and unnecessary inconvenience to the public is avoided. The examiner should review IDRS to determine if any "Z" freeze (TC 914) conditions exist and if other functions are assigned to the taxpayer case. Criminal Investigation (CI) or the FTA should be contacted prior to beginning case action whenever an un-reversed TC 914 is present in any module.

  3. In employment tax cases warranting assertion of the Trust Fund Recovery Penalty (TFRP), there will be instances when any appreciable delay in asserting and collecting the tax or penalty would jeopardize the revenue. In all such cases, the area director is authorized to decide whether collection of the tax or penalty might be jeopardized. If the revenue might be jeopardized, the tax or penalty may be assessed and collected by a quick assessment or a jeopardy assessment, as the circumstances warrant. IRC 6672 does not bar assertion of the TFRP against responsible persons whenever fraud is asserted against the employer on the underlying employment tax liability.

  4. If an examiner learns that an assigned case involves a taxpayer who is the subject of a criminal investigation, all activity on the case will be immediately suspended. The examiner’s manager will consult with the Supervisory Special Agent in Criminal Investigation relative to the continuance of employment tax activity on the case. If agreement to either continue the suspension or to resume the employment tax activity on the case cannot be reached at the group or territory level, the issue will be decided at the area level. Where more than one area is involved, the Director of Field Operations having jurisdiction over the criminal investigation will resolve the question.

  5. In income, estate, and gift tax cases in which criminal prosecution has been recommended (except potential jeopardy cases), the Service does not authorize assessment of additional taxes and penalties during the time the recommendation for criminal prosecution is under consideration or during the period such cases may be awaiting trial or pending an appeal. The same procedure will be followed with respect to employment tax cases in which criminal prosecution has been recommended.

  6. Threat of criminal prosecution shall not be made in any case. If a question concerning civil action arises in a case with open criminal aspects, it will be resolved on the basis of whether the criminal case will be prejudiced by the proposed civil action. Policy Statement 4-26, Criminal and civil aspects in enforcement, provides that the consequences of civil enforcement actions on criminal investigations for the same taxable periods and same types of taxes must be carefully weighed. Any discussion or negotiation regarding settlement of civil enforcement actions must be guided by this policy and input from the FTA.

4.23.9.6.4  (05-14-2008)
Common Fraudulent Devices

  1. Fraud may exist where a taxpayer willfully attempts to illegally underreport taxes, or does not pay taxes. For a taxpayer to be guilty of a crime in which willfulness is an element, that individual must have acted deliberately, knowingly, and with the specific intent to violate the law.

  2. The majority of criminal fraud situations employment tax examiners will encounter result from:

    1. Willful failure to account for, collect, or pay over taxes (IRC 7202).

    2. Willful failure to file a return (IRC 7203).

    3. Willful failure to pay taxes owed (IRC 7203).

    4. Willful submission of a false statement under perjury ( IRC 7206(1)).

    5. Failure to collect and deposit in a special trust fund account (IRC 7215 and IRC 7512(b)).

    6. Attempts to obstruct or impede tax administration ( IRC 7212(a)).

  3. The Penalty Handbook notes several elements that may be indicative of fraud. Examiners should remain continually alert for these and other "badges of fraud."

4.23.9.6.5  (05-14-2008)
Referrals to Criminal Investigation Division

  1. Cases are referred to Criminal Investigation Division (CI) by using Form 2797, Referral Report of Potential Criminal Fraud Cases. Form 2797 is not required for Civil Fraud Referrals. Contact the Fraud Technical Advisor (FTA) for assistance. See IRM 25.1.3, Fraud Handbook — Criminal Referrals, for additional instructions.

  2. The referral should be a detailed, factual presentation of those factors that were used to establish firm indications of fraud. The report should include, but not be limited to: affirmative act(s) of fraud, the taxpayer’s explanation of the affirmative act(s) when it will assist in determining intent and the estimated criminal tax liability. As the referral is made electronically, any additional pages or attachments must be in electronic format. Any other items, such as financial statements, public records checks, account transcripts or a copy of the last filed return may be shared with CI at the ten-day conference. No workpapers or attachments are required with the referral.

  3. There may be instances where at the time the examiner discovers indications of fraud, the information available is insufficient to complete Form 2797 in all respects. Even so, the examiner will not delay preparing the report but will complete it to the extent possible.

  4. Form 2797 should be prepared for the principal individual or legal entity involved in the fraud. Only one Form 2797 is prepared despite having multiple entities involved, i.e., individual, corporate, partnership, employment tax, etc. A separate Form 2797 is no longer prepared for each type of tax involved. Related entities should be identified and discussed in the body of the referral. Related returns will be associated with the referral if they are false as to a material item. After concurrence and signature by the manager, the referral will be immediately transmitted to the FTA. Supporting documents and a copy of each referral will be retained in the examiner's case file and will not be transmitted with the Form 2797 referral. See IRM 25.1.3.2 for further instructions.

  5. When the taxpayer is the only party involved in the fraud, the form is prepared and must be approved by the manager. One copy is retained with the case file. The referral and attachments are forwarded to the FTA for review and concurrence. The FTA will review the Form 2797 and immediately forward it to their manager for approval.

  6. After the Form 2797 is approved by the FTA's manager, the referral is sent to Criminal Investigation for approval by the Criminal Investigation Special Agent in Charge and the Supervisory Special Agent (SSA) before assignment to the Special Agent. The Special Agent will contact the examiner to set up an initial meeting. The FTA may also be contacted if feasible.

  7. If a case involving a collateral examination results in a fraud referral, the affected territories will coordinate the referrals.

  8. If the referral is accepted by Criminal Investigation (CI), they will finish completing the original Form 2797 and return it to the FTA who will retain a copy and forward the original to the referring examiner. In most cases, the referring examiner will become the cooperating agent on the case. See IRM 25.1.4.3.1, Duties and Responsibilities, for the duties of a cooperating agent. Once accepted, the examiner will update the case to Status Code 18.

  9. If CI does not accept the referral, Form 2797 and a memorandum of declination can be returned to the examiner either before the 10 day meeting or at/after the 30 day meeting. This memorandum should remain in the case file. See IRM 25.1.3.5, Declined Criminal Referrals.

  10. After notification that the referral was not accepted, the examination may be resumed. The examiner will continue to be alert for new indications of fraud in declined referral cases. If they develop, the case will again be referred to the FTA in accordance with referral procedures. In cases where criminal fraud is not pursued, the civil fraud penalty should be developed and applied where warranted. See IRM 4.23.9.6.7.

4.23.9.6.6  (05-14-2008)
Civil Fraud Penalty Rates

  1. IRC 6663(a) provides that if any part of the underpayment of tax required to be shown on the return is due to fraud, a penalty equal to 75% of the portion of the underpayment which is attributable to fraud will be added.

  2. IRC 6663(b) further provides that if the IRS establishes that any portion of the underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud. However, if the taxpayer establishes by a preponderance of evidence that any portion of the underpayment is not attributable to fraud, such portion will be excepted from the fraud penalty.

  3. IRC 6664(b) provides that the penalty applies only when a return has been filed by the taxpayer.

  4. IRM 20.1.5.12.2, Penalty Assertion, provides current rates and specific procedures for assertion of the civil fraud penalty under IRC 6663. See IRM 4.23.9.9 of this section for the fraudulent failure to file penalty.

4.23.9.6.7  (04-01-2011)
Civil Fraud Procedures

  1. A civil fraud penalty case may be developed on the facts and circumstances of a civil examination or result from the completion of a criminal prosecution.

  2. Civil fraud no longer requires a referral to Criminal Investigation (CI). Determination of this penalty is a shared responsibility of both the examiner and manager. The Fraud Technical Advisor (FTA) is also available for assistance.

  3. Upon concurrence of the manager and FTA, cases being developed for potential fraud should be updated to Status Code 17.

  4. When closing a fraud case, enter:

    • "C" if the 75% fraud penalty was asserted,

    • "F" if criminal prosecution has been successfully concluded, and

    • "B" if both apply,

    or on the appropriate line of Form 5344 or Form 5599 to ensure capture of the penalty on AIMS. Form 3198 is used to capture fraud penalty amounts on ERCS. Revenue agents must enter the actual penalty amount, in whole dollars and the corresponding penalty code section - IRC 6663.

  5. Form 3198, Special Handling Notice for Examination Case Processing,Form 3198, TE/GE Special Handling Notice, or Form 9231, Collection - Employment Tax Examination Handling/Routing Instructions, may be used for routing of civil fraud cases.

4.23.9.6.7.1  (04-01-2011)
Civil Examinations

  1. In cases where fraud was considered and the civil fraud penalty is not being recommended, the examiner will explain in the workpapers why the penalty was not asserted.

4.23.9.6.7.2  (04-01-2011)
Criminal Prosecution Cases

  1. For civil settlement of a criminal prosecution case, the examiner should contact CI to ascertain which criminal statutes the taxpayer was convicted of before attempting to resolve the related civil fraud penalty and/or the fraudulent failure-to-file penalty. The examiner should obtain a copy of the plea agreement or judgement notating the applicable criminal statutes and years.

  2. All unagreed cases where the fraud penalty or fraudulent failure to file penalty are asserted, or cases that have a "P" freeze, should be sent to Technical Services for review upon closure from the group.

  3. If criminal prosecution of a taxpayer has been recommended by CI to the Department of Justice, the civil fraud penalty and/or the fraudulent failure to file penalty may be removed only upon the written recommendation or concurrence of Area Counsel. Refer to IRM 25.1.6.2(5) for further information.

  4. Examiners and managers should be aware of collateral estoppel and the important distinction it can have in civil tax fraud penalty cases. Refer to IRM 25.1.6.4, Collateral Estoppel, for a more complete explanation.

4.23.9.6.7.3  (04-01-2011)
Worker Classification Cases

  1. In Notice of Determination of Worker Classification cases, Area Counsel must approve civil fraud penalties prior to issuance. Therefore, route to Area Counsel for approval prior to issuance of audit report.

4.23.9.7  (04-01-2011)
Negligence Penalty

  1. Examiners should not hesitate in appropriate cases to recommend the assertion of the additions to the tax for negligence or the disregard of rules or regulations component currently imposed as part of the accuracy-related penalty under IRC 6662. However, the accuracy-related and civil fraud penalties cannot be asserted on the same portion of the same underpayment, except as an alternative position. Refer to IRM 20.1.5.2 (6), Coordination of Accuracy-Related and Civil Fraud Penalties.

  2. Negligence, in the generally accepted legal sense, is the omission to do something which a reasonable person guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable person would not do. Negligence includes any failure to make a reasonable attempt to comply with the provisions of tax laws, exercise ordinary and reasonable care in tax return preparation, or keep adequate books and records. The term "disregard" includes careless, reckless, or intentional disregard. Whether or not negligence has occurred in a particular employment tax case requires exercise of sound judgment by the examiner, supervisor and reviewer.

  3. The negligence penalty should be considered if there has been negligence or an intentional disregard of published rulings and regulations in the preparation of returns, as distinguished from a mere error or a difference of opinion on some controversial question and a willful intent to evade is not present or cannot be substantiated.

  4. The Return Related Penalties section of the Penalty Handbook provides pertinent information on the negligence penalty, including describing coordination between the negligence penalty and other penalties. See IRM 20.1.5.7.1, Negligence.

  5. The Penalty Handbook also discusses negligent conduct and some of the indicators of negligence.

  6. When an underpayment of tax is attributable to the taxpayer’s failure to keep adequate records, the negligence penalty may be asserted if the taxpayer’s records are found to be inadequate upon initial examination or subsequent examination. Whether the penalty is asserted should be determined in view of the facts and circumstances of the particular case.

  7. Even if the return was prepared by an agent or employee of the taxpayer, the penalty may still be applied in appropriate instances. Unlike the fraud penalty, the taxpayer bears the same burden of proof in a negligence case as in a deficiency or overassessment case. IRC 7491(c), however, provides that the Commissioner has the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount (penalties). Therefore for the Commissioner to meet his burden of production under IRC 7491(c), the Commissioner must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty.

  8. If an examiner recommends an addition to the tax on account of negligence, the facts forming the basis for the recommendation will be fully stated in a written explanation of adjustment and enclosed with a copy of the examination report.

  9. Liability for an addition to the tax on account of negligence does not remove the bar of the statute of limitations as it does if there is liability for fraud. However, if the Service determines the existence of fraud, there is no bar to the statute of limitations for the entire underpayment, including that portion not attributable to fraud.

  10. Examiners will attach Form 3198, Special Handling Notice, or Form 9231, Collections Special Handling Form, to all case files in which the IRC 6662 penalty is to be assessed. Under Special Handling "Other," annotate "Penalty computation required under IRC section 6662."

4.23.9.8  (05-14-2008)
Assertion of Penalties Involving IRC 3509

  1. IRC 3509 provides reduced rates for computing the withholding tax under IRC 3402 and the employee's share of FICA tax under IRC 3101. This substitute method applies if the employer failed to deduct and withhold those taxes by reason of treating the employee as a nonemployee. When IRC section 3509 applies, the Service cannot compute the applicable penalties on the basis of the higher liability that would have resulted under IRC sections 3402 and 3101.

  2. In computing the failure to deposit taxes penalty under IRC 6656, the computation should be based only on the employer’s share of the FICA tax liability determined by IRC 3509. See IRM 4.23.8.5.1, Reduced Tax Rates Under IRC 3509, for more information.

  3. IRC 3509 does not apply to an erroneous classification of "wages" under IRC 3121(a), or to an error in interpreting "employment" under IRC 3121(b). Nor does IRC section 3509 apply if the employer intentionally disregarded the requirement to deduct and withhold the tax.

4.23.9.9  (05-14-2008)
Assertion of Failure to File Penalty

  1. IRC 6651(a)(1) imposes a penalty for the failure to file a tax return by its required due date (determined with regard to any extension of time for filing). The penalty rate is 5% per month up to a maximum of 25%, computed on the amount of unpaid tax. The penalty is assessed unless the taxpayer can show that the failure to file was due to "reasonable cause" and not due to willful neglect. See IRM 20.1.2.3, Failure to File a Tax Return IRC section 6651(a)(1).

  2. For reduction of the delinquency penalty rate when it is combined with the failure to pay penalty, see IRM 4.23.9.10.

  3. IRC 6651(f) provides that if the failure to file is fraudulent, the penalty increases to 15% per month up to a maximum of 75%.

  4. Generally, there is no provision for an extension of time to file an employment tax return under IRC 6081. However, deadline extensions may be granted for a Form 940 under Treas. Reg. 31.6081(a)-1(b) and for all employment tax returns under combat zone (IRC 7508) and disaster relief (IRC 7508A) provisions.

4.23.9.10  (05-14-2008)
Assertion of Failure to Pay Penalty

  1. IRC 6651(a)(2) provides a penalty for failure to pay tax shown on returns, unless the failure to pay is due to reasonable cause and not due to willful neglect. IRC 6651(a)(3) provides a similar penalty for failure to pay tax not shown on the return within 21 days from the date of notice and demand for the tax (10 business days if the amount equals or exceeds $100,000). See IRM 20.1.2.4, Failure to Pay Tax IRC section 6651(a)(2), and IRM 20.1.2.5, Failure to Pay Tax IRC section 6651(a)(3), for more information.

  2. When a delinquent return is received from a taxpayer during an examination, the examiner will determine whether the failure to pay penalty under IRC 6651(a)(2) should be asserted. The examiner’s recommendation for the assertion or non-assertion of the penalty will accompany each delinquent return sent to the Campus. If the delinquent return is received from the taxpayer with remittance, the examiner will solicit payment of the penalty when applicable.

  3. The operating division which conducted the examination is solely responsible for determining whether the failure to pay penalty is applicable on delinquent returns secured. This procedure also applies when a "Substitute for Return" is prepared in a case where a delinquent return was due from the taxpayer.

  4. The penalty imposed by IRC 6651(a)(2) is one-half of 1% for each month or fraction thereof during which the failure to pay continues, limited to a maximum of 25% of the tax shown on the return (or required to be shown and which is not shown after notice and demand) reduced by:

    1. Any part of the tax which is paid on or before the beginning of such month and

    2. Any credit against the tax which may be claimed on the return.

  5. In cases subject to the failure to file and failure to pay penalties special provisions apply. No taxpayer will be subject to more than a 5% penalty (both penalties combined) in any one month, limited to a maximum 25%. In these cases the delinquency penalty will be computed at 41/2% per month and the failure to pay penalty at one-half of 1% per month.

  6. See IRC 6651(d) for certain situations in which the failure to pay penalty is increased to 1%.

  7. A failure to pay will generally be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he paid on the due date. Treas. Reg. 301.6651-1(c). See also Policy Statement 2–7, Reasonable cause for late filing of return or failure to deposit or pay tax when due, and IRM 20.1.1, Introduction and Penalty Relief, in the Penalty Handbook.

4.23.9.11  (05-14-2008)
Penalty for Failure to Make Timely Deposits

  1. The Campus is primarily responsible for asserting the ad valorem penalty prescribed by IRC 6656 for failure of taxpayers and their agents to make deposits of certain employment taxes, as required by law. In addition examiners will:

    1. Review transcripts of account to identify previously assessed penalties and if they were paid by the taxpayer or abated by the Campuses.

    2. Review the reasonable cause arguments submitted by the taxpayer and determine if the taxpayer took steps to correct the cause. If not, subsequent penalties may be due.

    3. Review the record of liabilities on the returns to determine its accuracy and that it is in balance with the stated liabilities on the return. An imbalance could mean an overstated/understated return or incomplete record of liabilities and additional penalties may be due.

    4. Consider penalties on delinquent taxable returns obtained as a result of an examination, or an adjustment made for a period for which a "Substitute for Return" was prepared by the examiner in lieu of delinquent returns.

  2. In the above cases, after considering the statement of the taxpayer or the taxpayer’s agent regarding late payment and without referring the matter to the Campus, the examiner will recommend the assertion or non-assertion of the IRC 6656 penalty in the examination report, together with any appropriate comments in the report transmittal or workpapers. IRM 20.1.4, Failure to Deposit Penalty, of the Penalty Handbook contains instructions for computing the penalty for amended or supplemental returns and FUTA or CAWR adjustments.

  3. The amount required to be deposited includes the employer's share of all employment taxes plus any amounts withheld from employees that were not deposited. If no tax was withheld from employees, the penalty would be based only on the employer’s share of the tax. See Rev. Rul. 75-191.

  4. A four-tier penalty structure was established to encourage depositors to correct errors in a timely manner. Therefore, the amount of the penalty varies according to the time taken to correct the error. The penalty rates are 2% if 1 to 5 days late, 5% if 6 to 15 days late, and 10% if 16 or more days late. The rate is 15% for taxes still unpaid after the 10th day following notice and demand.

4.23.9.12  (05-14-2008)
Penalties for Failure to File Certain Information Returns or Furnish Certain Statements

  1. The penalties for failure to file certain information returns under IRC 6721 and for failure to furnish certain statements under IRC 6722 shall not be imposed with respect to any failure due to reasonable cause and not to willful neglect, see IRC 6724(a). Also see Policy Statement 2–7, Reasonable cause for late filing of return or failure to deposit or pay tax when due, and IRM 20.1.7.9.1, Reasonable Cause, in the Penalty Handbook. The entity must make an affirmative showing of reasonable cause in the form of a written statement, under the penalties of perjury, setting forth all the facts alleged as reasonable cause.

  2. Penalties may be asserted for both the failure to file and the failure to furnish Forms W–2. Filing the information return with the SSA under IRC 6051(d) is not a prerequisite for imposition of the failure to furnish penalty.

  3. By law, the Form W–2 for back year examinations are delinquent. Only Form W–2c can be timely filed by the last day of February of the following year and not be subject to a penalty. Therefore, if reasonable cause does not exist, the examiner must prepare and enclose a Penalty Case File in addition to the employment tax case file. See IRM 4.23.8.11, Information Return Penalty Package, for instructions.

  4. Under IRC 6674, an employer who willfully furnishes a false or fraudulent statement, or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under IRC 6051 or IRC 6053(b) may be subject to a penalty of $50 for each failure, which shall be assessed and collected in the same manner as the tax on employers imposed under IRC 3111. There is no maximum limit on the amount of penalties under IRC 6674.

4.23.9.12.1  (05-14-2008)
Information Returns Regarding Payments of Remuneration for Services

  1. IRC 6041(a) requires taxpayers that are engaged in a trade or business to file an information return if, in a calendar year, a payment of $600 or more is made to an independent contractor. Form 1099–MISC, Miscellaneous Income, is used by the payor to report these payments.

  2. In addition, IRC 6041(d) provides that the payor must furnish the payee a written statement setting forth the amount of such payments. A copy of Form 1099–MISC may be used for this purpose. The time for furnishing the statement to the payee is set forth in section 6041(d). The statement must be furnished to the payee on or before January 31st of the year following the calendar year for which the return was made.

  3. The time for filing the returns with the Service, along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, is discussed in Treas. Reg. 1.6041– 6. The returns must be filed on or before February 28 of the following calendar year for which the returns were required under IRC 6041. Under IRC 6071(b), e-filed returns must be e-filed on or before March 31st.

  4. For information on the requirements for filing Forms 1099 by magnetic media (including electronic filing), see the regulations under IRC 6011. In general, if the taxpayer is required to file 250 or more information returns (Form W–2, Form 1042–S, Form 1099, Form 1098, Form 5498, or Form W–2G), then magnetic media must be used.

4.23.9.12.2  (05-14-2008)
Wage and Tax Statements

  1. IRC 6051(a), Receipts for Employees, and Treas. Reg. 31.6051–1(a) and (b) provide that employers must furnish the tax return copy and the employee’s copy of Form W–2, Wage and Tax Statement, to employees for remuneration paid during the calendar year.

    1. The Form W–2 must show, among other information, the total amount of wages paid subject to withholding of income tax, the total amount of wages paid subject to FICA tax, and the total amounts of income tax and FICA tax deducted and withheld.

    2. Generally, the time for furnishing the Form W-2 to each employee is on or before January 31 of the succeeding year. However, if an employee whose employment is terminated before the close of the calendar year requests the employer to furnish the Form W-2 at an earlier time, the employer must furnish the Form W-2 within 30 days of the employee’s request or within 30 days of the final wage payment, whichever is later.

    3. Treas. Reg. 31.6051–1(c) further provides that corrected statements (Form W–2c) must be furnished to employees whenever the originally issued Form W–2 was incorrect.

  2. The general rule concerning the time for furnishing both original Forms W–2 and corrected statements to the employee is set forth in Treas. Reg. 31.6051–1(d), Time for Furnishing Statements; "Each statement, for a calendar year and each corrected statement required for the year shall be furnished to the employee on or before January 31 of the year succeeding such calendar year."

  3. Treas. Reg. 31.6051–2(a) provides that every employer who is required to make and furnish Form W–2 to each employee under Treas. Reg. 31.6051–1 must file a copy of each form, along with the transmittal Form W–3, with the Social Security Administration. The general rule concerning the time for filing Forms W–2 (or magnetic tape or other approved media) is set forth in Treas. Reg. 31.6071(a)–1(a)(3)(i), which provides that such statements must be filed on or before the last day of February following the calendar year for which they are made. March 31st is the due date for electronically filed returns.

  4. Treas. Reg. 31.6051–2(b) further provides that corrected statements (Forms W–2c) must be submitted to the Social Security Administration on or before the date the information returns for the period that correction is made would be due under Treas. Reg. 31.6071(a)–1(a)(3)(ii).

4.23.9.12.3  (04-01-2011)
Penalty for Failure to File Information Returns

  1. There is a penalty under IRC 6721 for failure to file correct (on paper or on magnetic media) information returns (including Form W–2 and Form 1099) on the date prescribed when required under IRC 6041(a) or IRC 6051(a). There are provisions for a reduction in penalty based on the number of days late. Refer to the charts in IRM 4.23.9.12.5.

  2. If the failure to file is due to intentional disregard of the filing requirement, the penalty imposed generally is either $100 ($250 after January 1, 2011) or 10% of the aggregate amount of the items required to be reported, whichever is greater. There is no maximum limit on the amount of penalties for intentional failure to file.

  3. Exception for de minimis failures — In general, IRC 6721(c) provides that if (a) information returns have been filed but were filed with incomplete or incorrect information, and (b) the failures are corrected on or before August 1 of the calendar year in which the returns were due, then the penalty will not apply to the greater of 10 returns, or one-half of 1% of the total number of information returns required to be filed by the filer during the calendar year.

  4. IRC 6721(d) provides lower limitations for persons with gross receipts of not more than $5 million. See chart in IRM 4.23.9.12.5.

4.23.9.12.4  (04-01-2011)
Penalty for Failure to Furnish Information Returns

  1. There is a penalty under IRC 6722 for failure to furnish correct payee statements on the date prescribed to a payee (or employee) when required under IRC 6041(a) or IRC 6051(a). The penalty also includes failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information. There are provisions for a reduction in penalty based on the number of days late. Refer to the charts in IRM 4.23.9.12.5.

  2. If the failure to file is due to intentional disregard of the failure to furnish requirement, the penalty imposed generally is either $100 ($250 after January 1, 2011) or 10% of the aggregate amount of the items required to be reported, whichever is greater. There is no maximum limit on the amount of penalties for intentional failure to file.

4.23.9.12.5  (04-01-2011)
Information Penalty Rates

  1. The Small Business Jobs Act of 2010 (SBJA of 2010) increases the amounts of IRC 6721(a) penalties from $50 to $100 for failure to timely file accurate information returns on the correct media and in the proper format. The calendar year maximum for this penalty also increases from $250,000 to $1.5 million.

  2. The SBJA of 2010 also increases the IRC 6722(a) penalties from $50 to $100 for failure to furnish timely and accurate payee statements. The calendar year maximum for this penalty increases from $250,000 to $1.5 million.

  3. Both these increases apply to returns required to be filed on or after Jan. 1, 2011. IRC sections 6721(b) and 6722(b) late-filed tier penalties increases are reflected in the following charts.

    Large Businesses with gross receipts $5 million or more

    Time of Filing Current Law Effective January 1, 2011
    Not more than 30 days late $15 per return / $75,000 maximum $30 per return / $250,000 maximum
    31 days late - August 1 $30 per return / $150,000 maximum $60 per return / $500,000 maximum
    After August 1 $50 per return / $250,000 maximum $100 per return / $1,500,000 maximum
    Intentional Disregard $100 per return / no limitation $250 per return / no limitation

    Small Businesses with gross receipts less than $5 million

    Time of Filing Current Law Effective January 1, 2011
    Not more than 30 days late $15 per return / $25,000 maximum $30 per return / $75,000 maximum
    31 days late - August 1 $30 per return / $50,000 maximum $60 per return / $200,000 maximum
    After August 1 $50 per return / $100,000 maximum $100 per return / $500,000 maximum
    Intentional Disregard $100 per return / no limitation $250 per return / no limitation

4.23.9.12.6  (04-01-2011)
Q & A Regarding Failure to File or Furnish Penalties

  1. The following questions and answers provide guidance for the assertion of penalties for failure to file certain information returns or to furnish certain statements.

    • Q–1. As a result of reclassification of individuals to employee status, would penalties be applicable against the employer for failure to file and failure to furnish Forms 1099?
      A–1. No penalty under IRC 6721 for failure to file Form 1099 would be applicable, because no returns are required by IRC 6041(a). The individuals are employees, not independent contractors. Similarly, no failure to furnish penalty under IRC 6722 would be applicable for failure to furnish Forms 1099.

    • Q–2. Would the payor be liable for penalties for failure to file and failure to furnish Form W–2 as a result of the reclassification of individuals to employee status if no Forms 1099 were filed or furnished to the payees?
      A–2. The payor would be liable for both the failure to file penalty under IRC 6721 and the failure to furnish penalty under IRC 6722, absent reasonable cause. If Forms W–2 are secured by the examiner, the IRC 6721 failure to file penalty may be asserted because these returns were not filed on the date prescribed in the regulations. If the Forms W–2 are furnished to employees subsequent to the examination, the IRC section 6722 penalty may be asserted because these returns were not furnished on the date prescribed in the regulations. If the payor refuses to file Forms W–2, assertion of the penalty under IRC section 6721 for intentional disregard of the filing requirement may be considered. If the payor refuses to furnish Forms W–2, the penalty under IRC 6674 may be considered. There is no maximum limit on the amount imposed under IRC section 6674 or for intentional disregard under IRC section 6721.

    • Q–3. If Forms 1099 were filed and furnished by the payor prior to reclassification to employee status, could civil penalties be asserted for failure to file and failure to furnish Forms W–2?
      A–3. Absent reasonable cause, the penalties for failure to file and furnish Forms W–2 would be applicable even though the payor previously filed Forms 1099, because the requirements of IRC 6051 and the applicable regulations had not been met.

    • Q–4. Does the fact that an employer withheld or failed to withhold income tax have any effect on the assertion of the failure to file and failure to furnish penalties?
      A–4. The penalties should be asserted against the employer who fails to file and furnish Form W–2, regardless of withholding.

    • Q–5. If wage adjustments are determined as part of an employment tax examination, will an employer be required to file and furnish Form W–2c?
      A–5. Yes. Forms W–2c must be filed and furnished by the employer pursuant to Treas. Reg. 31.6051–2. Forms W–2c must be furnished to employees on or before January 31 of the year succeeding the calendar year in which the wage adjustment is determined. Forms W–2c must be filed with the Service on or before the last day of February for the year succeeding the calendar year in which the wage adjustment is determined. In an examination situation, the term "in which the wage adjustment is determined" refers to the period in which the taxpayer settled the employment tax case with the Service.

    • Q–6. If Form W–2c is required to be filed and furnished after an employment tax examination, should an employer be given a reasonable period of time, such as 30 days, to meet these requirements?
      A–6. A "reasonable time" standard is not appropriate in this instance because the time for filing and furnishing Form W–2c is set forth in the regulations. Refer to A–5 above. The requirements for filing Form W–2c are provided to the taxpayer via the bottom part of Form 4668. However, the "reasonable time" standard should be applied when attempting to secure Form W–2 where reclassification adjustments are imposed.

    • Q–7. If an employer fails to file and furnish Forms W–2c after an employment tax examination by the time required would the penalties for failure to file and failure to furnish information returns be applicable?
      A–7. The penalties for failure to file and failure to furnish Forms W–2 at the conclusion of an examination would be equally applicable for failure to file and furnish Forms W–2c at the prescribed time set forth at the bottom of Form 4668 and the employment tax regulations.

4.23.9.12.7  (04-01-2011)
Failure to Include Correct Information

  1. IRC 6723 provides a penalty for the failure to include all required information or correct information on either the information return or payee statement. A penalty of $50 is imposed for each incorrect information return or statement with a maximum penalty of $100,000 per year.

  2. The information reporting requirements specified for this purpose include any requirement to include a correct taxpayer identification number on a return or statement and any requirement to furnish a correct taxpayer identification to another person. See Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs (including instructions for reading magnetic tape), for more detailed information.

4.23.9.13  (04-01-2011)
Trust Fund Recovery Penalty

  1. IRC 6672, the Trust Fund Recovery Penalty, provides:

    1. "General Rule." Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under IRC 6653 or part II of Subchapter A of chapter 68 for any offense to which this section is applicable.

  2. The purpose of IRC 6672 is to encourage the prompt payment of withheld and other collected taxes and to provide the Service with a secondary source of collection in the event that these taxes are not paid. The withheld taxes are commonly referred to as "trust fund taxes," reflecting the Code’s provision that such withholdings or collections are deemed to be a "special fund in trust for the United States." See IRC 7501 and Slodov v. United States, 436 U.S. 238 (1978). When the trust fund taxes are not paid by the employer, the Trust Fund Recovery Penalty may be assessed against the responsible persons for willful failure to collect or pay over the taxes. IRC 6672 only applies to persons responsible for collection of these trust fund taxes. See Slodov at p. 243

  3. The Service’s policy is to collect the full tax only once; from the employer or from one or more of the responsible persons. Policy Statement 5-14 (formerly P–5–60) provides:

    The trust fund recovery penalty, applicable to withheld income and employment (social security and railroad retirement) taxes or collected excise taxes, will be used to facilitate the collection of tax and enhance voluntary compliance. If a business has failed to collect or pay over income and employment taxes, or has failed to pay over collected excise taxes, the trust fund recovery penalty may be asserted against those determined to have been responsible and willful in failing to pay over the tax. Responsibility and willfulness must both be established. The withheld income and employment taxes or collected excise taxes will be collected only once, whether from the business, or from one or more of its responsible persons.


    See IRM 1.2.14.1.3(2).

  4. IRC 6672 does not prohibit the assertion of the Trust Fund Recovery Penalty against responsible persons where the addition to the tax for fraud is asserted against the employer. Section 6672 only bars the assertion of the fraud penalty against a responsible person liable for the Trust Fund Recovery Penalty. The fraud penalty applies to any underpayment of tax and can be asserted against a corporation for any fraudulent acts, including the trust fund liability, of its officers acting on its behalf.

4.23.9.13.1  (05-14-2008)
Trust Fund Recovery Penalty Procedures

  1. Determinations for the assertion or non-assertion of the Trust Fund Recovery Penalty will be made by the Area Office Technical Support Function (TSf) in Collection. See IRM 5.7.4, "Trust Fund Compliance, Investigation and Recommendation of TFRP." Information needed by TSf will be transmitted to them by the examiners for those cases where there is a preliminary indication at the examiner level that the Trust Fund Recovery Penalty may apply.

  2. Form 6238, Referral Report for Potential 100 percent Penalty Cases, will be completed according to the instructions provided in IRM 4.23.9.13.2 below, and the original and one copy forwarded to Area Collection TSf. TSf will contact the examiner within 30 days if they initiate a Trust Fund Recovery Penalty investigation. Otherwise, TSf will return one copy of the Form 6238 to examiner indicating that they do not intend to conduct an investigation in which case no further action is necessary.

  3. For all cases where there is an indication that the Trust Fund Recovery Penalty applies, examiners will include appropriate remarks in their workpapers and include a copy of the completed Form 6238 in the case file. Secure Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, from every responsible party for all tax periods when the Trust Fund Recovery Penalty assessment statute will expire within two years for unagreed cases; one year for agreed cases. See IRM 4.23.14.6, Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty, for procedures regarding the Form 2750.

  4. For those cases where Form 6238 was not prepared, examiners will comment in the workpapers that referral to Area Collection TSf was considered but not made and include the reason(s) for not making a referral to Area Collection TSf.

4.23.9.13.2  (04-01-2011)
Instructions for Completing Form 6238 (Referral Report for Potential Trust Fund Recovery Penalty Cases)

  1. Items 1 through 7 of Form 6238 will be completed by the examiner. In addition, print the examiner’s name, phone number and the date the form was prepared. Forward the original and one copy of the form to the Area Collection TSf, through the SB/SE Field Territory Manager, the LB&I team manager or the TE/GE manager.

  2. Item completion instructions are as follows:

    • Item 1 - Name and Address of Taxpayer — enter name and current address of taxpayer.

    • Item 2 - Employer Identification Number — enter employer identification number; if none, enter "None."

    • Item 3 - Tax Periods — enter all tax periods for which there is an indication that the Trust Fund Recovery Penalty may apply.

    • Item 4 - The statute of limitations for the Trust Fund Recovery Penalty (TFRP) is treated like that of the employment tax returns. However, an extended statute date on Form SS–10DOES NOT extend the statute for the Trust Fund Recovery Penalty. Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, must be used for this purpose. List the earliest statute expiration date for multiple year examinations.

    • Item 5 - List the employment tax issues for which the trust fund recovery penalty may apply. Enter the total amount of income tax withholding, the total amount of withheld FICA tax, or the total of other withheld taxes (withholding on gambling winnings and withholding at source) that may be subject to the trust fund recovery penalty.

    • Item 6 - Provide names, titles, and SSN’s of all persons who appear responsible for not collecting, accounting for, or paying over the taxes.

    • Item 7 - Provide your best estimate of the projected disposition of the employment tax case.

4.23.9.14  (04-01-2011)
Tax Return Preparer Penalty

  1. The return preparer penalties under IRC 6694 apply to preparers of all tax returns, including employment tax returns. See IRM 4.23.17, Preparer Penalty Procedures for SB/SE Employment Tax for employment tax procedures. See also Announcement 2009-15 and Treas. Reg. 31.6694-1.

Exhibit 4.23.9-1 
Instructions for Determining Civil Penalty Statute of Limitations

IRC 6721 and IRC 6722: Failure to File Correct Information Return and Failure to Furnish Correct Payee Statement — Reference Numbers 600/612
 For purposes of assessing the addition to the tax under IRC 6721 and IRC 6722, if the person required to make the return fails to file the return with the Service (SSA for Form W-2) or to furnish a payee statement, pursuant to IRC 6501(c)(3), the addition to the tax may be assessed at any time. If such person files the return after its due date (including any extension of time to file), the addition to the tax must be assessed within 3 years of filing the return. A statute extension secured on Form SS–10, Consent to Extend the Time to Assess Employment Taxes, does not extend the statute of limitations on these penalties. The consent covers only those penalties that are directly connected to an employment tax adjustment.
Form 872-B, Consent to Extend the Time to Assess Miscellaneous Excise Taxes, is used to extend the statute of limitations on IRC 6721 and IRC 6722 penalties. See IRM 4.23.14.11 for additional information, Penalties under IRC Sections 6721 and 6722.
IRC 6679: Failure to File Returns with Respect to Foreign Corporations or Foreign Partnerships — Reference Number 613
 The penalty under IRC 6679 must be assessed within 3 years after the return is filed with the Service (including any extension of time to file) (IRC 6501(a)). If no return is filed with the Service, the penalty may be assessed at any time (IRC 6501(c)(3)).
IRC 6682: False Information with Respect to Withholding — Reference Number 616
 The penalty under IRC 6682 must be assessed within 3 years after the filing of the return for which the penalized activity takes place.
IRC 6694(a): Understatement of Taxpayer’s Liability by Return Preparer — Reference Number 645
 The penalty under IRC 6694(a) must be assessed within 3 years after the return or claim for refund, with respect to which the penalty is assessed, was filed (statute of limitations is the same as the improperly prepared return that gave rise to the penalty).
IRC 6695: Other Assessable Penalties with Respect to Preparation of Income Tax Returns — Reference Numbers 624/626
Statute of limitations same as that of IRC 6694(a).
IRC 6702: Frivolous Income Tax Return — Reference Number 666
 If a frivolous return does not constitute a valid return and is not processed by the Service as a return, the IRC 6702 penalty may be assessed at any time. If the frivolous return does constitute a valid return or is processed by the Service as a return, the penalty must be assessed within 3 years after the return was filed. The frivolous return penalty can also be asserted against an amended return.
 

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