8.11.4  Penalty Appeals (PENAP)

Manual Transmittal

February 27, 2014


(1) This transmits revised IRM 8.11.4, Penalties Worked in Appeals, Penalty Appeals (PENAP).

Material Changes

(1) Removed paragraph (6) and (7) from IRM, Closing Actions for Appeals Technical Employee, as they are duplicative and are in IRM, Penalty Appeals (PENAP) Case Closing Procedures. Paragraphs (8), (9), and (10) have been renumbered to paragraphs (6), (7), and (8), respectively.

Effect on Other Documents

This IRM supersedes IRM 8.11.4 dated October 25, 2013.



Effective Date


Lisa Zannitto
Acting Director, Policy, Quality and Case Support  (10-25-2013)
Penalty Appeals (PENAP) Program

  1. Penalty appeal (PENAP) procedures generally apply to penalties that have already been assessed. They are commonly referred to as "post assessed" penalties. In Appeals, these cases are controlled on the Appeals Centralized Database System (ACDS) as "PENAP" cases.

  2. Appeals centralized the consideration and processing of IRS campus-sourced PENAP cases originating from Compliance primarily in its Ogden Campus Appeals office. IRS field-sourced PENAP cases are generally worked in field Appeals offices.

  3. Appeals:

    1. assigns cases to designated Appeals Technical Employees (ATE), or

    2. forwards the case to a field Appeals office when the taxpayer requests a face-to-face conference.

  4. For purposes of this IRM, the term Appeals Technical Employee (ATE) is used to refer to the employee assigned to the case who has the authority to resolve or settle issues. Appeals Technical Employee is defined in IRM Exhibit 8.1.1-1, Common Terms Used in Appeals.  (10-01-2012)
Identifying a PENAP Case

  1. The following table identifies the most common TC codes that may be included in the proposed penalty field at the return level which have a type code of "PENAP" , but the list is not all inclusive:

    Transaction Code Type of Penalty IRM Reference
    160 or 166 Failure to File IRM 20.1.2, Failure To File/Failure To Pay Penalties
    170 or 176 Estimated Tax Penalty IRM 20.1.3, Estimated Tax Penalties
    180 or 186 Deposit Penalty IRM 20.1.4, Failure to Deposit Penalty
    234 or 238 Daily Delinquency Penalty IRM, IRC 6652(c)(1) - Exempt Organization Returns and Related Penalty Provisions
    240 Return Related Penalties IRM 20.1.5., Return Related Penalties
    240 or 246 Information Return Penalties IRM 20.1.7, Information Return Penalties
    246 Failure to File Using Electronic Media IRM, Failure to File Partnership Return Using Electronic Media
    270 or 276 Failure to Pay IRM 20.1.2, Failure To File/Failure To Pay Penalties
    280 or 286 Bad Check IRM, IRC Section 6657 Bad Checks  (10-01-2012)
Source of PENAP Cases

  1. Generally post-assessment penalty appeal cases are received from:

    • Wage and Investment (W&I)

    • Small Business/Self-Employed (SB/SE)

    • Large Business and International (LB&I)

  2. If the taxpayer submits a written protest to an assessed penalty, Compliance forwards the case to Appeals. Information on documents to be included with the case file are found in IRM, Subsequent Requests for Penalty Relief.  (10-25-2013)
Carding PENAP Cases

  1. Carding PENAP Cases information has been moved to IRM 8.20.5.  (10-25-2013)
Assignment of PENAP Cases

  1. Depending on the complexity of the penalty issue, the case may be handled by either the centralized Ogden Campus Appeals PENAP team or assigned to an Appeals Technical Employee (ATE) in a field office.

  2. The Appeals Team Manager (ATM) or designated official will take the following actions:

    • Assign case to an ATE on ACDS.

    • Send the ACDS uniform acknowledgment letter in accordance with IRM,Assignment of Work Units and Issuance of Letter 4141 , Uniform Acknowledgment Letter (UAL) and IRM 1.4.28-6, Pre-Selected Enclosures for the UAL Based Upon the Category and Type of Case .

      If the case is assigned to a... Then...
      Campus Appeals ATE Send Letter 4031, Campus Penalty Appeals Uniform Acknowledgement Letter, and include:
      • Pub 4576, Orientation to Penalty Appeals Process

      • Pub 4167, Appeals - Introduction to Alternative Dispute Resolution

      • Notice 1016, How to Stop Interest on Your Account.

      Field Appeals ATE Send Letter 4141, Acknowledgement Letter, and include:
      • Pub 4227, Overview of the Appeals Process

      • Pub 4167, Introduction to Alternative Dispute Resolution

      • Notice 1016, How to Stop Interest on Your Account.  (10-25-2013)
New Receipt Procedures for Appeals Technical Employees

  1. Upon receipt of the case, the ATE must follow the procedures outlined in IRM, New Receipt Procedures for Appeals Technical Employees. This includes, but is not limited to:

    • Determining the statute of limitations and validating the statute-related fields on ACDS within five (5) business days of receipt of the case in accordance with IRM (1) and IRM 8.21.3 Appeals Technical Employees Statute Responsibility.

    • Validating the Case Summary Card (CSC) information and making updates, if necessary, in accordance with IRM (2).

  2. Account and Processing Support (APS) controls the case on ACDS. Refer to IRM 8.20.5, Appeals Case Processing Manual, Appeals Centralized Database System (ACDS), for a description of the ACDS fields.

  3. Within 5 business days of receipt, ATEs will verify the information on the case summary card including the following:

    • TYPE code for all Penalty Appeals cases is " PENAP" .

    • Each MFT is established as a separate work unit.

    • AIMS indicator = E

    • ACDS return field for STATDATE (statute date) or CODE (statute code) - The information based on the following table:

      Description Statute Date Statute Code
      Penalties have been assessed Blank ASESD
      Penalties ARE NOT assessed Valid statute date Blank


      if statute date is blank, then see IRM 8.21.2, Exhibit 2-1 for valid statute code.

    • PropdPen (proposed penalty) - The total dollar amount of the penalty for each tax period is rounded to the nearest dollar amount, not in dollars and cents.


      If there is more than one penalty for each tax period, total the amount for each period and enter the sum for the respective period to the nearest dollar amount, not in dollars and cents.  (10-25-2013)
PENAP Consideration

  1. ATEs will review the case and contact the taxpayer for further clarification if needed to provide prompt resolution..


    No contact is required if the case is fully conceded based upon the information in the file. The closing letter to the taxpayer confirms the decision to fully abate the penalty.


    Campus Appeals ATEs working IRS campus-sourced PENAP cases will resolve these cases as expeditiously as possible, generally within 90 days of receipt.

  2. ATEs will apply reasonable cause criteria when considering a PENAP case. See IRM, Reasonable Cause, for more information on reasonable cause.

  3. ATEs may also consider hazards of litigation to settle PENAP cases. See IRM, Hazards of Litigation.

  4. ATEs may also consider:

    • Statutory exceptions, see IRM

    • Administrative waivers, see IRM and

    • Service errors, see IRM

  5. ATEs have settlement authority over assessed penalties, although a $25,000 limitation may apply. See IRM, Assessed Penalty Settlement Authority.

  6. Prepare ACDS Letter 3324 - Proposal for Partial Abatement. This letter is issued prior to closing the case and provides the taxpayer 30 days to provide additional information supporting the request. If the ATE does not receive this information within the time allotted, then Letter 4774-PENAP Follow-Up Letter should be sent which gives the taxpayer an additional 15 days to respond.  (02-27-2014)
Closing Actions for Appeals Technical Employee

  1. This section discusses the process used by the Appeals Technical Employee to close PENAP cases.

  2. Use ACDS APGolf to generate all forms and letters.

  3. Prepare the Appeals Case Memo (ACM). The ACM should outline the facts and circumstances supporting sustention or abatement of the penalty. This could include, but is not limited to:

    • Taxpayer's filing history

    • Citing case law

    • Hazards of litigation

    IRM 8.6.2 Appeals Case Memo Procedures, provides additional information on the preparation of ACMs.

  4. Prepare the ACDS customized Form 5402, Appeals Transmittal and Case Memo:

    • Show the affected tax periods included in the case

    • Route the case to the APS unit who will process the adjustments

    • List penalty transaction codes

    • Provide a Form 5402 to adjust the taxpayers account based on the case determination

    • Input penalty adjustment amounts on the Form 5402 using the exact dollars and cents when making full abatements

    • Include special instructions related to processing the case

    • Notate the remarks section of the Form 5402 when a certified claim disallowance letter had been issued (Letter 1363 and/or Letter 1364), instructing APS to enter this information in the Notes field on ACDS. The reason for this requirement is to ensure duplicate certified letters are not issued which may erroneously extend the two year period to file suit with the applicable court.

    • Enter proper reason code on the Form 5402:
      40-Complete removal of penalty,
      41-Appeals sustains penalty, and
      42-Appeals partial abatement of penalty.

    • Sign the Form 5402.


      If the ATE has settlement authority based upon DO 8-2 or DO 8-8, see IRM (2) Assessed Penalty Settlement Authority. For DO 8-2 or 8-8, see IRM 1.2.47, Servicewide Policies and Authorities, Delegation of Authorities for the Appeals Process.

  5. The Closing Codes for PENAP cases are:

    Determination Made Closing Code
    Sustained (penalties are not removed) 14
    Abated (penalties are fully removed) 15
    Partially Abated (only part of the penalties are removed) 16

  6. Prepare the applicable ACDS closing letters:

    • Letter 1277 - Penalty Abatement Denied. Use the narrative section to provide the reason for denying the abatement request in full or in part,

    • Letter 1278 - Penalty Fully Abated,

  7. Sign and mail the closing letters:

    The Appeals Technical Employee has delegated settlement authority The ATE will sign and mail the closing letters
    The Appeals Technical Employee does not have delegated settlement authority APS will mail the closing letters after the Appeals Team Manager/Team Leader has approved the decision.

  8. In rare situations, resolution of the case will involve a specific matter closing agreement. See IRM 8.13.1, Processing Closing Agreements in Appeals.  (10-25-2013)
APS Closing Procedures

  1. APS Closing Procedures has been moved to IRM 8.20.7, Closing Procedures for PENAP Case.

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