5.20.10  Frivolous Tax Submissions Subject to a § 6702 Penalty

5.20.10.1  (08-10-2010)
Frivolous Submissions Subject to IRC § 6702

  1. This section provides field Collection employees guidelines for the appropriate processing of frivolous returns and other specified submissions.

  2. Notice 2008–14, Frivolous Positions, as prepared by the Office of Chief Counsel, lists arguments identified as frivolous for purposes of the IRC 6702 penalty. This listing may be updated if new frivolous positions are identified. It can be accessed on the Internal Revenue Service website at http://www.irs.gov/irb/2008-04_IRB/ar12.html.

  3. The Tax Relief and Health Care Act of 2006, section 407, amended IRC 6702 not only to increase the amount of the penalty from $500 to $5,000, but also broadened it to include an imposition of the IRC 6702 penalty for filers of all types of purported returns of tax and certain "specified frivolous submissions " .

  4. These specified submissions include frivolous requests for:

    • installment agreements,

    • offers in compromise,

    • taxpayer assistance orders (generally such requests are made on Form 911),

    • and collection due process (CDP) hearings.

  5. The penalty is intended to address those situations where a taxpayer continues to assert a frivolous argument or who demonstrates intent to delay or impede the administration of the tax law. See IRM 4.10.12, Frivolous Return Program.

5.20.10.2  (08-10-2010)
IRC 6702 Penalty Assessments

  1. A filing subject to IRC 6702 penalty assessment is either a purported return covered by section 6702(a) frivolous return or section 6702(b) specified submission. A frivolous filing not meeting the definitions described below will not be subject to penalty assessment.

  2. IRC 6702(a) provides that a person(s) who files a purported tax return including an original or amended return, based on one or more positions listed in Notice 2008–14 be subject to a penalty of $5,000 if (i) the return does not contain information on which the correctness of the return can be judged or (ii) the return contains information that on its face indicates that the self-assessment is substantially incorrect.

  3. IRC 6702(b) provides that a person(s) who submits a "specified frivolous submission" , ("specified submissions" include a request for a CDP hearing, or an application for an installment agreement, offer-in-compromise (OIC), or taxpayer assistance order) based on one or more of the frivolous arguments listed in Notice 2008-14 be subject to a penalty of $5,000.

  4. The penalty may also be applied if the purported return or any portion of the specified submission is not based on a position set forth in Notice 2008-14, yet reflects a desire to delay or impede the administration of Federal tax laws. See IRC 6702(a)(2)(B) or IRC 6702(b)(2)(A)(ii). Close coordination with Counsel is needed when recommending a penalty under these subsections of the Code.

  5. IRC 6702 penalties are assessed by the Frivolous Return Program (FRP) at the Ogden Compliance Services Campus.

5.20.10.3  (08-10-2010)
Responding to Frivolous Submissions

  1. The following section provides guidance on how to respond to frivolous submissions and frivolous correspondence.

5.20.10.3.1  (08-10-2010)
Reviewing Frivolous Submissions

  1. Review all frivolous submissions to see if the document contains a valid request such as but not limited to:

    1. Freedom of Information Act requests (FOIA),

    2. Request for a transcript of record of account,

    3. Taxpayer Advocate Service issues,

    4. CDP requests.

  2. If the filing does include a valid request that requires a response, such as a request for a record of account, it should be forwarded to the appropriate function (i.e. Disclosure, Taxpayer Advocate Service, or Appeals).

5.20.10.3.2  (08-10-2010)
Frivolous Return Program Unit

  1. After reviewing and responding to the taxpayer(s), mail frivolous submissions via Form 3210, Document Transmittal , to the Ogden Compliance Services Campus Frivolous Return Program unit at:

    Internal Revenue Service

    Attn: Frivolous Return Program

    1973 N. Rulon White Blvd.

    M/S 4450

    Ogden, Utah 84404

5.20.10.3.3  (08-10-2010)
Responding to Frivolous Submissions Subject to Penalty Under IRC 6702(a)

  1. If it is determined that a taxpayer has submitted a tax return, including an original or amended return taking a frivolous position, stamp the return with the date received. Do not send the return through the Submission Processing Center. In most instances the return should be sent to the FRP. The revenue officer should keep a copy of the return in their case file.

  2. If the situation requires the revenue officer to maintain control of the return, the revenue officer can take the following actions:

    1. Contact the FRP and advise them you intend to send Letter 3176, Response to Frivolous Documents/Returns Received from Taxpayers, in response to a frivolous return. Include the taxpayer(s) name, TIN, type and period of the tax return.

    2. The FRP should confirm that the return meets the criteria for issuance of a Letter 3176 prior to the revenue officer sending the letter.

    3. Mail Letter 3176 along with Publication 2105, Why do I have to Pay Taxes?, to the taxpayer informing them of the frivolous argument and requesting they rescind their position and submit any non-filed returns. Obtain Letter 3176 and Publication 2105 by accessing the Frivolous Return Program website at http://sbse.web.irs.gov/CS/Programs/FRP/FRP.htm .

    4. Update case history to indicate that the letter and publication were sent.

    5. Retain copies of the original frivolous submission and the Letter 3176 with the case.

    6. Suspend the case for 45 days.

    Note:

    Allowing the taxpayer an opportunity to rescind their frivolous position is a statutory requirement that must take place prior to the assertion of the penalty. Letter 3176 provides the taxpayer an opportunity to withdraw a frivolous return filing.

  3. If the taxpayer complies by filing a valid return withdrawing the frivolous argument, or withdraws the frivolous argument without filing a valid return:

    1. Mail the frivolous submission(s), Letter 3176 and response received to FRP via Form 3210.

    2. Advise FRP of the date Letter 3176 was sent and to not assess the IRC 6702 penalty.

  4. If the taxpayer fails to respond or responds with additional frivolous submissions or correspondence:

    1. Mail the frivolous submission(s), Letter 3176, and response received to FRP via Form 3210.

    2. Advise FRP of the date the Letter 3176 was sent and direct FRP to assess the IRC 6702 penalty as appropriate.

    3. Monitor Integrated Data Retrieval System (IDRS) for assessment of the penalty.

    4. Take necessary administrative collection action.

5.20.10.3.4  (08-10-2010)
IRC 6707(b) Frivolous Submissions with Request for Hearing Under IRC 6320 or IRC 6330

  1. Revenue officers will review CDP hearing requests for frivolous arguments to determine if they fall within the meaning of frivolous submission as outlined in Notice 2008-14. Generally, the revenue officer should forward the hearing request to Appeals. See generally IRM 5.1.9, Collection Appeal Rights, and specifically IRM 5.1.9.3.3(7), Processing CDP and Equivalent Hearing Requests, when they believe they have received frivolous submission(s) subject to IRC 6702.

5.20.10.3.5  (08-10-2010)
Responding to Frivolous Correspondence Not Subject to IRC 6702

  1. For purposes of this IRM, the term "correspondence" refers only to frivolous correspondence not attached to a return or document purporting to be a return or to an installment agreement request, offer-in-compromise or CDP request or documents purporting to be any of the above.

  2. When the Service receives frivolous correspondence not subject to IRC 6702, (e.g., correspondence indicating an unwillingness to file or pay taxes based on frivolous arguments) Letter 3175, Response to Frivolous Documents/Returns Received from Taxpayers, is sent to inform the taxpayers that their positions are frivolous and that further correspondence regarding frivolous issues will not receive responses.

    Note:

    Letter 3175 constitutes an outreach education and therefore subsequent frivolous filings will not require an additional Letter 3175.

  3. Revenue officers will review all taxpayer correspondence to determine appropriate handling, including referrals to the SB/SE Lead Development Center. Consideration should be given to legitimate issues needing a response. If the document contains valid inquiries such as FOIA requests or requests that meet Taxpayer Advocate Service criteria, the document should be forwarded to the appropriate function.

  4. Once legitimate issues have been appropriately addressed, the revenue officer will determine if the frivolous position(s) asserted by the filer are contained in either Notice 2008-14, IRM 4.10.12.1.1, Frivolous Arguments , or The Truth About Frivolous Arguments, which can be found on the Internal Revenue Service website at http://www.irs.gov/taxpros/article/0,,id=159853,00.html .

    If Then Follow Up Actions
    Argument is included in either Notice 2008-14, IRM 4.10.12.1.1 , or The Truth About Frivolous Arguments Assigned revenue officer will issue a Letter 3175 and document action on case history. A copy of the L3175 and page one and two of the correspondence should be mailed to the FRP. Copies must contain the name, address and SSN of the filer. They must include a stamp indicating the date on which the correspondence was received, a clear notation that the letter 3175 was sent and the date on which the letter 3175 was sent. Send the copies to the FRP via Transmittal Form 3210 at the following address:
    Internal Revenue Service
    Frivolous Return Program
    1973 N. Rulon White Blvd. M/S 4450
    Ogden, UT 84404
    Coordination on responses to any frivolous filings should be made with the FRP to insure documentation is made on the FRP master database. Contact the FRP Liaison in Ogden via the Frivolous Return Program website athttp://sbse.web.irs.gov/CS/Programs/FRP/FRP.htm .
    New frivolous argument is identified When a potentially new frivolous argument is identified, an opinion from the Office of Chief Counsel deeming them frivolous must be obtained prior to the issuance of L3175. Requests for Counsel opinion will be secured through the FRP. A revenue officer request for Counsel opinion will include:
    • a description of the argument

    • a copy of the alleged frivolous correspondence in its entirety

    • a clear request for Counsel opinion notated on Form 3210

    Send the request to the attention of the Sr. Technical Advisor for the FRP via Transmittal Form 3210 (address listed above.)
  5. If the argument is included in either Notice 2008-14, IRM 4.10.12.1.1, or The Truth About Frivolous Arguments , the revenue officer should issue Letter 3175.

  6. If the argument is new and not included in either Notice 2008-14, IRM 4.10.12.1.1, or The Truth About Frivolous Arguments, the revenue officer should consult with Counsel prior to issuing the Letter 3175. When a new frivolous argument is identified, an opinion from the Office of Chief Counsel deeming it frivolous must be obtained before the issuance of the Letter 3175.

  7. A request for Counsel opinion should be submitted through the FRP. The request should include:

    1. A description of the argument.

    2. A copy of the alleged frivolous correspondence in its entirety.

    3. Clear request for Counsel opinion notated on Form 3210.

  8. Send the request to the attention of the Senior Technical Advisor for the FRP using Form 3210.

  9. Frivolous filings not related to an open collection case should be routed to the FRP at the address listed above via Form 3210.


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