5.20.10  Identification and Processing of Frivolous Documents

Manual Transmittal

May 20, 2014

Purpose

(1) This transmits revised IRM 5.20.10, Abusive Tax Avoidance Transactions, Identification and Processing of Frivolous Documents.

Material Changes

(1) Updated title of IRM 5.20.10 to "Identification and Processing of Frivolous Documents" .

(2) Added IRM 5.20.10.1, Introduction.

(3) Updated all references from Notice 2010-14 to Notice 2010-33.

(4) IRM 5.20.10.2(1) removed outdated link.

(5) IRM 5.20.10.3(2) added Note that section 6702 penalty should not be assessed based solely on the fact that the taxpayer enclosed a letter with the return explaining why the taxpayer is not paying the self-assessed tax due.

(6) IRM 5.20.10.3(4) added cite to IRM 5.8.10.12 for guidance on penalty assertion under section 6702 related to an Offer in Compromise.

(7) IRM 5.20.10.3(2), IRM 5.20.10.3(3) and IRM 5.20.10.3(4) updated to include language "reflect a desire to delay or impede administration of Federal tax laws."

(8) IRM 5.20.10.4.1(1) added additional examples for clarity.

(9) IRM 5.20.10.4.3 removed option for revenue officer to issue L 3176. Included guidance for revenue officer to maintain original return in limited circumstances and send copy to Frivolous Return Program.

(10) IRM 5.20.10.4.4 updated IRM cite.

(11) IRM 5.20.10.3.5 moved to IRM 5.20.10.5.

(12) IRM 5.20.10.5(4) updated links.

(13) Added IRM 5.20.10.5(5) to include instructions for updating IDRS with history entry via CC ACTON when sending Letter 3175.

(14) IRM 5.20.10.5(6) included address for Frivolous Return Program.

(15) Editorial corrections made throughout the IRM.

Effect on Other Documents

This material supersedes IRM 5.20.10, , dated August 10, 2010.

Audience

The target audience is SB/SE Collection employees.

Effective Date

(05-20-2014)

Dretha Barham
Director, Collection Policy
Small Business/Self-Employed

5.20.10.1  (05-20-2014)
Introduction

  1. This section provides guidance to field Collection employees on the appropriate processing of frivolous returns and other specified frivolous submissions subject to penalty under IRC 6702 as well as frivolous correspondence not subject to IRC 6702.

  2. Potential fraud indicators may be present in frivolous submissions. Contact your local Fraud Technical Advisor, if appropriate.

5.20.10.2  (05-20-2014)
Frivolous Submissions Subject to IRC § 6702

  1. Notice 2010-33, 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/2010-17_IRB/ar13.html. For additional information and the most up-to-date list of frivolous arguments access the Internal Revenue Service website at http://www.irs.gov/Tax-Professionals/The-Truth-About-Frivolous-Tax-Arguments-Section-I.

  2. 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 " .

  3. These specified submissions include frivolous requests for:

    • installment agreements,

    • offers in compromise (OIC),

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

    • and collection due process (CDP) hearings.

  4. 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.

5.20.10.3  (05-20-2014)
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 who files a purported tax return, including an original or amended return, is subject to a penalty of $5,000 if: (i) the return does not contain information on which the substantial 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 and the return is based on a position listed in Notice 2010–33 (or subsequent guidance) or reflects a desire to delay or impede the administration of Federal tax laws.

    Note:

    When the taxpayer timely files a correct and complete return, the section 6702 penalty should not be assessed based solely on the fact that the taxpayer enclosed a letter with the return explaining why the taxpayer is not paying the self-assessed tax due. If a penalty has been assessed, it should be abated.

  3. IRC 6702(b) provides that a person who submits a specified frivolous submission based on one or more of the frivolous arguments listed in Notice 2010-33 (or subsequent guidance) or that reflects a desire to impede the administration of Federal tax laws is subject to a penalty of $5,000. Specified submissions include:

    1. Request for a CDP hearing,

    2. An application for an installment agreement,

    3. An OIC, or

    4. A taxpayer assistance order.

  4. See IRM 5.8.10.12, Offer in Compromise Submission with Frivolous, Delaying, or Impeding Issues, for guidance on penalty assertion under section 6702 related to an Offer in Compromise.

  5. Close coordination with Counsel is needed when recommending a penalty under section 6702 that is based on a reflection of a desire to impede the administration of Federal tax laws but is not based on one or more of the frivolous arguments listed in Notice 2010-33 (or subsequent guidance).

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

5.20.10.4  (05-20-2014)
Responding to Frivolous Submissions

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

5.20.10.4.1  (05-20-2014)
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,

    5. Collection Appeal Program (CAP) requests,

    6. Installment agreement requests.

  2. If the filing includes 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).

5.20.10.4.2  (05-20-2014)
Frivolous Return Program Unit

  1. After reviewing and responding to the taxpayer(s) non-frivolous request(s), mail frivolous package 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

5.20.10.4.3  (05-20-2014)
Responding to Frivolous Filings 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. Send the complete original return with all attachments, including the envelope, to the FRP and maintain a copy of the return in the case file.

    Note:

    These procedures apply to both IMF and BMF tax returns.

  2. In very limited situations, it may be necessary for the revenue officer to maintain control of the original return. In this situation, the revenue officer will maintain control of the original return and will mail a complete copy of the return with all attachments, including the envelope, to the FRP.

    Example:

    If Counsel or Criminal Investigation requests the original return due to pending court action, the revenue officer will maintain the original return and will mail FRP a copy of the return.

  3. FRP will 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 withdraw their position and submit any non-filed returns. FRP will monitor for the response from the taxpayer.

    1. If, within 30 days of the notice, the taxpayer files a valid return withdrawing the frivolous argument, or withdraws the frivolous argument without filing a valid return, FRP will not assess the IRC 6702 penalty.

    2. If the taxpayer fails to respond or responds with additional frivolous submissions or correspondence, FRP will assess the IRC 6702 penalty.

    Note:

    Issuance of the Letter 3176 is limited to FRP. Revenue officers will not issue Letter 3176.

  4. The revenue officer will monitor IDRS for assessment of the IRC 6702 penalty. If there is no assessment after ten weeks, the revenue officer may contact the Ogden Compliance Service Center FRP Coordinator to determine the status. The Coordinator can be located on the Frivolous Return Program website at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/frp/contacts/17538.aspx.

5.20.10.4.4  (05-20-2014)
IRC 6702(b) Specified 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 2010-33 (or subsequent guidance). The revenue officer should forward the hearing request to Appeals. See IRM 5.1.9, Collection Appeal Rights, and specifically IRM 5.1.9.3.16, Hearing Requests with Frivolous, Delaying or Impeding Issues, when they believe they have received a frivolous submission(s) subject to IRC 6702.

5.20.10.5  (05-20-2014)
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, OIC 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 taxpayer(s) that the position is 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.

    Note:

    Review CC ENMOD to determine if the taxpayer has been issued Letter 3175. Do not issue another Letter 3175 if the taxpayer was previously issued the letter.

  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 2010-33 (or subsequent guidance), 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/Tax-Professionals/The-Truth-About-Frivolous-Tax-Arguments-Introduction.

    If Then Follow Up Actions
    Argument is included in either Notice 2010-33 (or subsequent guidance), IRM 4.10.12.1.1 , or The Truth About Frivolous Arguments Assigned revenue officer will issue a Letter 3175, then document action on ICS case history, and update IDRS via CC ACTON with history entry indicating Letter 3175 has been sent.

    Note:

    Do not issue another Letter 3175 if the taxpayer was previously issued the letter.

    Mail a copy of the Letter 3175 and page one and two of the correspondence to the FRP. Copies must contain the name, address and SSN of the filer. They must include a stamp indicating the date the correspondence was received, a clear notation that the Letter 3175 was sent and the date 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
    New frivolous argument is identified When a potentially new frivolous argument is identified, an opinion from the Office of Chief Counsel deeming it frivolous must be obtained prior to the issuance of Letter 3175. 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 revenue officer issues the Letter 3175, the revenue officer will take the following steps to update IDRS via CC ACTON with a history entry.

    1. Bring up CC ENMOD, then overlay ENMOD with ACTON.

    2. Hit the backspace to clear line.

    3. Input the following history:
      ACTON
      H,3175SENT

    4. Go back to ENMOD and overlay with ACTON. Follow the same steps to input the date that Letter 3175 was sent.
      ACTON
      H,MMDDYYYY

    5. There are ten characters available to input a history after the "H" .

    Note:

    If the revenue officer issues Letter 3175, the revenue officer must update IDRS via CC ACTON. If FRP issues the Letter 3175, a correspondex letter is sent and IDRS is systemically updated.

  6. Frivolous documents not related to an open collection case should be routed to the FRP via Form 3210.

    Internal Revenue Service

    Frivolous Return Program

    1973 N. Rulon White Blvd. M/S 4450

    Ogden, UT 84404


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