20.1.10 Miscellaneous Penalties

Manual Transmittal

February 26, 2013

Purpose

(1) This transmits revised IRM 20.1.10, Penalty Handbook, Miscellaneous Penalties.

Material Changes

(1) IRM 20.1.10.4.6 is revised to include Servicewide Electronic Research Program (SERP) Interim Procedural Update (IPU) 101766, Legislation Amended the IRC 6657 Bad Checks Penalty to Include All Forms of Acceptable Payment.

(2) Added new IRM 20.1.10.10.3 through IRM 20.1.10.10.3.5 to provide guidance for IRC 6702(d) per Rev. Proc. 2012-43.

(3) Minor editorial changes have been made throughout this IRM. Also, website addresses, form references, and IRM references were reviewed and updated as necessary. Other significant changes are listed below:

Reference Description
IRM 20.1.10.1.1 (7) Added reference to penalty reference numbers, 700 series.
IRM 20.1.10.2.2 (6) # Edited language.
IRM 20.1.10.3.1.1 (1) Modified language to indicate the penalty is $1 for each statement not filed, with a total maximum penalty of $1,000 during any calendar year.
IRM 20.1.10.3.2 (3) Clarified reporting requirements for tip income.
IRM 20.1.10.3.2.1 (2) Clarified language regarding penalty computation.
IRM 20.1.10.3.2.3 (1) Clarified reporting requirements for tip income.
IRM 20.1.10.4.1 (1) Clarified applicability of penalties to electronic payments.
IRM 20.1.10.4.4 (1) Modified caution remarks.
IRM 20.1.10.6.1.1 (3) Added paragraph 3.
IRM 20.1.10.6.1 (2) Clarified language related to IRC 6673(a).
IRM 20.1.10.6.1.2 (1) Clarified IRC 6673(a) instructions.
IRM 20.1.10.6.2 (1) Added note for clarity regarding IRC 6673(b) penalty.
IRM 20.1.10.7 Clarified language.
IRM 20.1.10.7.1 Clarified language.
IRM 20.1.10.7.2 (2) Clarified language.
IRM 20.1.10.8.3 Clarified language.
IRM 20.1.10.9 (1) Added statement that advised that IRC 6697 and IRC 860(j) were repealed.
IRM 20.1.10.10.1.1 (3) Added paragraph 3.
IRM 20.1.10.10.1.2 Clarified language and remove examples that were self explanatory.
IRM 20.1.10.10.3.4 (1)(f) Added instructions for processing payments received with Form 14402
IRM 20.1.10.10.3.5 Restructured to clarify language.
IRM 20.1.10.12.1 (2) Defined original issue discount (OID) information reporting requirements.
IRM 20.1.10.17.1 (1) Added paragraph 1 that states, "A penalty of 10% of the "underpayment is required if the required payment is not made on or before May 15."
IRM 20.1.10.18 Restructured to clarify language.
IRM 20.1.10.18.3 Clarified requirements for penalty relief.

Effect on Other Documents

This material supersedes IRM 20.1.10, dated 05/18/2010 and incorporates SERP IPU 101766, Legislation Amended the IRC 6657, Bad Checks Penalty, to Include All Forms of Acceptable Payment. Added IRM 20.1.10.10.3 through IRM 20.1.10.10.3.5 to incorporate guidance per Rev. Proc. 2012-43.

Audience

All operating divisions and functions that work with penalties.

Effective Date

(02-26-2013)

Signed by
Jacquenette C. Ward
Acting Director, Examination Policy SE:S:E:EP
Small Business/Self-Employed Division

Overview

  1. This section of the consolidated penalty IRM discusses the miscellaneous penalties not included in the other section of Part 20 Chapter 1.

Common Features

  1. In general, each penalty discussed in this IRM is unique and will stand alone unless otherwise indicated. Exceptions and additional information are noted in the discussions of the specific penalties; however, some general procedures apply.

  2. Statute of Limitations. In general, the additions to tax, additional amounts, and assessable penalties in IRC 856 through IRC 9707 are assessed, collected, and paid in the same manner as taxes. To the extent such an item pertains to a tax return, the assessment is subject to the period of limitation in IRC 6501, Limitations on Assessment and Collection (generally, three years from the later of the due date (unextended) or the filing of the return).

  3. Reasonable Cause. Determination as to whether or not reasonable cause exists must be based on careful consideration of the facts and circumstances of each case prior to the assertion of a penalty. Examiners should consider any reason a taxpayer provides in conjunction with the guidelines, principles, and evaluating factors identified in the IRM 20.1.1, Introduction and Penalty Relief. See IRM 20.1.1.3.2. Reasonable Cause, as well as the applicable IRC(s) and treasury regulations relating to the specific penalty.

    Note:

    Penalty relief may also be given through statutory exceptions, administrative waivers, and corrections of IRS errors. See IRM 20.1.1.3, Criteria for Relief From Penalties.

  4. Abatements. Information on penalty abatements, penalty reason codes (PRC), and penalty reference numbers (PRN) is provided in IRM 20.1.1.3. The first-time abate policy does not apply to the penalties in this IRM. Oral testimony does not apply to the penalties in this IRM.

  5. Penalty Reason Codes. A list of penalty reason codes is provided in IRM Exhibit 20.1.1-2, Penalty Reason Code Chart.

  6. Penalty Transaction Codes. A list of penalty transaction codes is provided in IRM Exhibit 20.1.1-3, Penalty Transaction Codes.

  7. Penalty Reference Numbers. A list of penalty reference numbers (PRN) is provided in IRM Exhibit 20.1.1-4, Penalty Reference Numbers (500 Series); IRM Exhibit 20.1.1-5, Penalty Reference Numbers (600 Series), and in IRM Exhibit 20.1.1-6, Penalty Reference Numbers (700 Series).

Who Asserts/Assesses

  1. Campus sites and/or field compliance (field) examination functions determine when a penalty should be imposed.

    1. Campus sites consider penalties based on taxpayer correspondence, taxpayer contact, and systemically generated notices. Computer programming may systemically generate penalties from calculations based on taxpayer filed returns.

    2. Field examination functions consider penalties during the examination.

Assertion Assessment

  1. Penalty reference numbers (PRN) are used to assess non-tax return related penalties (conduct or information returns).

    1. Generally, the "500" series penalty reference numbers are assigned to penalties for computer-matching programs and are used to identify a failure to comply. They are usually asserted by the Campus.

    2. Generally, the "600" series penalty reference numbers are assigned to penalties as the result of an examination or other compliance activity. They are usually asserted by field examination.

    3. See IRM Exhibits 20.1.1-4, IRM Exhibit 20.1.1-5, and IRM Exhibit 20.1.1-6, or Document 6209, IRS Processing Codes and Information, or Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for a complete list of the current penalty reference numbers.

Penalty Relief

  1. The First-Time Abate (FTA) policy does not apply to the penalties in this IRM.

  2. Oral testimony does not apply to the penalties in this IRM.

IRC 856(g)(5) Definition of Real Estate Investment Trust - Relief From Termination of Election - Entities to Which Paragraph Applies

  1. IRC 856 defines a real estate investment trust (REIT) and its requirements. IRC 856(g) discusses the impact of the termination of an election by a corporation, trust, or association to be treated as a REIT. In general, IRC 856(g)(5) is a relief provision that may (if its requirements are met) provide relief to a corporation, trust, or association that, but for this relief provision, potentially would be subject to loss of its tax status as a real estate investment trust (REIT) due to one or more failures to comply with one or more of the provisions of subchapter M, part II, of the Code (other than IRC 856(c)(2), (3), or (4)). IRC 856(g)(5)(B) provides that the failure(s) to qualify are due to reasonable cause and not due to willful neglect.

  2. IRC 856(g)(5)(C) provides that the corporation, trust, or association must pay (as prescribed by the Secretary in regulations and in the same manner as tax) a penalty of $50,000 for each failure to satisfy a provision of IRC 856 through IRC 859 due to reasonable cause and not willful neglect.

  3. Relief pursuant to IRC 856(g)(5) may occur:

    1. By the taxpayer reporting the $50,000 payment(s) on the appropriate line on Schedule J of Form 1120-REIT,

    2. During examination, or

    3. By the taxpayer voluntarily requesting relief; e.g., through a closing agreement.

  4. Relief is subject to the reasonable cause requirement described above. A taxpayer may contact Large Business and International (LB&I), Financial Services Industry Headquarters, for more information.

  5. Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, is filed by a corporation, trust, or association. For more information about Form 1120-REIT, see IRM 21.7.13.7.5.2.13Form 1120-REIT (Real Estate Investment Trust),IRM 21.7.4.4.4.11.12, and Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts.

Penalty Computation

  1. The penalty is $50,000 for each failure to meet the provisions to keep the tax status as a real estate investment trust (REIT).

  2. In general, IRC 856(g)(5) is a relief provision that may (if its requirements are met) provide relief to a corporation, trust, or association that, but for this relief provision, potentially would be subject to loss of its tax status as a REIT due to one or more failures to comply with one or more of the provisions of Chapter 1, subchapter M, part II, of the Code (other than IRC 856(c)(2), (3), or (4)).

Assertion/Assessment

  1. These "penalty" payments are paid by a REIT in the same manner as a tax.

  2. The $50,000 payment(s) listed on Form 1120-REIT is (are) processed in the same manner as other taxes reported on Form 1120-REIT.

  3. The $50,000 payment(s) under IRC 856(g)(5) is (are) not processed as a penalty, and is (are) not reported on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

  4. If relief pursuant to IRC 856(g)(5) occurs during an examination, the examiner may contact LB&I, Financial Services Industry Headquarters, for more information on processing the payment and assessing the corresponding liability.

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Penalty Relief

  1. Since the $50,000 payment(s) under IRC 856(g)(5) is (are) voluntary payments to maintain REIT status, there is no penalty relief for the payment(s).

IRC 6652 Failure to File Certain Information Returns, Registration Statements, Etc.

  1. IRC 6652 provides for a penalty for the failure to file certain information returns, registration statements, reports, certifications, etc.

IRC 6652(a) Returns With Respect to Certain Payments Aggregating Less Than $10

  1. IRC 6652(a) provides for a penalty for failure to file a statement of payment to another person for each statement where the payments total less than $10 as required under:

    1. IRC 6042(a)(2), Requirement of Reporting, relating to payments of dividends aggregating less than $10 by a corporation to its shareholders, or

    2. IRC 6044(a)(2), Returns Regarding Payments of Patronage Dividends, relating to payments of patronage dividends aggregating less than $10 by a cooperative to its patrons.

  2. The return should show the aggregate amount of payment(s), and the name and address of the person paid.

  3. For purposes of this penalty, the term "dividend" means any distribution of property made by a corporation (other than a personal holding company) to its shareholders out of its earnings and profits of the taxable year and any payment made by a stockbroker to any person as a substitute for a dividend. The term "dividend" does not include any distribution or payment:

    1. By certain insurance companies, or

    2. By a foreign corporation, or

    3. To a foreign corporation, a nonresident alien, or a partnership not engaged in a trade or business in the United States and composed in whole or in part of nonresident aliens.

    Dividends are paid out of earnings and profits of the taxable year (without deducting any distributions made in that year), without consideration to earnings and profits at the time of distribution.

  4. For purposes of this penalty, the term "patronage dividend" means an amount paid to a patron by a farmers' cooperative (or any corporation operating as a cooperative) on the basis of the quantity or value of the business completed pursuant to a pre-existing obligation. Patronage dividends are determined by the cooperative's net business earnings and are paid in money, qualified written notices of allocation, or other property.

Penalty Computation
  1. The penalty is $1 for each statement not filed, with a total maximum penalty of $1,000 during any calendar year.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 590, and

    3. Not subject to deficiency procedures.

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Penalty Relief
  1. Penalty relief may be granted for failing to file a statement of payment to another person if the taxpayer (corporation or cooperative) proves the failure was due to reasonable cause and not willful neglect.

IRC 6652(b) Failure to Report Tips

  1. IRC 6652(b) provides for a penalty on employees for failure to report tips.

  2. The penalty is assessed on employees who fail to timely and properly report to their employer, as required by IRC 6053(a) any tips which are either:

    1. Wages for Federal Insurance Contributions Act (FICA) [social security and Medicare tax] purpose as defined in IRC 3121(a), or

    2. Compensation for Rail Road Retirement Tax Act (RRTA) tax purposes as defined in IRC 3231(e).

  3. Every employee who receives $20 or more in tips in any calendar month must report tips to their employer in one or more written statements.

    • All tips, including those received directly from customers by cash or check, charged tips (e.g., credit or debit card charges) distributed by the employer, and tips received from other employees under a tip-sharing arrangement, should be reported. Thus, both directly and indirectly tipped employees must report tips to their employer.

    • The written report should be given to the employer by the 10th day of the month following the month of receipt (if the 10th day of the month falls on a Saturday, Sunday, or legal holiday, by the next business day).

  4. For more information about tip income, see IRM 4.19.3.16, Penalties and Interest, IRM 4.19.15.29, Correspondence Exam Tip Program, and IRM 4.23.16.8, Computations for Unreported Tip Income Cases.

Penalty Computation
  1. The penalty is 50 percent of the social security and Medicare tax due on the amount of unreported tips.

  2. This penalty, though calculated based on an employment tax, is assessed and collected as a part of the taxpayer's income tax.

Assertion/Assessment
  1. The social security tip penalty is:

    1. Input on IDRS,

    2. Assessed with Transaction Code (TC) 310, and

    3. Subject to deficiency procedures.

  2. Reference Code 891 or 892 with a money amount must precede the TC 310.

  3. Statute of Limitations. The statute of limitations on unreported tips does not start until Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is filed; therefore, FICA tax on unreported tips can be assessed even if the statute of limitations has expired for income taxes if Form 4137 was not filed with the Form 1040. See Rev. Rul. 79-39, 1979-1 C.B. 435).

Penalty Relief
  1. The explanation of why tips were not reported must be made in the form of a written statement setting forth all the facts alleged as reasonable cause. This statement can be attached to the employee's Form 1040 see Form 4137. If the statement is submitted in response to a notice regarding a proposed penalty assessment, the statement must contain a declaration that it is made under penalties of perjury.

  2. No treasury regulations have been promulgated under IRC 6652(j); however, Form 8703 and its instructions provide guidance concerning the penalty.

  3. The penalty is abated on IDRS using TC 311.

IRC 6652(j) Failure to File Certification With Respect to Certain Residential Rental Projects

  1. IRC 6652(j) provides for a penalty for failure to timely file a certification as required by IRC 142(d)(7) for:

    1. Form 8703, Annual Certification of a Residential Rental Project, and

    2. Form 8610, Annual Low-Income Housing Credit Agencies Report.

  2. Form 8703 is required to be filed by March 31 after the close of the calendar year that the certification is made. Form 8703 must be filed annually during the qualified project period.

  3. Form 8610 is required to be filed by February 28 after the close of the calendar year, and Form 8609, Low-Income Housing Credit Allocation and Certification, (with only Part I completed) and Schedules A (Form 8610) must be attached.

  4. For the purposes of this penalty, the term "qualified residential rental project" means any residential rental property project that continuously meets the requirements chosen when the project originated. To be a qualified residential rental project, one of the following tests must have been elected for the project:

    1. 20-50 test. Twenty percent (20%) or more of the residential units must be occupied by individuals whose income is 50% or less of the area median gross income.

    2. 40-60 test. Forty percent (40%) or more of the residential units must be occupied by individuals whose income is 60% or less of the area median gross income.

    3. 25-60 test (New York City only). Twenty-five percent (25%) or more of the residential units must be occupied by individuals whose income is 60% or less of the area median gross income.

    4. 20-60 test (Gulf Opportunity (GO) Zone only). Twenty percent (20%) or more of the residential units must be occupied by individuals whose income is 60% or less of the area median gross income.

    5. 40-70 test (GO Zone only). Forty percent (40%) or more of the residential units must be occupied by individuals whose income is 70% or less of the area median gross income.

    Any property shall not fail to be considered residential rental property just because part of the building is used for other than residential rental purposes.

  5. For the purposes of this penalty, the term "qualified project period" is the period beginning on the first day that 10% of the residential units are occupied and ending on the latest of the:

    1. Date that is 15 years after the date that 50% of the residential units are occupied,

    2. First day that no tax-exempt private activity bond issued for the project is outstanding, or

    3. Date that any assistance provided for the project under section 8 of the United States Housing Act of 1937 terminates.

  6. For more information, see IRM 4.19.11.1.35.1, Form 8610, Annual Low-Income Housing Credit Agencies Report.

Penalty Computation
  1. The penalty is $100 per calendar year for each failure to timely file a certification.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 587, and

    3. Not subject to deficiency procedures.

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Penalty Relief
  1. Penalty relief may be granted for failing to timely file Form 8703 or Form 8610 if the taxpayer proves the failure was due to reasonable cause and not willful neglect.

IRC 6652(k) Failure to Make Reports Required Under IRC 1202

  1. IRC 6652(k) provides for a penalty for failure to timely make a report required under IRC 1202(d)(1)(C) Partial Exclusion for Gain From Certain Small Business Stock.

  2. A taxpayer other than a corporation can exclude from gross income 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years.

  3. For purposes of this penalty, the term "qualified small business" means any domestic corporation (C corporation) if the:

    1. Corporation's (or any predecessor's) aggregate gross assets never exceeded $50,000,000 after August 9, 1993 (Revenue Reconciliation Act of 1993), but before the stock was issued;

    2. The Corporation's aggregate gross assets immediately after the stock was issued (taking into account amounts received in the issuance) do not exceed $50,000,000; and

    3. Corporation agrees to submit the required reports to its shareholders and to the IRS.

Penalty Computation
  1. The penalty is $50 for each failure to timely make a report.

  2. If the failure is due to negligence or intentional disregard, the penalty is $100 per failure.

  3. If the report covers two or more years, the penalty shall be multiplied by the number of years.

  4. There is no maximum penalty limitation.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 588, and

    3. Not subject to deficiency procedures.

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Penalty Relief
  1. Penalty relief may be granted for failing to timely make a report if the taxpayer proves it was due to reasonable cause and not willful neglect.

IRC 6652(l) Failure to File Return with Respect to Certain Corporate Transactions

  1. IRC 6652(l) provides for a penalty on certain corporate transactions for the failure to timely file an accurate Form 8806, Statement of Acquisition of Control or Change in Capital Structure, under IRC 6043(c), Liquidating, Etc., Transactions - Changes in Control and Recapitalizations.

  2. A reporting corporation must file Form 8806 to report an acquisition of control or a substantial change in the capital structure of a domestic corporation (that occurred after December 4, 2005). The reporting corporation or any shareholder is required to recognize gain (if any) under IRC 367(a), Foreign Corporations - Transfers of Property From the United States, and its regulation as a result of the transaction.

  3. If the reporting corporation transfers all or substantially all of its assets to an acquiring corporation in a transaction that constitutes a substantial change in the capital structure of the reporting corporation and the reporting corporation does not file Form 8806, then the acquiring corporation must file Form 8806. If neither corporation files Form 8806, both corporations are jointly and severally liable for any applicable penalties.

  4. A corporation required to file Form 8806 also must file Form 1099-CAP for certain shareholders of record who receive cash or other property (including stock) in exchange for their stock in the reporting corporation due to the acquisition of control or the substantial change in capital structure.

  5. Failure to file also includes the requirement to file on magnetic media as required by IRC 6011(e), Regulations Requiring Returns on Magnetic Media, Etc. and Treas. Reg. 1.6011-2, Returns, Etc., of DISC's and Former DISC's.

  6. Corporations are not required to file Form 8806:

    1. For transactions that were properly reported under IRC 6043(a). Liquidating, Etc., Transactions - Corporate Liquidating, Etc., Transactions, or

    2. If the reporting corporation reasonably determines that all of its shareholders who receive cash, stock, or other property related to the acquisition of control or substantial change in capital structure are exempt recipients under Treas. Reg. 1.6043-4(b)(5).

  7. Any broker that holds shares on behalf of a customer in a corporation that the broker knows or has reason to know based on readily available TIP (Trend, Issue, or Problem) information has engaged in a transaction of acquisition of control or substantial change in capital structure must file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, unless the customer is an exempt recipient. "Readily available information" includes information from a clearing organization, such as the Depository Trust Company (DTC) information is also published on the IRS web site at http://www.irs.gov.

  8. A domestic corporation that is required to file Form 8806, Information Return for Acquisition of Control or Substantial Change in Capital Structure, must file Form 1099-CAP, Changes in Corporate Control and Capital Structure, with the IRS and furnish a copy to each shareholder who receives cash, stock, or other property as a result of the acquisition of control or substantial change in capital structure and who is not an exempt recipient. However, if the corporation can reasonably determine that the receipt of such stock would not cause the shareholder to recognize gain, then the corporation is not required to report the fair market value of any stock provided to a shareholder. Corporations do not file Form 1099-CAP under one of the following conditions:

    1. The transaction involves the acquisition of control within an affiliated group or involves stock valued at less than $100 million,

    2. The corporation makes the consent election on Form 8806. Under the election, the corporation is not required to file Form 1099-CAP, with respect to shares held by a clearing organization because it allows the IRS to publish information necessary for brokers to meet their reporting obligations,

    3. The corporation properly reports the transaction under IRC 6043(a), or

    4. Information returns are filed under IRC 6042 (Form 1099-DIV) or IRC 6045 (Form 1099-B), unless the corporation knows or has reason to know that such returns were not filed.

  9. Form 1099-CAP is required to be filed by the last day of February (March 31, if filed electronically), unless that day falls on a Saturday, Sunday, or federal holiday, then it is due the following business day. The statement is due to shareholders by January 31, unless that day falls on a Saturday, Sunday, or federal holiday, then it is due the following business day. Form 8806 must be filed on or before the 45th day following the acquisition of control or substantial change in capital structure of the corporation, or, if earlier, on or before January 5th of the year following the calendar year in which the acquisition of control or substantial change in capital structure occurs.

  10. Form 1099-CAP will contain the following information (and other information specified in the instructions):

    1. The name, address, telephone number, and TIN of the reporting corporation;

    2. The name, address, and TIN of the shareholder;

    3. The number and class of shares in the reporting corporation exchanged by the shareholder; and

    4. The aggregate amount of cash and the fair market value of any stock or other property provided to the shareholder in exchange for its stock.

  11. Exempt Recipients. The corporation is not required to file Form 1099-CAP for the following shareholders (including brokers who are exempt):

    1. Any shareholder who receives only stock for its stock in the corporation.

    2. Any shareholder whose amount of cash plus the fair market value (FMV) of any stock and other property does exceed $1,000.

    3. Any shareholder from whom the corporation has received a properly completed exemption certificate.

  12. The information returns required to be filed under this section are treated as one return.

  13. Failure to file also includes the failure to file on magnetic media (electronically) when required.

  14. An acquisition of control of a corporation (first corporation) occurs if, in a transaction or series of related transactions, before an acquisition of stock of the first corporation (directly or indirectly) by a second corporation:

    1. The second corporation does not have control of the first corporation;

    2. After the acquisition, the second corporation has control of the first corporation;

    3. The FMV of the stock acquired in the transaction and in any related transactions as of the date or dates that the stock was acquired is $100 million or more;

    4. The shareholders of the first corporation receive stock or other property pursuant to the acquisition; and

    5. The first corporation or any of its shareholders is required to recognize gain under IRC 367(a) as a result of the transaction.

    For these purposes, control is defined as the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote, or at least 50 percent of the total value of shares of all classes of stock.

  15. A change in capital structure occurs if:

    1. The amount of cash or other property provided to its shareholders is $100 million or more and the corporation in a transaction or series of transactions merges, consolidates, or otherwise combines with another corporation or transfers all or substantially all of its assets to one or more corporations;

    2. Transfers all or part of its assets to another corporation under bankruptcy proceedings including distributing its stock or securities;

    3. Changes its identity, form, or place of organization;

    4. The corporation or any of its shareholders is required to recognize the gain under IRC 367(a) as a result of the transaction.

Penalty Computation
  1. Penalties for failure to timely file certain corporate transactions on Form 8806 and all Forms 1099-CAP required to be filed will be considered as one return for penalty computation.

  2. The penalty is $500 for each day the failure continues.

  3. The maximum assessment is limited to $100,000.

  4. Additional penalties may apply under IRC 7203, IRC 7206, and IRC 7207. See IRM 9.1.3, Criminal Statutory Provisions and Common Law.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided from Form 8278,

    2. Assessed with PRN 649, and

    3. Not subject to deficiency procedures.

  2. The IRC 6652(l) penalty is systemically assessable.

Penalty Relief
  1. Penalty relief may be granted for failure to timely make a report if the taxpayer proves it was due to reasonable cause and not willful neglect.

IRC 6657 Bad Checks (Dishonored Checks or Other Forms of Payment)

  1. IRC 6657 provides for a penalty when taxpayer's payments are dishonored and are returned from a financial institution unpaid.

  2. Before July 2, 2010, these payments were only considered for a penalty if they were in the form of a paper check or money order. The Homebuyer Assistance and Improvement Act of 2010 amended IRC 6657 to include any "instrument in payment, by any commercially acceptable means, of any amount." The penalty now includes all "instruments" (forms) of payment, including but not limited to the following:

    1. Paper checks

    2. Money orders

    3. Electronic Federal Tax Payment System (EFTPS) payments and deposits

    4. Electronic funds transfers (EFT) payments and deposits

    5. Direct debit installment agreement (DDIA) payments

    6. Electronic bill payments

    7. Federal payment levy program payments

    8. Same day wire payments

    9. Credit card payments

    10. Debit card payments

Penalty Computation

  1. Effective July 2, 2010, H.R. 5623, The Homebuyer Assistance and Improvement Act of 2010, became Public Law No 111-198 (HAIA 2010). H.R. 5623 includes Sec. 3. Application of Bad Checks Penalty to Electronic Payments. Before HAIA 2010's enactment date, bad checks penalties were not assessed on any electronic (EFTPS) payments. It amends IRC 6657 to include any “instrument in payment, by any commercially acceptable means, of any amount.” The penalty amount (rate) remains the same. The penalty rate for transactions with dates after July 1, 2010:

    1. Checks or other forms of payment for $1,250 or more, the bad checks penalty is 2% of the amount of payment;

    2. Checks or other forms of payment for $25 through $1,249.99, the bad checks penalty is $25; and

    3. Checks or other forms of payment for $5 through $24.99, the bad checks penalty is the amount of the payment.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Reminder:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Effective May 25, 2007 The Small Business and Work Opportunity Tax Act of 2007 Provision 8245 increased the bad checks minimum penalty. The penalty rate for transactions with dates after May 25, 2007 and before July 2, 2010:

    1. Checks or money orders for $1,250 or more, the bad checks penalty was 2% of the amount of the check or money order;

    2. Checks or money orders for $25 through $1,249.99, the bad checks penalty was $25; and

    3. Checks or money orders for $5 through $24.99, the bad checks penalty was the amount of the check or money order.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Penalty rate for transactions with dates after November 10, 1988 and before May 25, 2007:

    1. Checks or money orders for $750 or more, the bad checks penalty was 2% of the amount of the check or money order;

    2. Checks or money orders for $15 through $749.99, the bad checks penalty was $15; and

    3. Checks or money orders for $2 through $14.99, the bad checks penalty was the amount of the check or money order.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Penalty rate for transactions with dates prior to November 11, 1988:

    1. Checks or money orders for $500 or more, the bad checks penalty was 1% of the check or money order;

    2. Checks or money orders for $5 through $499.99, the bad checks penalty was $5; and

    3. Checks or money orders for $2 through $4.99, the bad checks penalty was the amount of the check or money order.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Assertion/Assessment

  1. Generally, this penalty is assessed by the Campus accounting branch, using one of the following penalty transaction codes (TC):

    1. TC 280 - Manual computation and assessment of a bad checks penalty, or

    2. TC 286 - Systemic (computer generated) assessment of a bad checks penalty initiated by the posting of a dishonored check transaction code, such as any one of the following TC: 611, 621, 641, 651, 661, 671, 681, 691, or 721.

  2. When a check, payment, or deposit (referred to as "payment" hereafter) received by the Treasury is dishonored, the payment is identified on Master File and IDRS when it is reversed.

  3. The payment will be reversed and followed by a payment with a TC such as the following: TC 611, 621, 641, 651, 661, 671, 681, 691, or 721. For example:

    1. A payment received with the filing of a BMF return is identified as a TC 610. If the payment received with the return was dishonored when presented to the bank, then the original payment would be identified on Master File and IDRS as a TC 610R, followed by the dishonored payment reversal, TC 611.

    2. A subsequent payment received for a balance due on an IMF account is identified as a TC 670. If the payment was dishonored when presented to the bank, the original payment would be identified on Master File and IDRS as a TC 673, followed by the dishonored payment reversal, TC 671.

  4. The bad checks penalty associated with the dishonored payment will be identified on Master File and IDRS as a TC 280 (manually computed and assessed penalty) or TC 286 (systemically computed and generated penalty).

  5. A notice will be sent to the taxpayer informing him or her of the dishonored payment and any applicable penalty and interest assessed. The bad checks penalty notice acts to educate the taxpayer and encourage future compliance.

Penalty Relief

  1. The taxpayer may request penalty relief by providing a reason why the payment was (erroneously) dishonored. Review the request for abatement (the bank letter and other correspondence or information submitted) to determine if the penalty should be reversed. The taxpayer should provide written documentation to support the request. Oral requests for penalty relief will not be accepted. First time abate rules do not apply.

  2. If it is determined that the penalty should be abated:

    1. Input TC 281 on IDRS for the net amount of the penalty assessed on that payment.

    2. Use the appropriate reason code, penalty reason code, hold code, priority code, posting delay code, and blocking series (BLK), as required. Refer to IRM Exhibit 20.1.1-3, Penalty Reason Code Chart, or Document 6209, ADP and IDRS Information.

    3. Indicate the reason for the penalty abatement in the adjustment remarks area.

    4. Notify the taxpayer that the penalty has been eliminated. If a computer paragraph (CP) notice is not generated, use Letter 0608C, Dishonored Check or Other Form of Payment Penalty Explained, or telephone contact.

      Note:

      When the collection status code is updated to "06" (taxpayer is not required to file a return on this module), the module is in debit balance, and the net TC 28X amount equals the module balance, then the TC 280 or 286 net penalty amount is systemically reversed. For BMF, it is shown as TC 287.

  3. If it is determined that the penalty should be sustained (not reversed):

    1. Provide the taxpayer with a written explanation, using Letter 0854CPenalty Waiver or Abatement Disallowed/Appeals Procedure Explained, or an equivalent denial letter.

    2. Input on IDRS TC 290, BLK 98/99, RC 062, Hold Code (HC) 3.

Penalty Relief Request With No TC 150
  1. When the taxpayer requests penalty relief and the taxpayer's return has not posted to Master File (there is no TC 150 on the tax period module), a bad checks penalty abatement (TC 281, which generates with a "carrier" TC 290 .00) can still be input on IDRS, and will post to Master File.

  2. If the penalty relief request is denied on an account where a return has not posted (no TC 150), the TC 290 .00, BLK 98, RC 062, HC 3, can still be input on IDRS, and will post to Master File.

    Note:

    You enter ".00" for zero money amount with TC 290.

Additional Penalty Relief/Reasonable Cause

  1. In addition to the reasons discussed in IRM 20.1.1.3Criteria for Relief From Penalties, the following should be accepted as reasons for granting penalty relief for dishonored payments:

    1. The taxpayer furnished evidence that the taxpayer's bank account contained sufficient funds at the time the payment was submitted, but due to a bank error, the payment was dishonored. In this situation, the taxpayer should include a letter of explanation from the taxpayer's bank. For IMF cases, abate the penalty with a TC 281, RC 065, and Penalty Reason Code (PRC) 017. For BMF cases, abate the penalty with a TC 281 and PRC 017.

    2. The taxpayer furnished evidence that the taxpayer's bank account contained sufficient funds at the time the payment was submitted, but due to an Electronic Federal Tax Payment System (EFTPS) or other Treasury Financial Agency (TFA) error, the payment was dishonored. In this situation, the taxpayer and/or the TFA should also provide a letter of explanation or incident report from the TFA. For IMF cases, abate the penalty with a TC 281, RC 065, and PRC 032. For BMF cases, abate the penalty with a TC 281 and PRC 032.

      Note:

      The term "EFTPS" refers to Treasury's electronic funds transfer (EFT) system, which is an electronic remittance processing system for making federal tax deposits and payments. For more information on EFTPS, see IRM 3.17.277.1, Electronic Federal Tax Payment System. The term "Treasury Financial Agency" (TFA) refers to any banking institution that assists the Treasury Department with the receipt and processing of payments. EFTPS uses a government designated TFA (currently Bank of America) to process tax payment information, and a taxpayer must enroll with a TFA to initiate electronic payments online or by phone voice response system. For more information on TFA responsibilities, see IRM 3.17.277.1.1, Financial Agent Responsibilities.

      Caution:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. A payment was not honored because of the death of the taxpayer after the date the payment was originated and/or issued. Penalty relief may be granted. For IMF cases, abate the penalty with TC 281, RC 062, and PRC 024. For BMF cases, abate the penalty with TC 281, RC 062, and PRC 026.

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Generally, bad checks penalties are NOT assessed on checks that have a "stop payment."

    1. If the taxpayer provides proof of a "stop payment" and TC 280 .00 was not input with TC 6X1 or 7X1 to stop the assessment of a bad checks penalty, a bad checks penalty may have been erroneously assessed. For IMF cases, abate the penalty with TC 281, RC 065, and PRC 045. For BMF cases, abate the penalty with TC 281 and PRC 045.

    2. If the taxpayer provides proof of a "stop payment" and the bank incorrectly coded the checks, a bad checks penalty may have been assessed. For IMF cases, abate the penalty with TC 281, RC 065, and PRC 017. For BMF cases, abate the penalty with TC 281 and PRC 017.

    3. If the taxpayer received erroneous IRS written advice to place a "stop payment," a bad checks penalty may have been assessed. For IMF cases, abate the penalty with TC 281, RC 065 and PRC 044. For BMF cases, abate the penalty with TC 281 and PRC 044.

  3. No penalty will be assessed on third party checks involving cash register seized property.

    1. If the taxpayer provides written proof, and TC 280 .00 was not input with TC 6X1 or 7X1 to stop the assessment of a bad checks penalty, a bad checks penalty may have been erroneously assessed on the account.

    2. For IMF cases, abate the penalty with TC 281, RC 062, and PRC 030.

    3. For BMF cases, abate the penalty with TC 281, RC 062 and PRC 030.

Insufficient Funds on Checks Processed Through Remittance Strategy for Payment Check Conversion

  1. Paper checks that go through the remittance strategy for paper check conversion (RS-PCC) are converted to an electronic format, but they are still considered a paper check. They are liable for an IRC 6657, Bad Checks, penalty when returned unpaid by a financial institution.

  2. Paper checks that go through the paper check conversion to an electronic format have an EFT trace number (with a "5" in the third position), but they do not have an "EFT indicator" ("EPI = E" ). The absence of an EFT indicator ensures that computer programming will not treat the dishonored check as an electronic payment and consequently will systemically assess a bad checks penalty on any RS-PCC returned unpaid by the bank.

  3. See IRM 3.17.278, Paper Check Conversion (PCC) System.

Insufficient Funds on Electronic Funds Transfers (EFT) and Payments Made by Other Than Paper Check or Money Order Before July 2, 2010

  1. Before July 2, 2010, bad checks penalties were not assessed on electronic funds transfer (EFT) payments.

  2. IRC 6657, Bad Checks, only addressed the assessment of penalties for insufficient funds on paper checks or money orders. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. These other forms of payment made on the Electronic Federal Tax Payment System (EFTPS) included:

    1. Electronic funds transfers (EFT) payments and deposits,

    2. Direct debit installment agreement (DDIA) payments,

    3. Electronic bill payments,

    4. Federal payment levy program payments,

    5. Same day wire payments, credit card payments, and

    6. Debit card payments.

      Reminder:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

IRC 6672 Failure to Collect and Pay Over Tax or Attempt to Evade or Defeat Tax

  1. IRC 6672 provides for a penalty for the willful failure to collect, truthfully account for, and pay over tax when required. This penalty is used solely as a collection device against collecting agents and their responsible officers.

    1. The penalty is equal to the amount of tax not collected or paid over.

    2. Responsibility is a matter of status, duty, and authority. A determination of responsibility is dependent upon the facts and circumstances of each case. A responsible person has the duty to perform the power to direct the act of collecting trust funds, and accountability and authority to pay trust funds.

    3. "Willful" means intentional, voluntary, reckless, or knowing as opposed to accidental. No evil intent or bad motive is required.

  2. The trust fund recovery penalty (TFRP) may be assessed against any person who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and willfully fails to collect or pay them.

  3. See IRM 5.7, Trust Fund Compliance.

Penalty Computation

  1. The penalty for failure to collect and pay over tax, or attempt to evade or defeat tax is equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

  2. See IRM 5.7, Trust Fund Compliance.

Assertion/Assessment

  1. The penalty is:

    1. Input on IDRS using information provided from Form 2749,

    2. Assessed with PRN 618, and

    3. Asserted by the Collection function.

  2. See IRM 5.7, Trust Fund Compliance.

Reasonable Cause

  1. Determined by the Collection function. See IRM 5.7, Trust Fund Compliance.

IRC 6673 Sanctions and Costs Awarded by Courts

  1. IRC 6673 provides for sanctions and costs awarded by Courts. The Tax Court can award monetary sanctions, penalties, or costs to the United States for a delay by the taxpayer or excessive costs by attorneys.

  2. For more information, see IRM 25.3.5.8, Litigation and Judgments.

IRC 6673(a) Tax Court Proceedings

  1. IRC 6673(a) provides for procedures for Tax Court to award sanctions and costs to the IRS when the taxpayer:

    1. Instituted or maintained proceedings primarily for delay,

    2. Had a frivolous or groundless position, and/or

    3. Unreasonably failed to pursue available administrative remedies.

  2. IRC 6673(a) also allows the Tax Court to award sanctions and costs to the IRS whenever it appears to the Tax Court that any attorney or other person admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously.

    1. The attorney or other person may pay the excess costs, expenses, and attorneys' fees charged because of this conduct, or if

    2. The attorney is appearing on behalf of the IRS Commissioner, that the United States pay the excess costs, expenses, and attorneys' fees the same way as a district court award.

Penalty Computation
  1. The penalty is the amount of the Tax Court award.

  2. The maximum penalty award is limited to $25,000.

  3. The penalty is not tied to the tax years before the Court.

Assertion/Assessment
  1. The IRS does not assert the IRC 6673(a) penalty. If the Counsel attorney determines that imposition of the penalty is appropriate, that attorney will file a motion under IRC 6673(a) with the Tax Court. Upon receiving a Tax-Court decision awarding sanctions and costs under IRC 6673(a), the penalty can be assessed by the following:

    1. Examination Technical Services, who completes Form 8278, or

    2. Appeals, who completes Form 5402. See IRM 8.22.3.9, Tax Court Decision.

    Note:

    The IRC 6673(a) penalty should be assessed for the year of the Tax Court’s opinion holding the taxpayer liable for the penalty. The year does not have to be closed to assess the penalty as the penalty is not tied to any tax year’s return.

  2. The penalty is:

    1. Assessed and collected in the same manner as tax,

    2. Input on IDRS using the information provided from Form 8278, and

    3. Assessed using PRN 643.

Penalty Relief
  1. The taxpayer must take a penalty appeal to a United States of Appeals.

IRC 6673(b) Proceedings in Other Courts

  1. IRC 6673(b) establishes procedures under IRC 7433, Civil Damages for Certain Unauthorized Collection Actions, for the court to award monetary sanctions, penalties, or costs to the United States when the taxpayer files a frivolous or baseless civil suit for damages against the United States. The taxpayer must groundlessly contend that an officer or employee of the IRS recklessly, intentionally, or by reason of negligence, disregarded provisions and regulations concerning the collection of federal tax, and bring a civil action for damages against the United States in a district court of the United States.

  2. This award is issued from a court other than Tax Court, and could include the :

    1. United States Court of Appeals, or

    2. United States Supreme Court.

    Note:

    The IRC 6673(b) penalty should be assessed for the year of the Tax Court’s opinion holding the taxpayer liable for the penalty. The year does not have to be closed to assess the penalty as the penalty is not tied to any tax year’s return.

  3. A certified copy of any sanctions and costs awarded by a court of appeals may be registered in a district court and be enforceable as other district court judgments.

  4. For more information, see IRM 25.3, Litigation and Judgments.

Penalty Computation
  1. The penalty is the amount of the Tax Court award.

  2. The maximum penalty award is limited to $10,000.

Assertion/Assessment
  1. The IRS does not assert the penalty award. It is plead before the courts and the Department of Justice (DOJ) refers the case to the IRS. Examination Technical Services completes Form 8278 for the assessment.

  2. The penalty is:

    1. Assessed and collected in the same manner as tax.

    2. Assessed on IDRS using the information provided on Form 8278, and

    3. Assessed using PRN 644.

Penalty Relief
  1. The taxpayer must take a penalty appeal to a United States court of appeals.

IRC 6674 Fraudulent Statement or Failure to Furnish Statement to Employee

  1. In addition to the criminal penalty provided by IRC 7204, any person required to furnish a statement to an employee under IRC 6051 or IRC 6053(b) who willfully furnishes a false or fraudulent statement or willfully fails to furnish a statement in the manner, at the time, and showing the information required under those sections or under regulations prescribed thereunder, is subject to the IRC 6674 penalty.

Penalty Computation

  1. The penalty is $50 for each failure. The penalty can be assessed and collected in the same manner as the tax on employers imposed by IRC 3111.

Assertion/Assessment

  1. The penalty is

    1. Input on IDRS using the information provided on Form 8278, and

    2. Assessed using PRN 575.

  2. When firm indications of willful failure to furnish or willful furnishing of false or fraudulent statements are discovered, the investigating office will suspend the inquiry and refer the matter to the Criminal Investigation function. See IRM 25.1, Fraud Handbook.

Penalty Relief

  1. Penalty relief is not given for reasonable cause. If the taxpayer wants to contest the penalty assessment, the taxpayer must fully pay the entire penalty and then file a claim for refund with the IRS.

IRC 6682 False Information With Respect to Withholding

  1. In addition to any criminal penalty provided by law, IRC 6682 provides for a civil penalty for any individual who makes a statement under IRC 3402, Income Tax Collected at Source, or IRC 3406, Backup Withholding, that results in a decrease in the amounts deducted and withheld under 26 USC Chapter 24, Collection of Income Tax at Source on Wages, if it had no reasonable basis at the time the statement was made.

Penalty Computation

  1. The penalty is $ 500 for each false statement.

Assertion/Assessment

  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 616, and

    3. Not subject to deficiency procedures.

  2. The penalty may be waived (in whole or in part) if the individual's taxes for that year are equal to or less than the sum of the:

    1. Allowable credits against those taxes, and

    2. Estimated tax payments of those taxes.

Penalty Relief

  1. Penalty relief may be granted if there was reasonable basis for the statement at the time the statement was made.

IRC 6697 Assessable Penalties With Respect to Liability for Tax of Regulated Investment Companies

  1. IRC 6697 and IRC 860(j) provide for a penalty on a regulated investment company (RIC) that uses the deficiency dividend procedures under IRC 860, Deduction for Deficiency Dividends. IRC 6697, and IRC 860(j) were repealed by the Regulated Investment Company Modernization Act of 2010, Pub. L. 111-325 (2010) effective for taxable years beginning after December 22, 2010.

  2. The amount of penalty (along with interest due) on a deficiency dividend is based upon the Form 976, Claim for Deficiency Dividends Deduction Credit, or Refund, Etc., filed by RIC.

  3. For purposes of this penalty, the term "deficiency dividends" means a distribution of property made by the qualified investment entity on or after the date of the determination and before filing claim under subsection (g), which would have been included in the tax liability computation of the deduction for dividends (distributed during the taxable year) paid under IRC 561 for the taxable year. No distribution of property shall be considered as deficiency dividends for purposes of subsection (a) unless:

    1. Distributed within 90 days after the determination, and

    2. A claim for a deficiency dividend deduction to such distribution is filed pursuant to subsection (g).

  4. Claim required. No deficiency dividend deduction shall be allowed under subsection (a) unless (under regulations) a claim is filed within 120 days after the determination date.

Penalty Computation

  1. The deficiency dividend creates a deemed increase in tax under IRC 860(c)(1).

  2. Interest is due on the deemed increase in tax for the taxable year from the original filing date of Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies, to the date Form 976, Claim for Deficiency Dividends Deduction Credit, or Refund, Etc., is filed.

    Example:

    If the Form 976 is filed on January 2 and the payment is not received until November 1 of the same year, interest is only due through January 2.

  3. The IRC 6697 penalty is equal to the amount of interest calculated in (2) above, but may not exceed 50% of the dividend deduction for the taxable year.

Assertion/Assessment

  1. If the taxpayer making a deficiency dividend procedure payment is under examination, the exam team will generally assess the penalty using Form 8278 and filing the paperwork with Centralized Case Processing (CCP). The exam team may work with LB&I Financial Services Executive Assistant Technical.

  2. If the taxpayer making a deficiency dividend procedure payment is not under examination, (generally) the LB&I Financial Services Headquarters, will assert the penalty.

    Caution:

    Do not work the issue. Contact LB&I Financial Services.

  3. For RIC self-determinations under IRC 860(e)4, taxpayers can now initiate the process by sending in Form 976 or making a payment. Contact and work with LB&I Financial Services, if there is no examination involved. LB&I Financial Services will assist the taxpayer with processing the Form 976, Claim for Deficiency Dividends Deduction Credit, or Refund, Etc., and the payment.

  4. The penalty is:

    1. Input on IDRS using the information provided on Form 8278,

    2. Assessed using PRN 582, and

    3. Not subject to deficiency procedures.

Penalty Relief

  1. Since the deficiency dividend procedure is voluntary, there is no penalty relief for reasonable cause.

IRC 6702 Frivolous Tax Submissions

  1. IRC 6702 provides for penalties for frivolous tax submissions.

  2. 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.

IRC 6702(a) Civil Penalty for Frivolous Tax Returns

  1. IRC 6702(a) provides for a penalty against persons who file what purports to be a return that does not contain information on which the correctness of the self-assessment may be judged, or contains information that on its face indicates the self-assessment is incorrect, and if either of the following apply:

    1. The return is based on a frivolous position identified in IRC 6702(c), Listing of Frivolous Positions, or

    2. The return reflects a desire to delay or impede the administration of federal tax laws.

  2. The penalty is not limited to income tax returns. It may be asserted on any tax return required to be filed by the Internal Revenue Code, such as income, employment, excise, estate and gift, etc. The penalty is applicable to any initial return or amended tax return.

  3. The term "persons" applies to entities as well as individuals.

Penalty Computation
  1. For frivolous returns or submissions filed after March 15, 2007, the date Notice 2007-30, 2010-17 IRB 609, was issued, the penalty is $5,000 per frivolous return.

  2. The IRS issued Notice 2007-30, then issued updated Notice 2008-14, then issued updated Notice 2010-33, which identifies positions that the IRS has determined are frivolous. Taxpayers may be subject to a $5,000 civil penalty for frivolous positions that are the same or similar to the positions listed in Notice 2010-33 or any later published list of frivolous positions under IRC 6702(c). This listing may be updated if new frivolous positions are identified.

  3. Refer to IRM 5.20.10, Frivolous Tax Submissions Subject to a IRC 6702 Penalty, for positions determined to be frivolous.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 666 (after January 24, 2005), and

    3. Not subject to deficiency procedures.

  2. For frivolous income tax returns filed by individuals prior to March 15, 2007, the penalty was:

    1. $500 per frivolous document;

    2. Applied only to income taxes, and was not applicable to corporations, partnerships, estates or other entities; and

    3. Not applicable to hearing requests, installment agreements, offers-in-compromise, or applications for taxpayer assistance orders, Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).

  3. Because the penalty is based on each frivolous submission of a return, a taxpayer may be assessed a separate penalty for each frivolous tax return submitted (even if it is a duplicate return) and may have more than one penalty assessment on a tax period of that return.

  4. Joint filing status frivolous filings will result in separate penalty assessments on the primary and secondary taxpayers, with a $5,000 penalty per frivolous document assessed against each spouse.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Statute of Limitations. A frivolous valid return should be assessed within three (3) years after the date the return was filed.

Penalty Relief
  1. Taxpayers seeking judicial review of a IRC 6702(a) penalty must first fully pay the entire penalty and then file a claim for refund with the IRS within two years of the date of payment. If the IRS does not issue a determination allowing or disallowing the claim within six (6) months, the taxpayer may file suit in the district court or U.S. Court of Federal Claims. If the IRS issues a disallowance letter, the taxpayer has two (2) years from the date the disallowance letter was sent to the taxpayer to file suit contesting this penalty in the district court or U.S. Court of Federal Claims.

IRC 6702(b) Civil Penalty for Specified Frivolous Submissions

  1. IRC 6702(b) provides for a penalty against anyone who submits a specified frivolous submission. A specified submission is defined as a(n):

    1. Hearing request under IRC 6320, Notice and Opportunity for Hearing Upon Filing of Notice of Lien,

    2. Hearing request under IRC 6330, Notice and Opportunity for Hearing Before Levy, i.e., a Collection due process (CDP) hearing request (see IRM 5.19.8.4.8, Withdrawal of a Request for CDP or Equivalent Hearing Request),

    3. Installment agreement request,

    4. Offer-in-compromise request, or

    5. Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order)

  2. A taxpayer will be subject to the penalty under IRC 6702(b) for making any of these specified submissions, if the submission:

    1. Has been identified by the IRS as frivolous under IRC 6702(c), or

    2. Reflects a desire to delay or impede the administration of federal tax laws.

Penalty Computation
  1. For frivolous submissions filed after March 15, 2007, the date Notice 2007-30 was issued, the penalty is $5,000 per frivolous submission. The IRS issued Notice 2007-30, then issued updated Notice 2008-14, then issued updated Notice 2010-33, which identifies positions that the IRS has determined are frivolous. Taxpayers may be subject to a $5,000 civil penalty for frivolous positions that are the same or similar to the positions listed in Notice 2010-33 or any later published list of frivolous positions under IRC 6702(c).

  2. For frivolous submissions filed by individuals prior to March 15, 2007, the IRC 6702(b) civil penalty did not apply to hearing requests, installment agreements, offers-in-compromise, or applications for taxpayer assistance orders (Form 911).

  3. Because the penalty is based on each specified frivolous submission, a taxpayer may be assessed a separate IRC 6702(b) penalty for each specified frivolous submission.

  4. Joint filing status frivolous filings will result in separate penalty assessments on the primary and secondary taxpayers, with a $5,000 penalty per frivolous submission assessed against each spouse.

    Example:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 543, and

    3. Not subject to deficiency procedures.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Generally, the Campus identifies frivolous submissions and the Ogden Campus Compliance site Frivolous Return Program (FRP) Unit determines and assesses frivolous submissions penalties.

  3. If the field receives a submission that warrants a frivolous submission penalty, the employee should indicate this on Form 3198, Special Handling Notice, for Examination Case Processing, which should be attached to the original submission.

  4. Any frivolous submission should be forwarded to the FRP Unit. See IRM 4.10.12, Frivolous Return Program, for more information.

  5. Because the penalty is based on each frivolous submission, a taxpayer may be assessed a separate penalty for each frivolous submission (even if it is a duplicate ). Assess only one penalty per submission in the year the frivolous submission was received.

  6. Statute of Limitations. A frivolous submission should be assessed within three years after the date the submission was filed.

Penalty Relief
  1. Taxpayers seeking judicial review of an IRC 6702(b) penalty must first fully pay the entire penalty and then file a claim for refund with the IRS within two years of the date of payment. If the IRS does not issue a determination allowing or disallowing the claim within six (6) months, the taxpayer may file suit in the district court or U.S. Court of Federal Claims. If the IRS issues a disallowance letter, the taxpayer has two (2) years from the date the disallowance letter was sent to the taxpayer to file suit contesting this penalty in the district court or U.S. Court of Federal Claims.

  2. If the IRS issues a notice stating a specified frivolous submission under IRC 6702(b) was made, and the person responds within 30 days after the notice by withdrawing the frivolous submission, then the IRC 6702(b) penalty will not apply. By statute, the opportunity to withdraw applies only to the IRC 6702(b) penalty and not to persons filing a frivolous tax return under IRC 6702(a). See IRM 4.10.12, Frivolous Return Program, for more information.

IRC 6702(d) Reduction of Frivolous Submission IRC 6702 Penalties

  1. IRC 6702(d) authorizes the reduction of the frivolous tax submission penalties assessed under IRC 6702 if it is determined that a reduction would promote compliance with and administration of the federal tax laws. Rev. Proc. 2012-43 (effective November 5, 2012) allows a reduction of all unpaid IRC RC 6702 penalties to $500 if a taxpayer meets specific eligibility requirements.

  2. Rev. Proc. 2012-43 describes allows the limited circumstances in which a taxpayer may be eligible for a one-time reduction of unpaid IRC 6702 penalties.

  3. A taxpayer requesting a reduction who has not fully paid a $5,000 penalty assessed by the IRS under IRC 6702 may qualify for a reduction of the penalty pursuant to IRC 6702(d).

Form 14402 - IRC 6702(d) Frivolous Tax Submissions Penalty Reduction
  1. A request for reduction must comply with the requirements explained in Rev. Proc. 2012-43. A taxpayer whose request does not comply with these requirements will not be eligible for a reduction of an IRC 6702 penalty.

  2. Form of request. A written request for reduction must be submitted on Form 14402, IRC 6702(d) Frivolous Tax Submissions Penalty Reduction, or as prescribed by the form’s instructions. The form is signed and submitted under penalties of perjury. A single Form 14402 may be filed to request reduction of more than one IRC 6702 penalty.

  3. Payment with Submission: A payment of $500 is required to be submitted to request any outstanding IRC 6702 liabilities be reduced to $500.

  4. This payment must be paid in one of two ways:

    1. Except as provided in section 4.01(2)(b) of Rev. Proc. 2012-43, a payment of at least $250 must be submitted with the request for reduction even if that taxpayer has, prior to filing a request for reduction, paid either voluntarily or by an overpayment offset, a portion of the IRC 6702 penalties that are the subject of the request. This payment will be applied to the taxpayer’s assessed IRC 6702 penalty liabilities without regard to whether the reduction request is granted or not. If the taxpayer submits $250 or more, but less than $500, the taxpayer will remain liable for the balance of the $500, subject to interest.

    2. If the taxpayer is already compliant with a full payment installment agreement, the taxpayer may request the reduction without submitting additional payments if the taxpayer will pay the $500 through the installment agreement. If the taxpayer has already paid more than $500 of the penalties as part of a full payment installment agreement, the taxpayer will not be required to pay additional section IRC 6702 penalties if the taxpayer otherwise qualifies for the reduction.

Eligibility for Penalty Relief
  1. A taxpayer must meet the following criteria to obtain IRC 6702(d) penalty relief.

    1. All tax returns must have been filed and all taxes due must have been paid (or arrangements must have been made to pay) other than the IRC 6702 penalty(ies) for which reduction is requested. Unless these filing and payment requirements have been met, reduction of an IRC 6702 penalty will be denied. Unless these filing and payment requirements have been met, reduction of an IRC 6702 penalty will be denied.

    2. All valid tax returns for any type of tax and for all taxable periods for six years before the date of the request must be filed. This requirement means a taxpayer requesting a reduction must file all individual returns and all returns for any entity in which the taxpayer has a controlling interest. This includes:
      (1) Any returns of a partnership or limited liability company for which the taxpayer is a general partner or managing member,
      (2) Any returns of a subchapter C or subchapter S corporation in which the taxpayer holds a greater than 50 percent interest, and
      (3) Any returns of a trust for which the taxpayer serves as trustee.

      Note:

      A document other than a return that permits assessment of federal income tax will not satisfy the requirements of this section.

    3. Payment compliance: All assessed tax liabilities must be full paid, including interest, penalties (other than the IRC 6702 penalty(ies) that are the subject of the request), and additions to tax for all types of tax and for all taxable periods for which the period for collection under IRC 6502 remains open. Alternatively, the taxpayer is considered in payment compliance if the taxpayer is in compliance with a full payment installment agreement for all assessed federal tax liabilities for which the IRC 6502 collection period remains open.

      Note:

      The granting of relief under the provisions of IRC 6015 or IRC 66(c) will be considered payment of an assessed tax liability to the extent of the granted relief.

    4. Deposit requirements compliance: An employer must, at the time of filing the request, have made all required deposits of federal employment taxes under subtitle C of the Code for the current quarter and the prior two quarters.

Penalty Calculation
  1. Generally, if all eligibility criteria of section 4 of Rev. Proc. 2012-43 are satisfied, all penalties assessed under IRC 6702 will be reduced to $500.

    1. If a payment of $500 is received with the request for reduction, any remaining unpaid amount of those penalty liabilities, including interest will be abated.

    2. If a payment of least $250, but less than $500 is submitted with the request for reduction, that payment will apply against any assessed IRC 6702 penalty(ies) outstanding.

    3. All outstanding penalties except the difference between the payment submitted with the Form 14402 and the required $500 shall be abated. For example, if $250 is tendered then $250 is the remaining unpaid balance.

  2. If the taxpayer granted the reduction fails to pay the remaining balance of the $500 reduced penalty (plus interest as described above), the IRS may use any available remedy to collect the balance.

  3. Any portion of the IRC 6702 penalty(ies) paid prior to the received date of the request for reduction will not be refunded.

  4. If a full pay installment agreement is in existence, the IRC 6702 penalty(ies) will be reduced only upon completion of all payments required to satisfy all outstanding tax liabilities other than the IRC 6702 penalties that are the subject of the request for reduction. A default on an installment agreement will result in the IRC 6702 penalty(ies) not being reduced.

  5. If any of the eligibility criteria of section 4 of Rev. Proc. 2012-43 are not satisfied, the request for reduction will be denied.

Assertion and Assessment
  1. Applying payments: Any taxpayer requesting a reduction who makes payments of $250 or more but less than $500 who is granted the penalty reduction will remain liable for the remaining balance of the reduced penalties until the balance is satisfied. The remaining liability will not preclude the requested reduction of the assessed and unpaid IRC 6702 penalties.

    1. If payment is $250 or more but less than $500, interest will continue to accrue on the remaining balance of the reduced penalties from the date of the earliest unpaid IRC 6702 penalty falling under these procedures.

    2. Any failure to pay the remaining balance will result in liability for the remaining balance of the reduced penalties (plus interest).

    3. If a full payment of $500 is received and the reduction is granted any interest that has accrued on the outstanding IRC 6702 liabilities will be abated.

    4. If an approved full payment installment agreement is in existence and taxpayer is in compliance under IRC 6159, the $500 payment may become a part of the installment agreement. The period for collection under IRC 6502 must be open.

    5. If payments of more than $500 towards the IRC 6702 have been received and applied under an installment agreement at the time of the request, additional payments are not required in order for the taxpayer to become eligible for the reduction. Any interest accrued on the outstanding IRC 6702 penalty(ies) will be abated.

    6. Because the IRC 6702 (d) adjust (assess/abate) the frivolous filer penalty with a TC 29X (and not a TC 300X), payments received with the Form 14402 are be posted with a TC 670 and a secondary TC 570 (to hold the payment and ensure that the money doesn’t refund if the account is “settled.”)

      Note:

      Payments should be processed in the unit received. Forward Forms 14402 (with a copy of the payment attached) to the Frivolous Filer Unit, Ogden Campus, Mail Stop 4390.

  2. Time limits: Form 14402 must be filed before the Unites States files suit either for collection of the penalty or to reduce any assessment of the penalty to judgment. Any request for reduction of an IRC 6702 penalty that does not meet these time limits will be denied.

    1. If a request seeks reduction of multiple penalties but the request falls within the time limits with respect to only some of the penalties, the request will be treated as timely only for those penalties.

    2. Any taxpayer who has made voluntary payments for a portion of any IRC 6702 penalty liabilities prior to the reduction will be eligible for reduction of the remaining amount of those liabilities, but must still pay the additional $500 before the penalties will be reduced.

    3. Similarly, any taxpayers who had overpayments offset against any IRC 6702 penalty liabilities will be eligible for a reduction of the remaining amount of those liabilities, if any, but must still pay the additional $500 before the penalties will be reduced.

  3. Determinations granting or denying IRC 6702(d) reductions will be provided in writing.

  4. Denials of a request for any reason are not subject to an administrative appeal.

    Reminder:

    The IRC 6702(d) penalty reduction can be granted only once.

Disqualifying Events
  1. The special circumstances outlined below may make a person ineligible for IRC 6702(d) penalty relief.

  2. Offer-in-compromise: Prior to considering the IRC 6702(d) penalty reduction any offer-in-compromise under IRC 7122 that includes any IRC 6702 penalty must comply with one of the following:

    1. Must have been withdrawn in writing before consideration of the IRC 6702(d) reduction,

    2. Must have been returned to the taxpayer without acceptance, or

    3. Must have been rejected and an administrative appeal was not pursued.

  3. Partial payment installment agreements: A taxpayer requesting a reduction who has entered into a partial payment installment agreement under IRC 6159 is ineligible for a reduction of any IRC 6702 penalty included in the partial payment installment agreement because the taxpayer will be paying less than the full amount of federal tax liabilities.

  4. Closing agreement: Any taxpayer requesting a reduction who has entered into a closing agreement under IRC 7121 is ineligible for a reduction of any IRC 6702 penalty included in the closing agreement.

  5. New frivolous filing: A taxpayer requesting a reduction who makes any filing of a frivolous return or frivolous submission after filing a request for reduction but before the granting of the reduction is ineligible for reduction of an IRC 6702 penalty whether or not the taxpayer requesting the reduction withdraws the frivolous return or submission.

  6. Bankruptcy: A person is ineligible for any reduction of IRC 6702 penalty(ies) under Rev. Proc. 2012-43 if the penalty is dischargeable under an open bankruptcy case. Relief under IRC 6702(d) cannot be granted while a bankruptcy case is open, regardless of whether the discharge of the penalty is included.

IRC 6705 Failure by Broker to Provide Notice to Payors

  1. IRC 6705 provides for a penalty under IRC 3406(d)(2)(B) for the failure by a broker to provide notice to under IRC 3406(d)(2)(B) to payors that a payee is subject to backup withholding.

  2. Under IRC 3406(d)(2)(B), Backup withholding, Broker Notifies Payor, a broker who acquires a readily tradable instrument for a payee (customer) must notify the payor of such instrument within 15 days of the acquisition that the payee is subject to backup withholding if any of the following conditions exist:

    1. The payee fails to furnish the TIN to the broker, or

    2. The IRS notifies the broker that the TIN is incorrect, or

    3. The payee has not provided the broker with a certification that the payee is not subject to backup withholding, or

    4. The IRS notified the broker before the acquisition that the payee is subject to backup withholding.

  3. A broker who is required to notify the payor when transferring instructions of a readily tradable instrument may notify the payor by means of magnetic (electronic) media, machine readable document, or any other medium, provided that the notice includes the following information:

    1. The payee's name, address, and taxpayer identification number (if provided to the broker);

    2. A statement that the payee is subject to withholding; and (when applicable)

    3. A statement that the broker was notified by the IRS that the payee is subject to withholding (when applicable).

  4. The broker must give the information to the payor with the transfer instructions for the acquisition (including account registration instructions transmitted by a broker in the case of acquisitions of shares in a mutual fund). A notice including the information in IRM 20.1.10.11 (3) above fulfills the broker's requirement to give notice to the payor. Once the broker transmits the transfer instructions containing the required information, the broker has no further responsibility to obtain a missing taxpayer identification number or missing certification or to provide additional notices to the payee or payor for the acquisition of the instrument. Upon receiving the notice from a broker, the payor must impose withholding on the account.

  5. For purposes of this penalty, the term "broker" includes:

    1. A dealer,

    2. Barter exchange, and

    3. Any other person who regularly acts as a middleman for property or services (for pay).

    A person who manages a farm on behalf of another person is not a broker.

Penalty Computation

  1. The penalty is $500 per failure by the broker to provide the notice to the payor.

Assertion/Assessment

  1. The penalty is:

    1. Input on IDRS using the information provided on Form 8278,

    2. Assessed using PRN 632, and

    3. Not subject to deficiency procedures.

Penalty Relief

  1. Penalty relief is not granted for reasonable cause. If a taxpayer wants to contest the penalty assessment, the taxpayer must fully pay the entire penalty and then file a claim for refund with the IRS.

IRC 6706 Original Issue Discount Information Requirements

  1. IRC 6706 provides for a penalty for original issue discount (OID) information requirements.

  2. For the purposes of this penalty, "original issue discount" means the excess of the stated redemption price at maturity over the issue price. "Stated redemption price at maturity" means the sum of all payments provided by the debt instrument other than qualified stated interest payments. Generally, "qualified stated interest" is stated interest unconditionally payable in cash at least annually at a single fixed rate. "Issue price," in the case of publicly offered instruments not issued for property, means the first price at which a substantial amount of such instruments was sold to the public (excluding bond houses and brokers).

IRC 6706(a) Failure to Show Information on Debt Instrument

  1. IRC 6706(a) provides for a penalty for the failure to show the information required under IRC 1275(c)(1), Other Definitions and Special Rules, Information Requirements, Information Required to be Set Forth on Instrument, on a debt instrument having original issue discount (OID).

  2. Under Treas. Reg. 1.1275-3(b), in the case of any debt instrument having OID and that is issued in physical form and that is not publicly offered, the following information must be shown on the debt instrument::

    1. The debt instrument has OID,

    2. The issue price of the debt instrument,

    3. The amount of the OID,

    4. The issue date,

    5. The yield to maturity, and

    6. In the case of a contingent payment debt instrument subject to the non-contingent bond method, the comparable yield and projected payment schedule.
      However, instead of the information listed in (b) through (f) above, the issuer can provide the name or title and either the address or phone number of a representative who will make this information available to a holder upon request.
      This legending requirement does not apply to [add the exceptions listed in IRM 20.1.10.11 (3) debt instruments issued by natural persons, stripped bonds and coupons, and debt instruments not offered for sale or resale in the United States in connection with their original issuance.

Penalty Computation

  1. The penalty is $50 per failure.

Assertion/Assessment
  1. The penalty is:

    1. Input in IDRS using information provided from Form 8278,

    2. Assessed using civil PRN 678, and

    3. Not subject to deficiency procedures.

Penalty Relief
  1. Penalty relief may be granted when the failure to show the information required is due to reasonable cause and not willful neglect.

IRC 6706(b) Failure to Furnish Information to Secretary

  1. IRC 6706(b) provides for a penalty for failing to timely furnish Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments, required under IRC 1275(c)(2), Information Required to be Submitted to Secretary.

  2. An issuer of a publicly offered debt instrument (obligation) having an original issue discount (OID), such as a bond, debenture, or note, must file Form 8281. Form 8281 must be filed:

    1. Within 30 days of the date of issuance of an OID instrument, and

    2. Using a separate Form 8281 for each issue.

  3. Publicly offered debt instruments also may include:

    1. Serial obligations,

    2. Debt instruments issued in exchange for other debt instruments or for stock,

    3. A debt instrument sold together with options or warrants (an investment unit),

    4. Sinking fund instruments, and

    5. Convertible instruments.

    An obligation registered with the Securities and Exchange Commission (SEC) is a publicly offered debt instrument. An obligation exempt from SEC registration may be publicly offered.

  4. Exceptions. The form is not required to be filed for the following:

    1. Regular interests of a real estate mortgage investment conduit (REMIC) or collateralized debt obligations (CDOs). REMICs and issuers of CDOs must file Form 8811, Information Return for Real Estate Mortgage Investment Conduits (REMICs) and Issuers of Collateralized Debt Obligations,

    2. Instruments on which OID is de minimis,

    3. Tax-exempt obligations (interest on them is not taxable),

    4. Short-term obligations (those that mature in 1 year or less from their issue date),

    5. Certificates of deposit (CDs) issued by banks or other financial institutions,

    6. CDs that are sold by brokers or other middlemen, and

    7. A public offering of stripped bonds or stripped coupons, including instruments issued under the Department of the Treasury's STRIPS program and instruments that constitute ownership interests in U.S. Treasury securities.

    8. The issue is not offered for sale or resale in the United States in connection with its original issuance.

Penalty Computation
  1. The penalty is 1% of the aggregate issue price.

  2. The maximum penalty is limited to $50,000 for each issue.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 678, and

    3. Not subject to deficiency procedures.

Penalty Relief
  1. Penalty relief may be granted when the failure to timely furnish Form 8281 is due to reasonable cause and not willful neglect.

IRC 6709 Penalties With Respect to Mortgage Credit Certificates

  1. IRC 6709 imposes penalties with respect to mortgage credit certificates.

  2. For purposes of this penalty, the term "mortgage credit certificate" means any certificate which is:

    1. Issued under a qualified mortgage credit certificate program by the State or political subdivision having the authority to issue qualified mortgage bonds to provide financing on the principal residence of the taxpayer,

    2. Issued to the taxpayer in connection with the acquisition, qualified rehabilitation, or qualified home improvement of the taxpayer's principal residence, and

    3. Specifies - (i) the certificate credit rate, and (ii) the certified indebtedness amount, and

    4. In the form required by law.

  3. The term "qualified mortgage credit certificate program" means any program that is established by a state or political subdivision for any calendar year that it is authorized to issue qualified mortgage bonds under which the issuing authority elects not to issue private activity bonds.

IRC 6709(a) Negligence

  1. IRC 6709(a) provides for a penalty 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.

Penalty Computation
  1. The penalty is $1,000 for each mortgage credit certificate where a misstatement was made, if the misstatement is due to negligence.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS from information provided on Form 8278,

    2. Assessed using PRN 578, and

    3. Not subject to deficiency procedures.

Penalty Relief
  1. There is no penalty relief for reasonable cause. If the taxpayer wants to contest the penalty assessment, the taxpayer must fully pay the entire penalty and then file a claim for refund with the IRS.

IRC 6709(b) Fraud

  1. IRC 6709(b) provides for a penalty if a misstatement described in subsection (a)(1) is due to fraud on the part of the person making the misstatement.

Penalty Computation
  1. The penalty is $10,000 for each mortgage credit certificate where a misstatement is made, in addition to any criminal penalty.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS from information provided on Form 8278,

    2. Assessed using PRN 579, and

    3. Not subject to deficiency procedures.

Penalty Relief
  1. There is no penalty relief for reasonable cause. If a taxpayer wants to contest the penalty assessment, the taxpayer must fully pay the entire penalty and then file a claim for refund with the IRS.

IRC 6709(c) Reports

  1. IRC 6709(c) provides for a penalty for failure to file a report with respect to any mortgage credit certificates required by IRC 25(g), Reporting Requirements.

  2. Any person (lender) who makes a loan that is a "certified indebtedness amount" on any mortgage credit certificate (MCC) must maintain books and records of such activity and file Form 8329, Lender's Information Return for Mortgage Credit Certificates (MCC). The lender must provide IRS with information regarding the issuance of MCCs under IRC 25, Interest on Certain Home Mortgages, containing:

    1. The name, address, and social security account number of the individual to which the certificate was issued,

    2. The certificate's issuer, date of issue, certified indebtedness amount, and certificate credit rate, and

    3. Other information required by regulations.

    Each person who issues a mortgage credit certificate shall file a timely and accurate report showing information required by regulations and signed by an authorized representative of the lender.

  3. Form 8329 is due by January 31 following the close of the calendar year in which the lender made certified indebtedness loans. A separate Form 8329 must be filed for each issue of MCCs for which the lender made mortgage loans during the calendar year.

  4. Each issuer (states and political subdivisions) of MCCs are to provide IRS with information required by IRC 25 and Treas. Reg. 1.25-8T(b).

  5. Form 8330, Issuer's Quarterly Information Return for Mortgage Credit Certificates (MCC), must be filed on a quarterly basis beginning with the quarter in which the election was made.

    1. More than one Form 8330 may be filed for a particular quarter for an issuer if the issuer had more than one MCC program in operation during a calendar quarter.

    2. Certificates under an MCC program may be issued for indebtedness up to the close of the 2nd calendar year following the calendar year for which the issuing authority made the election to issue MCCs in lieu of qualified mortgage bonds. There may be as many as 12 consecutive quarterly reports filed for a particular MCC program.

    3. Form 8330 must be signed by an authorized representative of the issuer.

Penalty Computation
  1. The penalty is $200 for each failure to file a form by the due date.

  2. The maximum limit is $2,000.

Assertion/Assessment
  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 580, and

    3. Not subject to deficiency procedures.

Penalty Relief
  1. Penalty relief may be granted if the taxpayer proves the failure to file a report mortgage credit certificates was due to reasonable cause and not willful neglect.

IRC 6720B Fraudulent Identification of Exempt Use Property

  1. In addition to any criminal penalty provided by law, IRC 6720B provides for a penalty against any person who identifies "applicable property" as defined in IRC 170(e)(7)(C) for a purpose or function based on the donee's exemption under IRC 501 and who knows that the property is not intended for that use.

  2. For purposes of this paragraph, the term "applicable property" means charitable deduction property as defined in IRC 6050L(a)(2)(A), which is a tangible personal property, and in which a deduction in excess of the donor's basis is allowed.

  3. The term "charitable deduction property" means any property (other than publicly traded securities) donated in a contribution for which a deduction was claimed under IRC 170 if the claimed property value (plus the claimed value of all similar items of property donated by the donor to one (1) or more donees) exceeds $5,000.

Penalty Computation

  1. The penalty is $ 10,000 for each identification made after August 17, 2006.

Assertion/Assessment

  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 551, and

    3. Not subject to deficiency procedures.

Penalty Relief

  1. Penalty relief is not given for reasonable cause. If the taxpayer wants to contest the penalty assessment, the taxpayer must fully pay the entire penalty and then file a claim for refund with the IRS.

IRC 6720C Penalty for Failure to Notify Health Plan of Cessation of Eligibility for COBRA Premium Assistance

  1. The American Recovery and Reinvestment Act of 2009, enacted on February 17, 2009, contained an employer-provided subsidy of 65% of the total amount of insurance coverage for employees who are involuntarily terminated between September 1, 2008 and December 31, 2009. IRC 6720C provides for a penalty against individuals for failure to notify their health plan when they no longer qualify for Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985) premium assistance.

  2. The Department of Defense Appropriations Act, 2010, Sec. 1010, enacted on December 19, 2010, extended the eligibility period to provide a two-month extension (through February 28, 2010) of the eligibility period for COBRA assistance, and increased the maximum duration of COBRA assistance from nine months to 15 months.

  3. The Continuing Extension Act of 2010, enacted April 15, 2010, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between September 1, 2008 and May 31, 2010, may be eligible for a 65% subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy. The COBRA subsidy is now also available to people who become eligible for COBRA coverage as a result of a reduction in hours occurring between September 1, 2008, and May 31, 2010, followed by an involuntary termination between March 2, 2010 and May 31, 2010.

    Note:

    An involuntary termination of employment that occurs on or after March 2, 2010 but by May 31, 2010 and follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through May 31, 2010 is also a qualifying event for purposes of ARRA.

    Exception:

    This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

  4. Individuals receiving COBRA premium assistance are required to notify their group health plan in writing when they become eligible for benefits under:

    1. Medicare, or

    2. Any other group health plan.

  5. They are not required to notify their group health plan if the coverage:

    1. Consists only of dental, vision, counseling, or referral services (or a combination of such services),

    2. Is under a flexible spending arrangement, or

    3. Is for treatment furnished in an on-site, employer maintained medical facility that consists primarily of first-aid services, prevention and wellness care, or similar care (or a combination of such care).

  6. For more information, see IRM 21.6.4.4.18, COBRA Premium Assistance.

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    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Penalty Computation

  1. The penalty is 110 percent of the total amount the health care payment was reduced during the time the individual was not eligible for COBRA premium assistance (the penalty amount is equal to the amount of subsidy credit paid by the employer or entity making the subsidy payments after the taxpayer became ineligible, plus 10% of the total).

    Note:

    There is no penalty assessed on the recapture of a COBRA subsidy, which is when a taxpayers' modified adjusted gross income exceeds $145,000 ($290,000 for married filing joint returns), and they must report and repay the entire subsidy on their income tax return.

Assertion/Assessment

  1. The penalty is:

    1. Input on IDRS using information provided on Form 8278,

    2. Assessed using PRN 563, and

    3. Not subject to deficiency procedures.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Penalty Relief

  1. No penalty shall be imposed under subsection (a) with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. The examiner's supervisor must approve all penalty determinations (assertions and non-assertions).

IRC 7268 Possession With Intent to Sell in Fraud of Law or to Evade Tax

  1. IRC 7268 provides for a penalty for the custody or possession of taxable goods, wares, merchandise, articles, or objects for the purpose of selling in fraud of Internal Revenue laws or to avoid paying taxes.

Penalty Computation

  1. The penalty is $500 or not less than double the amount of taxes illegally evaded.

Assertion/Assessment

  1. The penalty is administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB).

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

IRC 7519 Required Payments for Entities Electing Not to Have Required Taxable Year

  1. IRC 7519 requires partnerships and S corporations that have elected under IRC 444Election of Taxable Year Other Than Required Taxable Year, to make "required payments."

  2. The term "required payment" means an amount equal to the excess of:

    1. The applicable percentage of the adjusted highest section 1 rate, multiplied by

    2. The net base year income of the business, over

    3. The net required payment balance.

    The term "adjusted highest section 1 rate" means the highest rate of tax under section 1 at the end of the base year plus 1 percentage point (currently 36 percent).

  3. These payments are due on or before May 15 and are not credited against the partners' or shareholders' tax liabilities, but are a payment that is adjusted each year with the filing of Form 8752, Required Payment or Refund Under Section 7519.

  4. If the required payment is not more than $500 and the partnership or S corporation has not had to make a required payment for a prior year, the partnership or S corporation is not required to make a payment for the applicable election year.

  5. If the partnership or S corporation willfully fails to comply with the requirements, IRC 444 will no longer apply to the partnership or S corporation.

  6. For more information, see IRM 21.7.4.4.7, Form 8752, Required Payment or Refund Under Section 7519.

Penalty Computation

  1. A penalty of 10% of the "underpayment is required if the required payment is not made on or before May 15.

  2. For purposes of this penalty, the term "underpayment" means the remainder of the amount of the required payment after it is subtracted from the payment (if any) made on or before the due date.

  3. If the penalty is for negligence and/or fraud penalties, then the payment will be treated as a tax.

Assertion/Assessment

  1. The penalty is systemically assessed as TC 246 with PRN 684.

  2. The 10% penalty may be manually assessed if it is not systemically generated when the return posts.

    1. Input TC 290 for .00 and PRN 684 with the correct penalty amount on IDRS, Master File Tax (MFT) 15.

    2. The penalty assessment will post to the Master File Tax (MFT) 15 account as a TC 240 with PRN 684.

  3. The 10% penalty may be manually abated by inputting TC 290 for .00 ( MFT 15) and PRN 684 with the amount to be reversed.

    Note:

    For penalty reversal, use a minus sign after the money amount. The penalty abatement will post to the MFT 15 account as a TC 241 with PRN 684.

Penalty Relief

  1. Penalty relief may be granted if the partnership or S corporation proves that its failure to timely make the required payment was due to reasonable cause and not willful neglect.

  2. The First-Time Abate policy does not apply to this penalty.

  3. Oral testimony does not apply to this penalty.

IRC 9707 Failure to Pay Premium

  1. IRC 9707, imposes a penalty on the failure of any person to make a contribution required under section 402 of the Surface Mining Control and Reclamation Act of 1977 to a benefit or pension plan. Section 402 Taxability of Beneficiary of Employees' Trust - Special Rules for Simplified Employee Pensions - Limitations on Employer Contributions requires monthly contributions for the hours worked of any individual be treated as if it were a premium required to be paid under section IRC 9704Liability of Assigned Operators with respect to any eligible beneficiary.

  2. Each required monthly contribution for the hours worked by any individual shall be treated as if it were a premium required to be paid for the eligible beneficiary.

  3. For purposes of this penalty, the term "noncompliance period" means, the period beginning on the due date for such premium or installment and ending on the date of payment of the premium or installment.

  4. The penalty shall be treated in the same manner as tax.

Penalty Computation

  1. The penalty is $100 per day beginning on the due date of the premiums or installments and ending on the date of payment for each failure.

  2. There is no maximum limitation. The penalty continues to accrue until it is fully paid.

Assertion/Assessment

  1. The officers of the benefit or pension plans are responsible for notifying the Internal Revenue Service of any delinquency.

  2. The Department of the Interior-Office of Surface Mining will contact LB&I-NRC in Houston, TX with any penalty referrals.

  3. The penalty is asserted using PRN 593.

Penalty Relief

  1. No penalty shall be imposed on any failure during any period for which it is established that none of the persons responsible for such failure knew, or exercising reasonable diligence would have known, that such failure existed.

  2. Penalty relief may be given if the taxpayer:

    1. Proves the failure was due to reasonable cause and not to willful neglect, and/or

    2. Corrects the failure during the 30-day period beginning on the first date that the taxpayer knew, or if exercising reasonable diligence would have known, that the failure existed.

    3. Proves the failure is due to reasonable cause and not to willful neglect, all or part of the penalty may be waived for failures to the extent that the he payment of such penalty would be excessive relative to the failure involved.