Part 8. Appeals

Chapter 11. Penalties Worked in Appeals

Section 8. Miscellaneous Penalties

8.11.8  Miscellaneous Penalties

Manual Transmittal

September 14, 2012

Purpose

(1) This transmits new IRM 8.11.8, Miscellaneous Penalties.

Background

The Appeals IRM 8.11 material has been completely restructured and reorganized to address organizational changes and responsibilities in Appeals. The material was reorganized in a logical manner along IRS' and Appeals' core business processes, like-kind information was categorized into chapters, chapter and section titles were made descriptive, the material was written in a clear and concise manner using plain language writing style, and redundant and duplicative information was removed.

Material Changes

(1) Revised IRM to reflect new organizational titles resulting from the Appeals 2012 Alignment Project.

(2) This section includes information on working IRC 6673, 6702, 6695A, and 6709 penalty cases.

Effect on Other Documents

This IRM supersedes IRM 8.11.1 dated 04/13/2010.

Audience

Appeals

Effective Date

(10-01-2012)

Susan L. Latham
Director, Policy, Quality and Case Support

8.11.8.1  (10-01-2012)
IRC Section 6673 - Sanctions and Costs Awarded by the Courts

  1. The IRC 6673 penalty is imposed by the U. S. Tax Court against a taxpayer who initiates proceedings in the court primarily to delay the case or whose position in the proceedings is frivolous or groundless, or who has unreasonably failed to pursue available administrative remedies. The IRC 6673 penalty can also be imposed by the Tax Court against any person admitted to practice before the Tax Court who has unreasonably and vexatiously multiplied the proceedings. See IRM 8.22.3.9.2 for more information on CDP cases, Assessment of Civil Penalties under IRC 6673, and IRM 20.1.10.6, IRC Section 6673Sanctions and Costs Awarded by Courts.

  2. These cases are controlled on Appeals Centralized Database System (ACDS) with TYPE Code = OTHPEN - Other IRC penalty code sections not identified.

  3. Appeals Technical Employees (ATE) may be assigned post-assessed IRC 6673 penalty cases for consideration if the taxpayer appeals after assessment or during consideration of a CDP case.

8.11.8.1.1  (10-01-2012)
Account and Processing Support (APS) Card-in and Closing Procedures for IRC 6673 Penalties

  1. Account and Processing Support (APS) will follow normal card-in and closing procedures for post-assessed penalties. When a penalty is immediately assessable and is assessed prior to coming to Appeals, it is considered a post-assessed penalty subject to post-assessment appeal rights. For more information on this penalty, see IRM 20.1.10.6IRC Section 6673 Sanctions and Costs Awarded by Courts.

  2. Processing instructions for the penalty assessment for CDP cases is found in IRM 8.22.3, Back-End Processing for Collection Due Process and Equivalent Hearing Cases.

  3. The key items to remember when processing the IRC 6673 penalty assessment on non-CDP cases are:

    1. Assertion of the penalty is included in the Tax Court decision document.

    2. APS will enter the penalty amount on Form 5403, Item 12 (Penalty) with a transaction code (TC) 240, Miscellaneous Civil Penalty. Enter the Penalty Reference Number (PRN) 643 should be entered in item 15. Refer to IRM 8.20.7, General Closing Procedures, for information on preparing Form 5403.

    3. If a taxpayer has more than one year docketed in the Tax Court and the penalty is imposed, input the total amount on Form 5403 of the earliest year.

8.11.8.1.2  (10-01-2012)
Appeals Technical Employee (ATE) Consideration of IRC 6673

  1. The penalty is imposed on various types of cases which include both deficiency and Collection Due Process (CDP) cases. See IRM 8.22.8.14 for more information on IRC 6673(a)(1), Tax Court Imposed Penalty.

  2. For information on the statute of limitations for assessing costs under IRC 6673(b)(2) for proceedings in any court other than the Tax Court, see IRM 8.22.3.9.2.1, Statute of Limitations for Assessing Costs Under Section IRC 6673(b)(2).

  3. The penalty amount imposed by the Tax Court cannot exceed $25,000, is assessed at the same time as the deficiency, and is collected as part of the tax.

  4. See the IRC 6673 Penalty web page within the Office of Servicewide Penalties (OSP) web site.

8.11.8.2  (10-01-2012)
IRC 6702 - Frivolous Tax Submissions

  1. This is a penalty for frivolous tax submissions. See IRM 20.1.10.10 for more information.

  2. These cases are controlled on ACDS with TYPE Code = 6702.

  3. 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 2010-33 (or successor guidance) be subject to a penalty of $5,000 if:

    1. the return does not contain information on which the correctness of the return can be judged or

    2. the return contains information that on its face indicates that the self-assessment is substantially incorrect.

  4. The penalty is immediately assessable and subject to post-assessment appeal rights. Unlike many other penalties, this penalty is not based upon a tax liability; therefore, an underpayment or understatement of tax is not necessary for the penalty to be assessed. See IRM 20.1.10.10, IRC 6702, Frivolous Tax Submissions and IRM 8.22.9, Closing and Post Closing Actions.

8.11.8.2.1  (10-01-2012)
APS Card-in and Closing Procedures for IRC 6702

  1. APS will follow normal card-in and closing procedures for post-assessed penalties. See IRM 8.11.1.1.4 for new receipts and IRM 8.11.1.1.9 for closing procedures.

8.11.8.2.2  (10-01-2012)
ATE Consideration of IRC 6702

  1. The ATE works appeals of IRC 6702 penalties in the same manner as appeals of any other proposed liability not subject to the deficiency procedures of subchapter B of Chapter 63 of the Internal Revenue Code.

  2. There should be two case files and two separate work unit numbers: one case and workunit number for the related income tax case file, and one case and workunit number for the penalty case.

  3. IRC 6702(a) provides a $5,000 penalty for filing a frivolous tax return.

    1. These penalties are not subject to the special claim provisions of IRC 6703(c).

    2. Post-assessed penalties under IRC 6702(a) for returns filed after December 31,1989, may be appealed.

      Note:

      This penalty is not subject to a reasonable cause or reasonable basis determination.

      Note:

      A change was made to IRC 6702 in P.L. 109–432 effective for frivolous tax returns filed or submissions made or issues raised after April 2, 2007. The change increased the penalty to $5,000, and provided for a frivolous submissions penalty of $5,000. See Notice 2010.33.

  4. If the ATE secures a valid return, the penalty case file and related case file must be returned to Compliance for their consideration and determination. Both case files will be closed as a premature referral.

  5. After a determination has been made, the ATE will close the case with a Form 5402, Appeals Transmittal and Case Memo, Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties,Form 3870, Request for Adjustment, and Letter 1364 for full or partial disallowance.

  6. See the IRC 6702(a) Penalty web page within the Office of Servicewide Penalties (OSP) web site. Go to Search Penalties, by penalty number 6702. Also see IRM 20.1.10.10, IRC 6702, Frivolous Tax Submissions.

8.11.8.3  (10-01-2012)
IRC 6695A - Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals

  1. IRC 6695A applies to any person who prepared an appraisal of the value of property and who knew, or reasonably should have known, the appraisal would be used in connection with a return or claim for refund and that appraisal results in a substantial valuation misstatement (within the meaning of IRC 6662(e) ), a substantial estate or gift tax valuation understatement (within the meaning of IRC 6662(g)), or a gross valuation misstatement (within the meaning of IRC 6662(h)) with respect to such property. See IRM 20.1.12, Penalties Applicable to Incorrect Appraisals for more information.

  2. These cases are controlled on ACDS with TYPE Code = 6695A.

  3. The penalty may apply whenever value is at issue, such as in the following:

    • Charitable contribution

    • Estate and Gift taxes

8.11.8.3.1  (10-01-2012)
APS Card-in and Closing Procedures for IRC 6695A

  1. APS will follow normal card-in and closing procedures for IRC 6695A penalties. See IRM 8.11.1.1.4 for new receipts and IRM 8.11.1.1.9 for closing procedures.

8.11.8.3.2  (10-01-2012)
ATE Consideration of IRC 6695A

  1. The ATE works appeals of IRC 6695A penalties in the same manner as appeals of any other proposed liability not subject to the deficiency procedures of subchapter B of Chapter 63 of the Internal Revenue Code.

  2. IRC 6695A is an immediately assessable penalty, with post-assessment (but pre-payment) appeal rights. See IRM 20.1.12.10, Appeal Rights - IRC 6695A cases.

  3. There should be two case files: the related income, estate or gift tax case file and the penalty case file and there should be two separate work unit numbers for each.

  4. The amount of the IRC 6695A penalty is the lesser of:

    1. the greater of: 10 percent of the amount of the underpayment (defined by IRC 6664(a)) attributable to the misstatement or $1000 or

    2. 125 percent of the gross income received from the preparation of the appraisal.

  5. See Appraiser Penalties - IRC 6695A webpage within the Office of Servicewide Penalties (OSP) web site and IRM 20.1.12, Penalties Attributable to Incorrect Appraisals.

  6. The ATE will close the case with a Form 5402Appeals Transmittal and Case Memo (ACM), Form 8278, Computation and Assessment of Miscellaneous Penalties, Form 3870Request for Adjustment for abatements, and Letter 1364 for notification of full or partial disallowance.

8.11.8.4  (10-01-2012)
IRC 6709 - Penalties with Respect to Mortgage Credit Certificates

  1. This penalty is for making a material and negligent misstatement in any verified written statement made under penalties of perjury with respect to the issuance of a mortgage credit certificate.

  2. These cases are controlled on ACDS with TYPE Code = 6709.

  3. See IRM 20.1.10.13, Penalties with Respect to Mortgage Credit Certificates.


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