Section 1. Introduction and Penalty Relief

(1) This transmits revised IRM 20.1.1, Penalty Handbook, Introduction and Penalty Relief.

Background

Changes to IRM 20.1.1.2.3, Approval Prerequisite to Penalty Assessments, were approved by the Deputy Commissioner of the Internal Revenue Service for Services and Enforcement.

Material Changes

(1) IRM 20.1.1.1.2(2) Added IRM 20.1.13, Material Advisor and Reportable Transactions Penalties, to the bottom of the table and moved IRC 6707, 6707A and 6708 from IRM 20.1.6 to IRM 20.1.13.

(2) IRM 20.1.1.1.3 Revised language in (5) based on guidance from the Division Counsel/Associate Chief Counsel (National Taxpayer Advocate Program) and Branch 3 of the Associate Chief Counsel (Procedure and Administration).

(3) IRM 20.1.1.1.6.2 Revised title and language per the Taxpayer Advocate Service (TAS) Standard Language approved by TAS and Counsel.

(4) IRM 20.1.1.1.6.3 Corrected (1) to show the correct IRM reference of 13.1.7.5

(5) IRM 20.1.1.3.1(3) Added a note after item b stating a faxed statement with signature or documentation is acceptable.

(6) Added new subsection IRM 20.1.1.3.2.2.8 , Inaccessible Notices.

(7) IRM 20.1.1.3.3.2.1 was updated as follows:

1. Removed current compliance check in (2) paragraphs a and b regarding all returns or valid extensions filed and all tax paid, and removed examples.
2. Revised language in (3) to manually verify modules for First Time Abate (FTA) eligibility by reviewing applicable secondary and cross-reference TINs, and deleted the exception.
3. Added clarifying language in (4)
4. Revised language in (6)d to include information about the new PRN 723
5. Revised (7) to list some examples of returns NOT applicable for First Time Abate (FTA).

(8) IRM 20.1.1.3.5.1 was updated as follows:

1. Revised (4) to update the list of information required for penalty cases going to Appeals.
2. Revised (5) to update the TC 470 closing codes required
3. Revised (6) to list instructions for penalty appeals coordinators to route cases to Appeals electronically

(9) IRM 20.1.1.3.6.1 (2) was updated to require manual verification of modules in the three-year look-back period before granting FTA. and (7) was removed that required the current compliance check for all required returns or valid extensions to be filed and all required tax to be paid.

(10) Added IRM 20.1.1.3.3.2.2, Administrative Waiver - Penalty Relief for Certain Taxpayers Filing 2019 and 2020 Returns. This new subsection gives guidance regarding Notice 2022-36

(11) Exhibit 20.1.1-4 was updated as follows:

1. Updated PRNs 527, 528, 552, 583, 584, 585, 589, 591, and 592 for applicable IRM reference updates and inflationary changes to amounts.
2. Rev. Proc. 2020-45, generally applicable for tax year 2021 returns, Rev. Proc. 2021-45, generally applicable to tax year 2022 returns, and Rev. Proc. 2022-38, generally applicable to tax year 2023 returns were added to the list of revenue procedures listed at the end.

(12) Exhibit 20.1.1-5 was updated as follows:

1. Deleted PRN 606
2. Added PRN 682
3. Updated PRNs 611, 629, 658, 663, and 666 for applicable IRM reference updates and inflationary changes to amounts.
4. Deleted outdated prior year information for PRNs 628, 645, and 650
5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
6. Rev. Proc. 2020-45, generally applicable for tax year 2021 returns, Rev. Proc. 2021-45, generally applicable for tax year 2022 returns, and Rev. Proc. 2022-38, generally applicable for tax year 2023 returns were added to the list of revenue procedures at the end.

(13) Exhibit 20.1.1-6 was updated as follows:

1. Added PRNs 722, 723, and 724.
2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
3. Rev. Proc. 2020-45, generally applicable for tax year 2021 returns, Rev. Proc. 2021-45, generally applicable to tax year 2022 returns, and Rev. Proc. 2022-38, generally applicable to tax year 2023 returns were added to the list of revenue procedures listed at the end.

(14) Exhibit 20.1.1-7: Deleted abbreviations and acronyms not applicable to this IRM.

(15) Exhibit 20.1.1-8: Deleted terms and definitions not applicable to this IRM.

Effect on Other Documents

IRM 20.1.1 dated October 19, 2020 is superseded. IRM Procedural Update (IPU) 21U0591 dated April 15, 2021; IPU 22U0912 dated August 25, 2022; and IPU 22U0972 dated September 26, 2022 have been incorporated into this IRM.

Audience

Effective Date

Nicole Young Scott
SE:S:DCCOS:OS:BSO
Acting Director, Business Support
Small Business/Self-Employed

Program Scope and Objectives

1. Purpose: This IRM section discusses the purpose of civil penalties and provides the legal authorities, criteria for relief, and other general information about civil penalties.

Note:

All penalties referenced throughout IRM 20.1, Penalty Handbook, are considered civil penalties. Refer to IRM 9.1.3, Criminal Statutory Provisions and Common Law, for criminal penalty provisions.

• Small Business Self-Employed (SB/SE) Division,
• Large Business and International (LB&I) Division,
• Tax Exempt and Government Entities (TE/GE) Division,
• Wage and Investment (W&I) Division,
• Appeals,
• Criminal Investigation, and
• Other IRS functions

Background

1. In 1955, there were approximately 14 penalty provisions in the Internal Revenue Code. There are now more than ten times that number. With the increasing number of penalty provisions, the IRS recognized the need to develop a fair, consistent, and comprehensive approach to penalty administration.
2. In November 1987, the Commissioner of IRS established a task force to study civil penalties and develop a fair, consistent, and comprehensive approach to penalty administration. In February 1989, the Commissioner’s Executive Task Force issued a Report on Civil Tax Penalties. The report established a philosophy concerning penalties, provided a statutory analysis of the three broad categories of penalties (filing of returns, payment of tax, and accuracy of information), and made recommendations where warranted to resolve the inconsistencies. Those recommendations were, in part, that the IRS should take the following actions:

1. Develop and adopt a single penalty policy statement emphasizing that civil tax penalties exist for the purpose of encouraging voluntary compliance.
2. Develop a single consolidated handbook on penalties for all employees (the handbook should be sufficiently detailed to serve as a practical everyday guide for most issues of penalty administration and provide clear guidance on computing penalties).
3. Revise existing training programs to ensure consistent administration of penalties in all functions for the purpose of encouraging voluntary compliance.
4. Examine its communications with taxpayers (including penalty notices and publications) to determine whether these communications do the best possible job of explaining why the penalty was imposed and how to avoid the penalty in the future.
5. Finalize its review and analysis of the quality and clarity of machine-generated letters and notices used in various areas within the IRS.
6. Consider ways to develop better information concerning the administration and effects of penalties.
7. Develop a Master File database to provide statistical information regarding penalty administration. The information in this database should be continuously reviewed for the purpose of suggesting changes in compliance programs, educational programs, penalty design, and penalty administration.

Authority

1. IRM 20.1, Penalty Handbook, is the primary source of authority for civil penalty administration by the IRS and serves as the foundation for addressing civil penalty administration by various IRS functions. By providing one source of authority for civil penalty administration, the IRS greatly reduces inconsistencies regarding civil penalty application.
2. IRM 20.1, Penalty Handbook, provides guidance to all areas of the IRS for all civil penalties imposed by the Internal Revenue Code (IRC). It sets forth general policy and procedural requirements for assessing and abating penalties, and it contains discussions on topics such as criteria for relief from certain penalties. The sections in IRM 20.1, Penalty Handbook, are as follows:

Responsibilities

1. The Director, Business Support, is the director responsible for the servicewide civil penalty program.
2. Overall responsibility for civil penalty programs is assigned to OSP. OSP is a matrix organization residing in the Business Support (Small Business/Self Employed) Function. OSP is charged with coordinating policy and procedures concerning the civil penalty program administration, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance.
3. Each IRS organization is responsible for establishing an internal process for managing their procedures based upon these Servicewide policies and may develop additional guidance or reference materials for their specific functional administrative needs. However, such reference material must receive approval from OSP prior to distribution and must remain consistent with the policies and general procedural requirements set forth in IRM 20.1, Penalty Handbook, Policy Statement 20-1 (i.e., Penalty Policy Statement) in IRM 1.2.1.12.1, and any other guidance relating to civil penalties.
4. All employees should keep the following objectives in mind when handling each penalty case:

1. Similar cases and similarly-situated taxpayers should be treated alike.
2. Each taxpayer should have the opportunity to have their interests heard and considered.
3. Strive to make a correct decision in the first instance. A wrong decision, even though eventually corrected, has a negative impact on voluntary compliance.
4. Provide adequate opportunity for incorrect decisions to be corrected.
5. Treat each case in an impartial and honest way (i.e., approach the job, not from the government’s or the taxpayer’s perspective, but in the interest of fair and impartial enforcement of the tax laws).
6. Use each penalty case as an opportunity to educate the taxpayer, help the taxpayer understand their legal obligations and rights, assist the taxpayer in understanding their appeal rights, and in all cases, observe the taxpayer’s procedural rights.
7. Endeavor to promptly process and resolve each taxpayer’s case.
8. Resolve each penalty case in a manner which promotes voluntary compliance.

Program Management and Review

1. Every function in the IRS has a role in proper penalty administration. It is essential that each function conduct its operations with an emphasis on promoting voluntary compliance. Appropriate business reviews should be conducted to ensure consistency with the penalty policy statement (Policy Statement 20-1) and philosophy. Attention should be directed to penalty program coordination between offices and functions to make sure that approaches are consistent and penalty information is used for identifying and responding to compliance problems.
2. Managers should continuously review information for trends that may suggest changes in compliance programs, training courses, educational programs, penalty design, and penalty administration. Managers should institute, on an ongoing basis, a quality review system that evaluates the timely and correct disposition of penalty cases and encourages consistent penalty administration.

Terms/Definitions/Acronyms

1. Refer to the following exhibits at the end of this IRM section:

• Exhibit 20.1.1-7 , Table of Abbreviations and Acronyms, and
• Exhibit 20.1.1-8 , Dictionary of Key Terms

Related Resources

1. In addition to the exhibits referenced in IRM 20.1.1.1.5 , Terms/Definitions/Acronyms, this IRM contains the following exhibits to assist the user in researching penalty issues:

• Exhibit 20.1.1-1 , Penalty Relief Application Chart
• Exhibit 20.1.1-2 , Penalty Reason Code Chart
• Exhibit 20.1.1-3 , Penalty Transaction Codes
• Exhibit 20.1.1-4 , Penalty Reference Numbers-500 Series
• Exhibit 20.1.1-5 , Penalty Reference Numbers-600 Series
• Exhibit 20.1.1-6 , Penalty Reference Numbers-700 Series

Security Standards

1. IRS officials and managers must communicate security standards contained in IRM 1.4.6, Managers Security Handbook, to subordinate employees and establish methods to enforce them.
2. Employees are responsible for taking required precautions to provide security for the documents, information, and property that they handle in performing official duties.
3. Employees using Integrated Data Retrieval System (IDRS) should only access those accounts required to accomplish their official duties. Any unauthorized access or browsing of tax accounts by employees is prohibited by the IRS. IRM 10.8.1, Policy and Guidance, provides the authority and standards for information technology security. Also see IRM 10.5.5, IRS Unauthorized Access, Attempted Access or Inspection of Taxpayer Records (UNAX) Program Policy, Guidance and Requirements.

Taxpayer Advocate Service (TAS)

1. The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate. Its job is to protect taxpayers’ rights by striving to ensure that every taxpayer is treated fairly and knows and understands their rights under the Taxpayer Bill of Rights (TBOR). TAS offers free help to taxpayers, including when taxpayers face financial difficulties due to an IRS problem, when they are unable to resolve tax problems, they haven’t been able to resolve on their own, or when they need assistance to address an IRS system, process, or procedure that is not functioning as it should. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

Form 911 - Request for Taxpayer Advocate Service Assistance

1. Refer taxpayers to TAS (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (see IRM 13.1.7, TAS Case Criteria) and you cannot resolve the taxpayer's issue the same day. The definition of same day is within 24 hours. Same day cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer these cases to TAS unless they meet TAS criteria and after you have informed the taxpayer regarding the existence and role of TAS, the taxpayer asks to be transferred to TAS. See IRM 13.1.7.5, Same Day Resolution by Operations.
2. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures.

Purpose of Penalties

1. Penalties exist to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code.
2. For most taxpayers, voluntary compliance consists of preparing an accurate return, filing it timely, and paying any tax due. Efforts made to fulfill these obligations constitute compliant behavior. Most penalties apply to behavior that fails to meet any or all of these obligations.
3. The following factors support the public conviction that the tax system is fair and the penalty is in proportion to the severity of the noncompliance. Penalties encourage voluntary compliance by:

• Defining standards of compliant behavior,
• Defining consequences for noncompliance, and
• Providing monetary sanctions against taxpayers who do not meet the standard.

Encouraging Voluntary Compliance

1. Taxpayers in the United States assess their tax liabilities against themselves and pay them voluntarily. This system of self-assessment and payment is based on the principle of voluntary compliance. Voluntary compliance exists when taxpayers conform to the law without compulsion or threat.
2. Compliant self-assessment requires a taxpayer to know the rules for filing returns and paying taxes. The IRS is responsible for providing information to taxpayers, which includes the following:

• Written materials that clearly explain the rules, and
• Forms that permit the self-computation of tax liability.

• Be severe enough to deter noncompliance,
• Encourage noncompliant taxpayers to comply,
• Be objectively proportioned to the offense, and
• Be used as an opportunity to educate taxpayers and encourage their future compliance.

1. Discussing causes for the delinquency and listening to taxpayers' reasons and concerns for noncompliance,
2. Ensuring that taxpayers understand their filing and paying responsibilities, and
3. Being alert to information received in discussions with taxpayers that indicate possible reasons for abatement of a penalty.

Fair and Consistent Approach to Penalty Administration

1. The IRS’s approach to penalty administration must ensure the following:

1. Consistency: The IRS should apply penalties equally in similar situations. Taxpayers base their perceptions about the fairness of the system on their own experience and the information they receive from the media and others. If the IRS does not administer penalties uniformly (guided by the applicable statutes, regulations, policies, and procedures), overall confidence in the tax system is jeopardized.
2. Accuracy: The IRS must arrive at the correct penalty decision. Accuracy is essential. Erroneous penalty assessments and incorrect calculations confuse taxpayers and misrepresent the overall competency of the IRS.
3. Impartiality: IRS employees are responsible for administering the penalty statutes and regulations in an even-handed manner that is fair and impartial to both the government and the taxpayer.
4. Representation: Taxpayers must be given the opportunity to have their interests heard and considered. Employees need to take an active and objective role in case resolution so that all factors are considered.

Approval Prerequisite to Penalty Assessments

1. IRC 6751(a), Computation of Penalty Included in Notice, requires that each penalty notice include the name of the penalty, applicable IRC section, and a computation of the penalty.
2. IRC 6751(b)(1), Approval of Assessment, states that in general, no penalty under the Internal Revenue Code shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. At this time, the Secretary has not designated any higher level official to approve initial determinations.

Note:

Policy regarding the timing of supervisory approval can be found in IRM 20.1.1.2.3.1 , Timing of Supervisory Approval.

• IRC 6651, Failure to File Tax Return or to Pay Tax,
• IRC 6654, Failure by Individual to Pay Estimated Income Tax,
• IRC 6655, Failure by Corporation to Pay Estimated Income Tax, and
• Any penalties automatically calculated through electronic means. Penalties that are automatically calculated through electronic means are excluded from IRC 6751(b)(1) requirements. A penalty is only considered to be "automatically calculated through electronic means" if no human Service employee makes an independent determination with respect to the applicability of the penalty.

Note:

• IRM 20.1.5.2.3, Supervisory Approval of Penalties - IRC 6751 Procedural Requirements, return-related penalties.
• IRM 20.1.6.1.3.2, Written Supervisory Approval of Penalty Assessments, preparer, promoter and material advisor penalties.
• IRM 20.1.10.2, Supervisory Approval for Penalty Assessment.
• IRM 20.1.12.6, Field Examination Procedures, appraisal penalties.
• IRM 25.25.10.8.1, Penalty Case Creation, IRC 6702, frivolous return penalties.
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Timing of Supervisory Approval

1. For all penalties subject to IRC 6751(b)(1), written supervisory approval required under IRC 6751(b)(1) must be obtained prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to:

• Sign an agreement, or
• Consent to assessment or proposal of the penalty.

Automated Underreporter and Correspondence Examination Automation Support Programs

1. When the IRC 6662 accuracy-related penalties are systemically assessed under the Automated Underreporter (AUR) Program or Correspondence Examination Automation Support (CEAS) Program without a human employee independently determining the appropriateness of the penalty, the penalty is considered automatically calculated through electronic means. For example, when the taxpayer does not submit a response to the 30-day letter that proposes the penalty, the penalty is automatically calculated through electronic means and may be assessed without written supervisory approval.
2. However, if a taxpayer submits a response, written or otherwise, that challenges the penalty or the amount of tax to which the penalty is attributable, and an examiner reviews the case, written supervisory approval under IRC 6751(b)(1) is required before any subsequent written communication that includes the penalty. The exception for penalties automatically calculated through electronic means no longer applies once a Service employee makes an independent determination to assert a penalty or to assert adjustments to tax on which a penalty is applicable.
3. Also see IRM 20.1.5.2.3.1, Documenting Supervisory Approval of Penalties.

Criteria for Relief From Penalties

1. Generally, relief from penalties falls into four separate categories. Unless otherwise specified in IRM 20.1, penalty relief will be considered and applied, if criteria are met, in the following order:

1. Correction of IRS error
2. Statutory and Regulatory exceptions
3. Administrative waivers
4. Reasonable cause

Caution:

These penalty relief categories do not apply equally to all civil penalties referenced throughout IRM 20.1, Penalty Handbook, nor do the relief provisions referenced in IRM 20.1.1, Introduction and Penalty Relief, apply to all penalties referenced in IRM 20.1. Always refer to the specific relief provision in the applicable IRM 20.1 section depending on the penalty for which relief is being considered (see IRM 20.1.1.1.2 , Authority).

1. If additional information is needed, contact the taxpayer or the taxpayer's authorized representative.
2. If the validity of the request is questionable, contact the taxpayer.
3. In all cases involving third party requests for penalty relief, advise the taxpayer of the request and the action taken.

Example:

A taxpayer was assessed the FTP penalty for unpaid tax on their 2018 Form 1040. The taxpayer contacted IRS on August 1, 2019, requesting reasonable cause penalty relief and provided proof of a timely payment made on April 15, 2019, which would full pay the tax due. Research shows the payment had been erroneously applied to another module. The payment was transferred to the 2018 Form 1040 module and that correction resulted in a systemic reversal of the FTP penalty which alleviated the need to take any further actions for penalty relief.

Note:

Refer to IRM 20.1.2.2.3.1, Extension of Time to File, for information and procedures to follow in cases where the taxpayer believes an extension was requested but one is not reflected on their account.

Unsigned or Oral Requests for Penalty Relief

1. When considering requests for relief from the Failure to File (FTF), Failure to Pay (FTP), and/or Failure to Deposit (FTD) penalties, determine if the taxpayer is eligible for the First Time Abate (FTA) administrative waiver using the Reasonable Cause Assistant (RCA), when applicable. See IRM 20.1.1.3.6 , Reasonable Cause Assistant (RCA), for RCA use and IRM 20.1.1.3.3.2.1 , First Time Abate (FTA), for all FTA policy and criteria.
2. If the taxpayer does not meet FTA criteria, unsigned or oral requests for relief from the FTF, FTP and/or FTD penalties may be considered if the following are true:

1. The request is received either orally or in writing, but is unsigned, AND
2. The request is received from the taxpayer, the taxpayer's authorized representative or a third party, AND
3. The penalties do not exceed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (e.g., tax period), AND
4. Reasonable cause criteria is met .

Exception:

If RCA is used, the oral statement authority (OSA) threshold in paragraph (2)(c) is increased to ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and/or ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. RCA will be used, where available. If an employee cannot use RCA, they should seek managerial approval to consider oral and unsigned requests at the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ levels.

1. If the relief criteria are clearly established , abate or request the abatement of the penalty or penalties following functional guidelines. See IRM 20.1.1.3.5.2 , Taxpayer Entitled to Relief.
2. If the relief criteria are not clearly established , do not abate the penalty or penalties. Follow functional guidelines for disallowing the request. See IRM 20.1.1.3.5.3 , Taxpayer Not Entitled to Relief.

Note:

If a signed, written statement or other documentation is needed to continue the penalty relief consideration, a faxed statement with signature or other necessary documentation may be considered.

1. Any penalty exceeds the amount that can be considered, or
2. The penalty is a penalty other than the FTF, FTP, or FTD penalties.

Example:

Suppose on the same module the taxpayer was assessed the following penalties:
FTF and FTP penalties that totaled less than ≡ ≡ ≡ ≡ ≡, but more than ≡ ≡ ≡ ≡ ≡, and
A FTD penalty greater than ≡ ≡ ≡ ≡ ≡, and
RCA was not used and supervisory approval for higher level OSA threshold was not obtained.

In such a case, do not take action to abate any of the penalties. Ask the taxpayer to submit a signed written statement requesting relief from all penalties.

• TIN penalties,
• Information return penalties, or
• Penalties assessed by a compliance program.

Note:

Refer to IRM 21.5.2.4.9.2, Oral Statement and Penalty Relief Request, if considering relief for the daily delinquency penalty (DDP) assessed on an employee plan (EP) return or Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits.

Reasonable Cause

1. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise apply. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations but was nevertheless unable to comply with those obligations.
2. In the interest of equitable treatment of the taxpayer and effective tax administration, the non-assertion or abatement of certain civil penalties based on reasonable cause or other relief provisions provided in this IRM must be made in a consistent manner and should conform with the considerations specified in the IRC, Treasury Regulations (Treas. Regs.), policy statements, and IRM Part 20.1, Penalty Handbook.
3. Reasonable cause relief is not available for all penalties; however, other exceptions may apply.

1. For those penalties where reasonable cause can be considered, any reason which establishes that the taxpayer exercised ordinary business care and prudence, but nevertheless was unable to comply with a prescribed duty within the prescribed time, will be considered.
2. If a reasonable cause provision applies only to a specific IRC section, that reasonable cause provision will be discussed in the IRM 20.1, Penalty Handbook, section relating to that specific IRC section. See IRM 20.1.1.1.2 , Authority, and Exhibit 20.1.1-1 , Penalty Relief Application Chart.
3. When considering the information provided in the following subsections, remember that an acceptable explanation is not limited to those given in IRM 20.1. Penalty relief may be warranted based on an "other acceptable explanation," provided the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time. See IRM 20.1.1.3.2.2 , Ordinary Business Care and Prudence.

1. What happened and when did it happen?
2. During the period of time the taxpayer was non-compliant, what facts and circumstances prevented the taxpayer from filing a return, paying a tax, and/or otherwise complying with the law?
3. How did the facts and circumstances result in the taxpayer not complying?
4. How did the taxpayer handle the remainder of their affairs during this time?
5. Once the facts and circumstances changed, what attempt did the taxpayer make to comply?

Standards and Authorities

1. Any reason that establishes a taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with the tax law may be considered for penalty relief.
2. The following Treas. Regs. contain examples of circumstances that may be helpful in determining if a taxpayer has established reasonable cause:

• Policy Statement 20–2, Penalties and Interest Not Asserted Against Federal Agencies. See IRM 1.2.1.12.2.
• Policy Statement 3–2, Reasonable Cause for Late Filing of Return or Failure to Deposit or Pay Tax When Due. See IRM 1.2.1.4.2.
• Policy Statement 3–3, Timely Mailed Returns Bearing Foreign Postmarks to Be Accepted. See IRM 1.2.1.4.3.
• Policy Statement 3–5, Unsigned Income Tax Returns Will Not Be Accepted for Processing; Delinquency Penalty Generally Will Not Be Imposed on Timely Filed Unsigned Income Tax Returns. See IRM 1.2.1.4.5.

Ordinary Business Care and Prudence

1. Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that they exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.
2. In determining if the taxpayer exercised ordinary business care and prudence, review available information including the following:

1. Taxpayer’s Reason: The taxpayer’s reason should address the penalty imposed. To show reasonable cause, the dates and explanations should clearly correspond with events on which the penalties are based. If the dates and explanations do not correspond to the events on which the penalties are based, request additional information from the taxpayer that may clarify the explanation. See IRM 20.1.1.3.2 , Reasonable Cause.
2. Compliance History: Check the preceding tax years (at least three) for payment patterns and the taxpayer’s overall compliance history. The same penalty, previously assessed or abated, may indicate that the taxpayer is not exercising ordinary business care. If this is the taxpayer’s first incident of noncompliant behavior, weigh this factor with other reasons the taxpayer gives for reasonable cause, since a first-time failure to comply does not by itself establish reasonable cause.
3. Length of Time: Consider the length of time between the event cited as a reason for the noncompliance and subsequent compliance. See IRM 20.1.1.3.2 , Reasonable Cause. Consider: (1) when the act was required by law, (2) the period of time during which the taxpayer was unable to comply with the law due to circumstances beyond the taxpayer’s control, and (3) when the taxpayer complied with the law.
4. Circumstances Beyond the Taxpayer’s Control: Consider whether or not the taxpayer could have anticipated the event that caused the noncompliance. Reasonable cause is generally established when the taxpayer exercises ordinary business care and prudence, but, due to circumstances beyond the taxpayer’s control, the taxpayer was unable to timely meet the tax obligation. The taxpayer’s obligation to meet the tax law requirements is ongoing. Ordinary business care and prudence requires that the taxpayer continue to attempt to meet the requirements, even though late.

Death, Serious Illness, or Unavoidable Absence

1. Death, serious illness, or unavoidable absence of the taxpayer, or a death or serious illness in the taxpayer's immediate family, may establish reasonable cause for filing, paying, or depositing late for the following:

1. Individual: If there was a death, serious illness, or unavoidable absence of the taxpayer or a death or serious illness in the taxpayer’s immediate family (i.e., spouse, sibling, parents, grandparents, children).
2. Corporation, estate, trust, etc.: If there was a death, serious illness, or other unavoidable absence of the taxpayer (person responsible), or a member of such taxpayer’s immediate family, and that taxpayer had sole authority to execute the return, make the deposit, or pay the tax .

1. The relationship of the taxpayer to the other parties involved.
2. The date of death.
3. The dates, duration, and severity of illness.
4. The dates and reasons for absence.
5. How the event prevented compliance.
6. If other business obligations were impaired.
7. If tax duties were attended to promptly when the illness passed, or within a reasonable period of time after a death or return from an unavoidable absence.

Fire, Casualty, Natural Disaster, or Other Disturbance-Reasonable Cause

1. Determine if the taxpayer could not comply timely because the taxpayer was an "affected taxpayer" eligible for disaster relief as provided for in IRM 25.16.1.3, Identification of Covered Disaster Area, Postponement Period and Affected Taxpayers. Also see IRM 20.1.1.3.3.6 , Official Disaster Area.
2. For taxpayers not considered an "affected taxpayer," reasonable cause relief from a penalty may be requested if there was a failure to timely comply with a requirement to file a return or pay a tax as the result of a fire, casualty, natural disaster, or other disturbance. However, one of these circumstances by itself does not necessarily provide penalty relief.
3. Penalty relief may be appropriate if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, they were unable to comply with the law.
4. Factors to consider include the following:

• Timing
• Effect on the taxpayer’s business
• Steps taken to attempt to comply
• If the taxpayer complied when it became possible

Unable to Obtain Records

1. Explanations relating to the inability to obtain the necessary records may constitute reasonable cause in some instances, but may not in others.
2. Consider the facts and circumstances relevant to each case and evaluate the request for penalty relief.
3. If the taxpayer was unable to obtain records necessary to comply with a tax obligation, the taxpayer may or may not be able to establish reasonable cause. Reasonable cause may be established if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, they were unable to comply.
4. Information to consider when evaluating such a request includes, but is not limited to, an explanation as to the following:

• Why the records were needed to comply.
• Why the records were unavailable and what steps were taken to secure the records.
• When and how the taxpayer became aware that they did not have the necessary records.
• If other means were explored to secure needed information.
• Why the taxpayer did not estimate the information.
• If the taxpayer contacted the IRS for instructions on what to do about missing information.
• If the taxpayer promptly complied once the missing information was received.
• Supporting documentation such as copies of letters written and responses received in an effort to get the needed information.

Mistake Was Made

1. The taxpayer may try to establish reasonable cause by claiming a mistake was made. Generally, this is not in keeping with the ordinary business care and prudence standard and does not provide a basis for reasonable cause.
2. However, the reason for the mistake may be a supporting factor if additional facts and circumstances support the determination that the taxpayer exercised ordinary business care and prudence but nevertheless was unable to comply within the prescribed time.
3. Information to consider when evaluating a request for an abatement or non-assertion of a penalty based on a mistake or a claim of ignorance of the law includes, but is not limited to the following:

1. When and how the taxpayer became aware of the mistake.
2. The extent to which the taxpayer corrected the mistake.
3. The relationship between the taxpayer and the subordinate (if the taxpayer delegated the duty).
4. If the taxpayer took timely steps to correct the failure after it was discovered.
5. The supporting documentation.

Erroneous Advice or Reliance

1. Each request for penalty relief should be reviewed thoroughly to determine the exact basis of the taxpayer's request.

1. Is the taxpayer claiming they did not comply due to specific advice they received from someone, whether orally or in writing, or
2. Is the taxpayer claiming they relied on someone else to comply on their behalf?

1. Was the taxpayer unable to comply because they did not have access to their own records? See IRM 20.1.1.3.2.2.3 , Unable to Obtain Records.
2. Was the failure to comply due to a change in the tax law the taxpayer could not reasonably be expected to know? See IRM 20.1.1.3.2.2.6 , Ignorance of the Law.

Ignorance of the Law

1. In some instances taxpayers may not be aware of specific obligations to file and/or pay taxes. The ordinary business care and prudence standard requires that taxpayers make reasonable efforts to determine their tax obligations. See IRM 20.1.1.3.2.2 , Ordinary Business Care and Prudence.
2. Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider the following:

1. The taxpayer’s education.
2. If the taxpayer has previously been subject to the tax.
3. If the taxpayer has been penalized before.
4. If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know.
5. The level of complexity of a tax or compliance issue.

1. A reasonable and good faith effort was made to comply with the law, or
2. The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement.

Forgetfulness

1. The taxpayer may try to establish reasonable cause by claiming forgetfulness or an oversight by the taxpayer, or another party, caused the noncompliance. Generally, this is not in keeping with the ordinary business care and prudence standard and does not provide a basis for reasonable cause. See IRM 20.1.1.3.2.2 , Ordinary Business Care and Prudence.
2. If the taxpayer claims forgetfulness or an oversight by another party, consider the following:

1. Relying on another person to perform a required act is generally not sufficient for establishing reasonable cause.
2. It is the taxpayer’s responsibility to file a timely return and to make timely deposits or payments. This responsibility cannot be delegated .

Inaccessible Notices

1. Policy Statement 1-47, Reasonable Accommodations for People with Disabilities (see IRM 1.2.1.2.12), requires the IRS to take necessary actions to ensure taxpayers with disabilities have an equal opportunity to participate effectively in its programs, activities and services. If a taxpayer is unable to read certain post-filing tax notices issued in standard print, they may request an accessible copy of that notice in an alternative format. See IRM 1.18.4.4.3, Conversion of Taxpayer Notices.
2. A taxpayer may request penalty relief if a notice in standard print format was received requiring a taxpayer action, but the taxpayer did not timely respond because the notice was inaccessible. To qualify for relief, the taxpayer must still meet the reasonable cause standard.
3. Reasonable cause may be established if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, they were unable to comply. Refer to IRM 20.1.1.3.2.2, Ordinary Business Care and Prudence, and Policy Statement 3-2 in IRM 1.2.1.4.2.
4. Information to consider when evaluating whether the taxpayer had reasonable cause includes, but is not limited to:

• Did the taxpayer provide a description of the impairment that prevented them from reading the standard print notice?
• When was the notice received and when did the taxpayer first become aware of the issue stated in the standard print notice?
• What was the taxpayer’s degree of knowledge concerning the tax, interest, or penalty owed prior to issuance of the inaccessible notice?

Example:

A taxpayer filed their 2019 Form 1040 showing a tax amount due and made no payment. When the return was processed, a notice (CP 14) was issued to explain that the Form 1040 was filed with an amount owed and gives the balance due information. In this case, the taxpayer had knowledge of the unpaid tax prior to issuance of the notice and would not qualify for relief.

Statutory Exceptions and Administrative Waivers

1. This subsection addresses statutory exceptions and administrative waivers. These two very separate categories are placed together because in many instances an administrative waiver is an extension of rules that were provided for by statute.

Statutory and Regulatory Exceptions

1. Tax legislation may provide an exception to a penalty. Specific statutory exceptions can be found in either the penalty-related IRC section(s) or the accompanying regulation(s). For example:

1. The regulations under IRC 6205 provide that an interest-free adjustment cannot be made if the failure to report relates to an issue that was raised in an examination of a prior return period or if the employer knowingly underreported its employment tax liability.
2. Also, under the regulations, an interest-free adjustment cannot be made after receipt of notice and demand for payment or after receipt of Letter 3523, Notice of Employment Tax Determination under IRC Section 7436.

1. When all regulatory requirements have been met for the amount paid to be considered timely deposited by the employer, penalties should not be assessed.
2. If penalties were assessed, the account must be carefully reviewed to determine if penalty relief is appropriate, and if so, the correct reason for relief. Did the taxpayer state they met all requirements for an interest-free adjustment?

Administrative Waivers

1. The IRS may formally interpret or clarify a provision to provide administrative relief from a penalty that would otherwise be assessed. An administrative waiver may be addressed in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions.

Example:

An example of an administrative waiver is Notice 98-30, IRB 1998-22. This allowed a temporary waiver of the failure to deposit penalty for certain taxpayers first required to make federal tax deposits by EFTPS beginning on or after July 1, 1997.

1. Printing or mailing forms,
2. Publishing guidance (e.g. writing Regulations), or
3. Other conditions.

1. For an increase of tax that qualifies for an interest-free adjustment, the IRS will not assess Failure to File (TC 16X), Failure to Pay (TC 27X), or Failure to Deposit (TC 18X) penalties; provided the tax increase was paid by the due date of the tax period in which additional tax was ascertained.

Note:

If there’s a previously assessed TC 16X, on the tax period, it may be necessary to restrict the Failure to File penalty by entering a TC 160 .00 on the adjustment.

First Time Abate (FTA)

1. IRS provides administrative relief from the following penalties if the qualifying criteria contained in this subsection are met:

1. Failure to File (FTF) penalty under IRC 6651(a)(1), IRC 6698(a)(1), or IRC 6699(a)(1),
2. Failure to Pay (FTP) penalty under IRC 6651(a)(2) and/or IRC 6651(a)(3), and
3. Failure to Deposit (FTD) penalty under IRC 6656.

Note:

When determining if FTA criteria are met, the criteria below applies to the same MFT as the penalized MFT unless the penalized MFT is 01, 14, 30, or 31. If the penalized MFT is 01 or 14, the criteria applies to both MFTs 01 AND 14. If the penalized MFT is 30 or 31, the criteria applies to both MFTs 30 AND 31.

1. The taxpayer has filed the same return as the penalized return for the 3 years preceding the penalized tax period, unless there is no filing requirement for the applicable tax period or the tax modules for the same return are not in TDI Status 02, 03 (BMF), or 04 (IMF), (see Exception), and
2. If required to file the same return during the preceding 3 years, those returns for the 3 preceding years were processed and the modules do not have anytype of unreversed penalties (except an estimated tax penalty, TC 17X) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and no notice was issued showing the assessed penalty or penalties (a module balance cleared with a TC 606 indicates a notice showing the assessed penalty or penalties was not issued), and
3. If required to file the same return during the preceding 3 years, modules for those returns have no penalties manually suppressed or reversed with Penalty Reason Code (PRC) 018 (FTA, RCA not used), 020 (FTA, RCA used), or 021 (Tolerance). See Exhibit 20.1.1-2 , Penalty Reason Code Chart (see Exception).

Exception:

If subsequent information shows the taxpayer was either not required to file a return or they did in fact comply and were not subject to any penalty on a module on which a penalty abatement was input with PRC 018, 020, or 021, consider the taxpayer compliant for that module.

Note:

If a MFT 06, 07, or 08 module for the first tax year beginning after December 31, 2015, and before January 1, 2017, contains a penalty abatement input with PRC 018 (or 020) AND a TC 971 with Action Code 199 stating PER NOTICE 2017-47 , disregard the penalty reversal that was input with PRC 018 (or 020). Public Law 114-41 changed the due date of returns processed on MFTs 06, 07, and 08 from the fifteenth day of the fourth month following the close of the taxable year to the fifteenth day of the third month following the close of the taxable year for tax years beginning after December 31, 2015. Notice 2017-71(which superseded Notice 2017-47) provides penalty relief for the first return due for a taxable year beginning in 2016 that would have been timely if not for the due date change. The Notice also provided that taxpayers qualifying for relief would not be treated as having received a first-time abatement. A TC 971 with Action Code 199 stating PER NOTICE 2017-47 was input on all modules meeting relief criteria, however, some penalties were incorrectly abated with PRC 018 (or 020) prior to input of the TC 971.

Example:

If the filing status of the return on the penalized period is Married Filing Joint and the required returns in the preceding 3 years were not filed under the same primary SSN and with the same filing status and same primary and secondary SSNs, FTA criteria for both SSNs must be met.

Example:

If the filing status on the return on the penalized period is other than Married Filing Joint and the taxpayer filed, or was required to file, as a secondary taxpayer during the preceding 3 years, FTA criteria must be met for the returns on which the taxpayer was reported, or was required to be reported, as the secondary taxpayer on a joint return.

1. A total of four or more FTD penalty waiver codes are present in the taxpayer’s three-year penalty history. Waiver Code 24 is set when the FTD penalty is waived due to a change in deposit frequency. Waiver Code 25 is set when the FTD penalty is waived per IRM 20.1.4.3, Restrictions on Assessments, criteria. Waiver codes, if posted, are shown in Command Code (CC) BMFOL definer R with the literal FTD PEN WAIVER CD.

Note:

Some employers with COVID-19 credits that filed Form 941 for tax period ending June 30, 2020 followed directions per Notice 2020-22, Relief from Penalty for Failure to Deposit Employment Taxes, and also existing instructions for Form 941 and Schedule B when reporting their liabilities. This caused some employers to incur an FTD penalty. Due to this issue, disregard Waiver Code 25 for MFT 01 for tax period ending June 30, 2020 when determining if FTA criteria are met.

Note:

1. Returns with an event-based filing requirement, generally returns filed once or infrequently.
2. The Daily Delinquency Penalty (DDP), see e.g., IRC 6652(c)(2)(A) and IRM 20.1.8, Employee Plans and Exempt Organization Penalties.
3. Information reporting that is dependent on another filing, such as various forms that are attached.

• Form 706, U.S. Estate Tax Return
• Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
• Form 990, Return of Organization Exempt From Income Tax
• Forms 1099 series information returns
• Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business
• Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
• Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations (See IRM 20.1.9 for exception.)
• Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (See IRM 20.1.9 for exception.)

Example:

If a Form 941 filer was compliant for calendar years 2013, 2014, and 2015 but made late deposits and was assessed FTD penalties on all 4 2016 tax periods, FTA criteria can only be met and the waiver applied to the tax period ended 201603. Reasonable cause criteria must be met for tax periods 201606, 201609, and 201612.

Example:

If the same Form 941 filer was not compliant during calendar year(s) 2013, 2014, and/or 2015 but didn’t request penalty relief for those years and their first request for penalty relief is for the 4 FTD penalties on their 2016 returns, penalty relief under the FTA waiver is not appropriate for any of the 2016 penalties.

Example:

If a taxpayer was assessed an FTD penalty and no other penalties on Form 941 for tax period 201703 and a review of the three-year look-back period shows an unreversed FTP penalty ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (and a notice was issued), or the FTP penalty was removed with PRC 018, 020, or 021, the FTA waiver does not apply for 201703 tax module.

Caution:

Do not provide relief under the FTA waiver if there is clear and convincing evidence that the taxpayer did in fact comply and is not subject to any penalties or if the penalty or penalties is/are the result of an IRS error. Take appropriate corrective actions that will result in systemic reversal of the penalty or penalties. If the module is restricted from removing the penalty or penalties systemically or the penalty or penalties is/are clearly the result of an IRS error then input the penalty abatement transaction(s) with penalty reason code (PRC) 045.

Example:

We approved your request to remove the penalties. However, we only granted penalty relief because you have a good history of filing and paying on time. This type of penalty removal is only available one time. We will base our decisions to remove any future penalties on reasonable cause criteria.

Note:

When applicable, include an explanation that educates the taxpayer how to be compliant in the future. Examples of when an explanation may not be applicable include deceased taxpayers and telephone contacts during which an explanation was provided verbally.

Note:

An open paragraph must be used in Correspondex Letters 168C, 3502C, and 3503C to inform the taxpayer that the FTP penalty will continue to apply to the unpaid tax. After the tax is paid in full, the additional FTP penalty can be removed under the FTA waiver.

Caution:

If the tax is paid in full or the taxpayer has agreed to pay the balance owed immediately upon receipt of notice of abatement of the penalty (see IRM 20.1.2.2.4.1(9), Penalty Abatements and Re-assessments), allow abatement or suppression of the assessed amount of FTP penalty (i.e., input TC 270 for $0.00 if the module only reflects accrued FTP). On IMF modules, use RC 065.

• PRC 018 - To be used when an independent determination of the taxpayer’s eligibility for penalty relief under the FTA waiver is made. This includes situations where RCA is used but RCA did not determine FTA criteria have been met.
• PRC 020 - To be used when RCA is used and RCA displays a message indicating the module under review meets FTA criteria. This includes situations where RCA displays a message indicating one or more modules in the three-year history have been moved to the retention register and manual review of the module(s) moved to the retention register confirms FTA criteria have been met or review of a module under a secondary or cross reference TIN confirms FTA criteria have been met.

Administrative Waiver - Penalty Relief for Certain Taxpayers Filing 2019 and 2020 Returns

1. Notice 2022-36, Penalty Relief for Certain Taxpayers Filing 2019 and 2020 Returns, was issued August 24, 2022. This notice grants administrative relief, provided under the authority from IRC 7803(a) in response to the COVID-19 pandemic and the challenges experienced by both taxpayers and the IRS. The waiver:

• Provides administrative relief from certain Failure to File (FTF) penalties, certain international information return penalties, and certain information return penalties.
• Is effective for only tax years 2019 and 2020 (tax periods ending 201901 through 202012).
• Is applied systemically to modules, where applicable.
• Does not require a taxpayer request to initiate abatement.

Note:

When causing a refund to generate, the overpayment is NOT subject to the overpayment interest provision of IRC 6611(e)(3). See IRM 20.2.4.7.5.5, 45-Day Rule and IRS Initiated Adjustments.

• Form 1040 series (MFT 29, 30, 31)
• Form 1120 series (MFT 02)
• Form 1041 (MFT 05)
• Form 1066 (MFT 07)
• Form 990-T (MFT 34)
• Form 990-PF (MFT 44)

• Form 1120-S (MFT 02 Doc Code 16)
• Form 1065 (MFT 06)

• Form 5471 (PRN 599 or 712)
• Form 5472 (PRN 711)
• Form 3520 (PRN 659, 668, or 677)
• Form 3520-A (PRN 660)

Note:

This relief applies only to systemically assessed Form 5471 and 5472 penalties and only to Form 3520 and Form 3520-A penalties assessed manually by the campus at filing.

• Tax year 2019 information returns filed on or before August 1, 2020.
• Tax year 2020 information returns filed on or before August 1, 2021.

Note:

Other penalty provisions, such as Tier 3 delinquency, incorrect information, missing or incorrect TINs, and non-compliance with e-file requirements are not waived under this administrative relief.

• Any penalty not specifically provided for in section 3 of the Notice 2022-36.
• Any return or form showing a penalty for fraudulent FTF under IRC 6651(f) or the fraud penalty under IRC 6663.
• Any penalty in an accepted Offer-in-Compromise (OIC) under IRC 7122.
• Any penalty settled in a closing agreement or any penalty finally determined in a judicial proceeding.

• Disregard the FTF (TC166/160) assessed on orbefore September 30, 2022.
• Disregard a prior FTA penalty relief (with PRC 018/020) applicable only for FTF penalty relief granted on orbefore September 30, 2022.

Exception:

If both the FTF and Failure to Pay (FTP) penalties were granted relief under FTA on or before September 30, 2022, the FTA will NOT be disregarded since the FTA administrative waiver applies to the module and is not penalty specific.)

Note:

Any FTF penalty assessed after September 30, 2022, or any FTA penalty relief granted only for the FTF penalty after September 30, 2022, will NOT be disregarded, and will be considered normally.

Undue Hardship

1. An undue hardship may support the granting of an extension of time for paying a tax or deficiency (i.e., Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship). Treas. Reg. 1.6161-1(b), provides an undue hardship must be more than an inconvenience to the taxpayer. The taxpayer must show that they would sustain a substantial financial loss if required to pay a tax or deficiency on the due date.

1. Undue hardship generally does not affect a person’s ability to file and therefore would not provide a basis for penalty relief in a failure to file situation. However, each request must be considered on a case-by-case basis.
2. Undue hardship may establish reasonable cause for failure to file on magnetic media under Treas. Reg. 301.6724–1. See IRM 20.1.7, Information Return Penalties.

1. The taxpayer may claim that enough funds were on hand, but as a result of unanticipated events, the taxpayer was unable to pay the taxes.
2. Consider an individual taxpayer’s inability to pay a factor when considering penalty relief if the taxpayer shows that, had the payment been made on the payment due date, undue hardship (as defined in Treas. Reg. 1.6161–1(b)) would have resulted.
3. In the case where a taxpayer files bankruptcy, consider inability to pay a factor if the insolvency occurred before the tax payment due date.

1. When did the taxpayer know they could not pay?
2. Why was the taxpayer unable to pay?
3. Did the taxpayer explore other means to secure the necessary funds?
4. What did the taxpayer supply in the way of supporting documentation, such as copies of bank statements?
5. Did the taxpayer pay when the funds became available?

Advice

1. This section discusses the following three basic types of advice that may qualify for statutory, regulatory, or administrative penalty relief:

1. Written advice provided by IRS
2. Oral advice provided by IRS
3. Advice provided by a tax professional

1. Was the advice in response to a specific request and was the advice received related to the facts contained in that request?
2. Did the taxpayer reasonably rely on the advice?

1. The taxpayer did not reasonably rely on the advice regarding an item included on a return if the advice was received after the date the return was filed.

Note:

A taxpayer may be considered to have reasonably relied on advice received after the return was filed if they then filed an amended return that conformed with such written advice.

1. Written correspondence from the IRS that its advice is no longer correct or no longer represents the IRS’s position.
2. Enactment of legislation or ratification of a tax treaty.
3. A U.S. Supreme Court decision.
4. The issuance of temporary or final regulations.
5. The publication of a revenue ruling, revenue procedure, or other statement in the Internal Revenue Bulletin (IRB).

1. The taxpayer's written request for advice,
2. The erroneous written advice furnished by the IRS to the taxpayer and relied on by the taxpayer, and
3. The report (if any) of tax adjustments that identifies the penalty or addition to tax and the item relating to the erroneous written advice.

Written Advice From the IRS

1. The IRS is required by IRC 6404(f) and Treas. Reg. 301.6404–3 to abate any portion of any penalty attributable to erroneous written advice furnished by an officer or employee of the IRS acting in their official capacity.
2. If the taxpayer does not meet the criteria for penalty relief under IRC 6404(f), the taxpayer may qualify for other penalty relief. For instance, taxpayers who fail to meet all of the IRC 6404(f) criteria may still qualify for relief under reasonable cause if the IRS determines that the taxpayer exercised ordinary business care and prudence in relying on the IRS’s written advice. See IRM 20.1.1.3.2.2.5 , Erroneous Advice or Reliance.
3. Requests that qualify for penalty relief based on erroneous written advice from the IRS under IRC 6404(f) must be filed according to the following under Treas. Reg. 301.6404-3(e):

1. Within the period allowed for collection of the penalty or addition to tax, or
2. If the penalty or addition to tax has been paid, within the period allowed for claiming a credit or refund of such penalty or addition to tax.

Oral Advice From IRS

1. The IRS may provide penalty relief based on a taxpayer’s reliance on erroneous oral advice from the IRS where the penalty allows relief for reasonable cause. The IRS is required by IRC 6404(f) and Treas. Reg. 301.6404–3 to abate any portion of any penalty attributable to erroneous written advice furnished by an employee acting in their official capacity. Administratively, the IRS has extended this relief to include erroneous oral advice when appropriate.
2. In addition to considering the criteria provided in Treas. Reg. 301.6404–3, IRM 20.1.1.3.3.4 , Advice, and IRM 20.1.1.3.3.4.1 , Written Advice From the IRS, consider the following:

1. Did the taxpayer exercise ordinary business care and prudence in relying on that advice?
2. Was there a clear relationship between the taxpayer’s situation, the advice provided, and the penalty assessed?
3. What is the taxpayer’s prior tax history and prior experience with the tax requirements?
4. Did the IRS provide correct information by other means (such as tax forms and publications)?
5. What type of supporting documentation is available?

1. A notation of the taxpayer’s question to the IRS,
2. Documentation regarding the advice provided by the IRS,
3. Information regarding the office and method by which the advice was obtained,
4. The date the advice was provided, and
5. The name of the employee who provided the information.

Advice From a Tax Advisor

1. Reliance on the advice of a tax advisor generally relates to the reasonable cause exception in IRC 6664(c) for the accuracy-related penalty under IRC 6662. See IRM 20.1.5.7.4, Reliance on Advice, and Treas. Reg. 1.6664–4(c).
2. However, in very limited instances, reliance on the advice of a tax advisor may provide relief from other penalties when the tax advisor provides advice on a substantive tax issue.

Example:

The employer researched all available IRS publications on the subject of contract labor, provided clear and convincing documentation as to the duties of the workers to the tax advisor, and requested an opinion from the tax advisor as to whether the workers were "contract labor" or "employees." As a result, the tax advisor advised the employer that the workers were "contract labor." However, the IRS later determined that the workers were "employees" and not "contract labor."

Fire, Casualty, Natural Disaster, or Other Disturbance-Major Disasters

1. This section discusses penalty relief provisions for circumstances that generally fall under the definition of "major disaster" (such as a hurricane, tornado, earthquake, etc.) or "emergency" (see IRM 25.16.1.5, Disaster Tax Relief Options) and that affect a significant number of taxpayers located within a designated geographical area (see IRM 25.16.1.7, Disaster Zip Code Communication).
2. Generally, relief is provided in the form of extensions of time to file or pay and is usually provided systemically with the setting of an "-O" Freeze or "-S" Freeze posted to the account. See IRM 25.16.1.8.2, -O Freeze, and IRM 25.16.1.8.1, -S Freeze.
3. The determination to grant relief from each penalty must be based on the facts and circumstances surrounding each individual case.
4. For additional guidelines, including guidelines for reasonable cause consideration where systemic penalty relief is not applicable, see IRM 20.1.1.3.2.2.2 , Fire, Casualty, Natural Disaster, or Other Disturbance-Reasonable Cause.

Official Disaster Area

1. When a significant disaster occurs affecting a wide area of taxpayers, the IRS often issues special instructions to facilitate evaluating the request for penalty relief.
2. Because these are one-time instructions, they will not be incorporated in this IRM. Territories, campuses, and customer service sites will be kept informed of any special instructions affecting their areas.

Correction of Service Error

1. An IRS error can be any error made by the IRS in computing or assessing tax, crediting accounts, etc. See Exhibit 20.1.1-2 , Penalty Reason Code Chart, for the appropriate PRC to be used when abating either a systemically-generated or manually-input penalty.
2. When an analyst from any area of the IRS identifies a computer programming application that caused a penalty to be assessed in error, that analyst should coordinate the following with OSP:

1. Contact Information Technology (IT) to resolve the inadequate computer application , and
2. Include on the unified work request (UWR) a statement indicating that PRC 015 must be used to identify any abatement of a penalty resulting from reversal of the computer application .

1. A math error when manually computing a penalty.
2. An extension of time to file that did not post to the Master File (and manual input of a TC 460 did not, or will not, result in an automatic penalty reversal, if input of a TC 460 is appropriate in accordance with IRM 20.1.2.2.3.1.1, Extension of Time to File Not Found).
3. Any other error, when it can be shown that; (1) the taxpayer did in fact comply with the law, and (2) the IRS did not initially recognize that fact.

Evaluating Penalty Relief Requests

1. The initial request for relief may occur either during or after an examination (but before a penalty is actually assessed), with a return that is either filed or paid late, or after assessment of the penalty or penalties and notification issued to the taxpayer.
2. When the request is received, carefully analyze the taxpayer’s reasons to determine if penalty relief can be considered and is warranted. The burden of proving entitlement to relief is generally upon the taxpayer.

Caution:

Prior to analyzing the taxpayer's reason(s), analyze the account to determine if penalty relief cannot be considered, or if relief can only be considered by another IRS function. An example includes, but is not limited to, Freeze Codes "F-" , "-N" , "-V" , "-W" , "-Y" , "-Z" , or "Z-" .

1. The events or parties involved,
2. If the taxpayer exercised ordinary business care and prudence, but due to circumstances or events beyond the taxpayer’s control the taxpayer was unable to meet the tax requirement,
3. If other penalty relief criteria apply (such as a statutory or regulatory exception or an administrative waiver).

1. The dates and explanations should clearly correspond with events on which the penalties are based to show that the taxpayer is entitled to relief from the penalty.
2. Request additional information from the taxpayer to clarify any explanations if the dates and explanations do not correspond with the events on which the penalty is based.

Note:

See IRM 20.1.1.3.3.2.1 , First Time Abate (FTA). If the penalty or penalties being considered is/are eligible for relief under the FTA waiver, determine if the taxpayer meets FTA criteria before requesting additional information.

1. Assertion of the same penalty or penalties in the taxpayer's history may indicate that the taxpayer is not exercising ordinary business care.
2. If this is the taxpayer’s first incident of noncompliant behavior, weigh this factor with other reasons the taxpayer gives for relief since a first time failure to comply does not by itself establish reasonable cause. However, see the IRM 20.1.1.3.3.2.1 , First Time Abate (FTA), administrative waiver.

1. The taxpayers claim that they were unable to comply with the filing requirement due to a death in the family. The death occurred several months prior to the due date of the return. The return was not filed until a year after the due date of the return.
2. Taxpayers claim that they were unable to comply with the filing requirement because the records necessary for filing were in the control of a third party, e.g., a bankruptcy trustee or an accountant. The records were returned to the taxpayer well in advance of the time the return was required to be filed. The return was not filed until several months after the records were returned.
3. In both of the examples, the timing of the event may prevent the taxpayer from receiving penalty relief unless other factors justify the delay in filing.

Subsequent Requests for Penalty Relief

1. A second or subsequent request for penalty relief may be received after the initial request for relief has been denied.
2. If the penalty was previously considered by the IRS Independent Office of Appeals (Appeals), forward the request to the appropriate Appeals office. (This may be identified by the presence of PRC 041/042 followed by a TC 290 for $0.00 with a Blocking Series 96X, -N Freeze Code on the account.)
3. If review of the account indicates that the taxpayer’s request for penalty relief was previously disallowed, but not previously considered by Appeals, review the circumstances of the previous denial.

1. The letter or form requesting an appeal. It must be signed by the taxpayer or an authorized power of attorney (POA), as evidenced by a valid Form 2848, Power of Attorney and Declaration of Representative, either attached to the request or on file. (A copy of the Form 2848 is preferred with the case going to Appeals whenever possible.)

Note:

Form 8821, Tax Information Authorization, or Form 2848, Level H (unenrolled return preparer), is not considered an authorized POA.

Note:

Appeals does not have access to the Correspondence Imaging Inventory (CII). If the written supervisory approval of any penalty being appealed is contained in CII, take action to ensure documentation showing the supervisory approval is included with the files sent by the penalty appeals coordinator.

1. Input a TC 971 with Action Code 251 on each tax period being transferred,
2. Reassign the control base to Appeals (category APPZ), and
3. Unless the case involves International Penalties, input TC 470 with Closing Code 90. For cases involving International Penalties, input TC 470 with Closing Code 95.

1. Select New Case
2. Select the appropriate Business Unit from the drop down list
3. Select PENAP (Penalty Appeals) in the Type of Case field
4. Choose the correct type of PENAP case from the following three choices: International, MFT 06, or All Other
5. Input the taxpayer name, TIN, MFT(s), and tax period(s) being appealed

Note:

Note:

Files selected for upload should be in PDF format. Each file should not exceed 25 pages. While the size of files is limited to 25 pages, penalty appeals coordinators may attach and upload an unlimited number of files.

Note:

It is important that only penalty appeals coordinators submit cases to Appeals through the Appeals Electronic Case Receipts SharePoint site as they are most familiar with the documents that need to be transmitted to Appeals. Cases that are sent to Appeals without all necessary documents will be returned by Appeals as premature referrals with jurisdiction released.

Note:

For a demonstration of the process the penalty appeals coordinator follows in submitting a case to Appeals, refer to the self-help online tutorial video titled Electronic Case Receipts, Penalty Appeals, at https://vp2.irsvideos.gov/IRS/2022-0211-KH/Electronic%20Case%20Receipt.html.

Taxpayer Entitled to Relief

1. If the taxpayer provides an explanation that supports their request for penalty relief, waive or abate the applicable penalty or penalties. If the explanation applies to one penalty or multiple penalties but not all penalties, only the penalty or penalties to which the explanation applies should be waived or abated.
2. Document the decision and the basis for providing relief according to functional guidelines. Attach a copy of the information to the original return (if available) or other transaction (input) document.
3. Decisions with respect to penalties made by compliance personnel should not ordinarily be changed by personnel within another functional area. Before considering relief for any penalty or penalties asserted by compliance personnel, contact that office to determine if the case should be returned to the originating office.
4. If relief is granted prior to assertion of the penalty or penalties, use computer condition codes to suppress the automatic assertion of the penalty or penalties. Functional areas that forward returns to be processed must request that the campus prevent the assessment of the penalty or penalties. This may be done by doing the following:

1. Writing "reasonable cause" or "penalty relief" (as appropriate) in the preprinted penalty block on the return,
2. Requesting the penalty assessment transaction code be input for zero amount,
3. Editing a computer condition code (CCC) on the return, or
4. Preparing other forms appropriate for forwarding returns or penalty computations for processing.

Note:

Taxpayer Not Entitled to Relief

1. The information contained in paragraphs (2)-(8) does not apply to all IRM 20.1, Penalty Handbook, penalties. Refer to the appropriate IRM 20.1, Penalty Handbook, section depending on the penalty or penalties considered. See IRM 20.1.1.1.2 , Authority.

Example:

If considering an accuracy-related penalty (IRC 6662), refer to IRM 20.1.5.5, Post Assessment Abatement Consideration of Accuracy Related Penalties. If considering an international penalty, refer to IRM 20.1.9.1.5, Common Terms and Acronyms.

1. Document the decision and its basis according to functional guidelines, and
2. Attach a copy of the information to the original return (if available) or other transaction (input) document.

• In person
• Over the phone
• In writing

1. A complete explanation of the IRS’s decision and the basis for denial,
2. Information on the appeal procedures, including instructions on how to submit a written protest, and
3. Power of attorney information.

• IDRS Correspondex Letter 0854C, Penalty Waiver or Abatement Disallowed/Appeals Procedure Explained, which is generally used by campuses.

Note:

If the reasonable cause assistant (RCA) is used (see IRM 20.1.1.3.6 , Reasonable Cause Assistant (RCA), Correspondex Letter 0852C (BMF) and Letter 0853C (IMF) are generated through RCA and IDRS.

Reasonable Cause Assistant (RCA)

1. The Reasonable Cause Assistant (RCA) will be used where available when considering penalty relief due to reasonable cause. RCA is to be used after normal case research has been performed (i.e., applying missing deposits/payments, adjusting tax, researching for missing extensions of time to file, etc.) for the following penalties:

1. IMF-Failure to File (FTF) and Failure to pay (FTP) (Form 1040-series returns processed on MFT 30 or 31), and
2. BMF-Failure to Deposit (FTD) (currently limited to MFTs 01 (Form 941), 10 (Form 940), 11 (Form 943), 14 (Form 944), and 16 (Form 945).

Note:

Users must be familiar with penalty relief guidelines and are responsible for making final approval concerning the RCA penalty relief determination and to verify all reasons given by the taxpayer are addressed. Users are also responsible for reviewing and making any necessary edits before transmitting the RCA letter information in IDRS to ensure the letter reflects a thorough response to all reasons given by the taxpayer.

Caution:

See IRM 20.1.1.3.5 , Evaluating Penalty Relief Requests, to determine if penalty relief can be considered, or if penalty relief can only be considered by another function.

RCA and First Time Abate (FTA) Consideration

1. Refer to IRM 20.1.1.3.3.2.1 , First Time Abate (FTA), for all eligibility criteria for penalty relief under the FTA administrative waiver.
2. RCA has been programmed to perform a limited analysis to determine if FTA criteria are met under most conditions; however, manual verification of modules in the three-year look-back period is required before granting FTA. RCA is unable to analyze certain module information in the three-year look-back period under secondary or cross-reference TINs, or information in modules that were moved to the retention register. If RCA determines FTA criteria may be met based on only those modules not moved to the retention register, AND one or more modules in the three-year look-back period were moved to the retention register, RCA will display a warning message.

1. As stated on the warning message, modules in the three-year look-back period that have been moved to the retention register must be reviewed manually to determine if FTA criteria are met. When doing this review, also check under the secondary or cross-reference TIN when applicable..
2. When the Ok button is selected in the warning message, RCA next displays the "First Time Abate" dialog message. Cancel must be selected if manual review of the applicable module(s) shows FTA criteria have not been met.
3. In cases where at least one module in the three-year look-back period is under a different TIN or has been moved to the retention register, RCA has not performed a thorough analysis to determine if FTA criteria are met. If manual review verifies FTA criteria have been met, use Penalty Reason Code (PRC) 020 with the adjustment transaction(s).

1. If an FTD penalty of greater than $0.00 is present AND FTF and/or FTP penalties are also present, the FTA recommendation by RCA applies to all penalties.

Exception:

If at least one module in the three-year look-back period has been moved to the retention register and manual review shows FTA criteria have not been met, no penalties will be removed under the FTA waiver.

• If the tax is fully paid, RCA will use Reason Code (RC) 065 (and PRC 020) with the adjustment and will default either the total amount of the FTP penalty assessed on the module with the TC 271 or it will default TC 270 for $0.00 if the module contains only accrued FTP.
• If the tax is not fully paid, RCA will use RC 062 (and PRC 020) with the adjustment and will default the total FTP penalty computed to the current date for the TC 271.
• If the TC 271 amount defaulted by RCA is incorrect, the amount must be edited before transmitting the adjustment.

Note:

If RCA does not display the FTA message but it’s subsequently determined FTA criteria have been met, use PRC 018. if the tax on the module is paid in full. Use PRC 020 if the tax is not paid in full. For MFTs 30 & 31, RCA will default RC 062 with PRC 020 if the tax is not fully paid but it is not currently programmed to use RC 062 with PRC 018.

1. Users that are NOT profiled as an RO user (CRs, TEs, etc.) - If a TC 271 is added to the RCA Adjustment Data screen, it will be necessary to add 062 to the first RC field on the CC ADJ54 screen in IDRS before transmitting the adjustment.
2. Users profiled as an RO user - At this time, there are no options to add RC 062 to the adjustment either before selecting OK on the RCA Adjustment Data screen nor by Centralized Case Processing (CCP) prior to the adjustment being transmitted. This section will be updated if programming changes can be input to allow for use of RC 062 with PRC 018 or 020 on BMF modules.

• In this situation, RCA will display "EFTPS Avoidance" in the Alerts on the Module Home Screen. The account can be reviewed manually to determine if FTA criteria are otherwise met.

Note:

The Penalty History section of the RCA Module Home screen can be used as a quick reference to determine if FTA criteria have not been met as this will reflect any unreversed penalties in the three-year look-back period for modules that have not been moved to the retention register. Even if all modules in the three-year look-back period are reviewed and all reflect ‘No Penalties’, the account must be reviewed manually to determine if all FTA criteria have been met.

Penalty Reason Codes

1. Per IRM 20.1.1.3 , Criteria for Relief From Penalties, a penalty reason code (PRC) is required when suppressing, reducing, or removing a penalty. Also see IRM 20.1.1.5.1 , Master File Penalty Reason Codes.
2. When RCA reaches an Abate or Mixed conclusion (also see IRM 20.1.1.3.6.10 , RCA Conclusions/Determinations), RCA will default the applicable PRC for the abatement adjustment on the RCA Adjustment Data screen. The PRC field on the Adjustment Data screen also provides a drop-list of all PRCs reflected in Exhibit 20.1.1-2 , Penalty Reason Code Chart. The appropriate PRC should be selected if the PRC defaulted by RCA is incorrect based on the facts and circumstances.
3. Although not reflected on the Adjustment Data screen, RCA will pass reason code (RC) 062 to the first RC field in CC ADJ54 if the selected PRC is 022, 024, 025, 026, 030, or 046. RCA will also pass RC 062 with PRC 020 in certain situations (see IRM 20.1.1.3.6.1 ).
4. When the conditions for use of RC 062 have not been met, RCA will pass RC 065 when accessed on MFT 30 or 31 (IMF) or no RC will be passed when accessed on MFT 01, 10, 11, 14, or 16 (BMF).

Note:

When the adjustment transaction includes TC 271, the applicable RC and PRC must be selected in accordance with the requirements contained in IRM 20.1.2.2.4.1, Penalty Abatements and Re-assessments.

• User not profiled as a revenue officer (RO) user (i.e., contact representatives, tax examiners, etc.) - RCA does not provide an option to input the required adjustment action through RCA. The adjustment action must be input outside of RCA and the applicable RC and PRC used in accordance with IRM 20.1.1.3.6.2 , Penalty Reason Codes, and Exhibit 20.1.1-2 , Penalty Reason Code Chart.
• RO users - RCA will default the abatement transaction code (TC) and abatement amount for any assessed FTF, FTP, and/or FTD penalty on the module but will not select a default PRC. The applicable PRC must be selected from the drop-down list provided on the Adjustment Data screen in accordance with IRM 20.1.1.3.6.2 , Penalty Reason Codes, and Exhibit 20.1.1-2 . RCA will use RC 062 or RC 065 (IMF only) in accordance with Exhibit 20.1.1-2 , Penalty Reason Code Chart.

Note:

RCA will not pass RC 062 with PRC 018 on IMF nor BMF modules, and it will not pass RC 062 with PRC 020 on BMF modules.

Increase in Oral Statement Ceiling

1. Beginning January 1, 2002, the oral statement ceiling for Failure to File, Failure to Pay, and Failure to Deposit penalties was increased. See IRM 20.1.1.3.1 , Unsigned or Oral Requests for Penalty Relief.
2. RCA will be used where available. Where RCA is not available, employees should receive managerial approval to allow for the oral abatement of penalties when reasonable cause criteria are met. The ceiling also applies to BMF FTF and FTP penalties (even though RCA is not programmed to consider these penalties at this time).

Oral Statement Ceiling Exceeded

1. A signed, written statement is not required to deny a penalty relief request, regardless of the penalty amount(s). Therefore, users will not be required to obtain a signed, written statement before accessing RCA in "oral" mode. If the RCA determination is to abate the penalty or penalties and the oral ceiling threshold is exceeded, RCA will display a message stating a signed, written statement is required to allow the abatement, in addition to any other documentation required. See IRM 20.1.1.3.6.5 , Documentation.

1. If RCA determines the penalty should be sustained, follow established RCA "sustain" procedures.
2. If RCA determines the penalty should be abated, request a signed, written statement.

Documentation

1. Specific circumstances within RCA require the taxpayer to provide documentation to support their claim before a penalty relief determination can be reached. Other circumstances will allow the employee to accept "credible information," either orally or in writing.

1. "Credible information" must explain facts and circumstances showing the taxpayer exercised ordinary business care and prudence, and cite specific dates for the non-compliance. All information, including dates, must substantiate why the taxpayer was unable to comply.
2. RCA has been programmed to include reasonable and specific time frames to allow for filing and/or paying taxes after the event that prevented compliance ended. See IRM 20.1.1.3.2.2 , Ordinary Business Care and Prudence.

Attaching RCA Determination

1. When RCA reaches a conclusion to either abate (remove) or sustain the penalty, the program automatically displays a print dialog to allow printing the determination that includes all information input by the RCA user. This print must be attached as a source document or attached to the CII case if applicable. See IRM 21.5.2, Adjustment Guidelines, for additional information.
2. See IRM 20.1.1.3.1 , Unsigned or Oral Requests for Penalty Relief, for additional information concerning unsigned and oral requests.

Reasonable Cause Penalty Relief Request Prior to Penalty Assessment

1. RCA is unable to consider penalty relief on modules with no TC 150 posted. However, RCA can consider FTF and/or FTP penalty relief on IMF accounts if a TC 150 has posted, but no penalties have been assessed, or if the penalties have been fully reversed. It can also consider FTD penalty relief on BMF accounts with a posted TC 150 but no posted, or fully reversed, TC 18X.

Note:

RCA does not provide an option to address any unassessed penalties for users that are profiled as revenue officer (RO) users.

1. If a penalty applies, access RCA for a penalty relief determination.

Note:

RCA does not review the account to determine if FTA criteria have been met if an FTD penalty for a positive amount is not present on the module. Prior to accessing RCA, review the account to determine if FTA criteria have been met (see IRM 20.1.1.3.3.2.1 , First Time Abate (FTA)). If so, accessing RCA is not required. If the 13th week from issuance of the CP 207 notice has not expired per IRM 20.1.4.18.1, Replies to CP 207/207L Notices, input a TC 180 for zero, BLK 14, and PRC 018. This action should prevent automatic assessment of an FTD penalty.

1. When RCA determines abatement of the FTP penalty is appropriate, RCA will default a TC 271 amount (or a TC 270 for zero if applicable) on the RCA Adjustment Data screen based on the requirements contained in IRM 20.1.1.3.3.2.1 , First Time Abate (FTA), and IRM 20.1.2.2.4.1, Penalty Abatements and Re-assessments. However, users are responsible for determining the appropriate TC 271 amount or, if applicable, if a TC 270 for zero is appropriate and change the amount defaulted by RCA before transmitting the adjustment.
2. For RO users, RCA will generally default the amount of assessed FTP, or a TC 270 for zero, on all BMF modules and on IMF modules on which RCA’s Sustain determination is overridden. If the module contains accrued FTP and RC 062 will be input with the adjustment, the amount defaulted by RCA will generally need to be edited before selecting OK on the RCA Adjustment Data screen. See Exhibit 20.1.1-2 , Penalty Reason Code Chart, to determine if RC 062 will be used depending on the PRC selected.

RCA Letter Generation

1. If RCA determines reasonable cause has not been established, Correspondex Letter 0852C (BMF) or Letter 0853C (IMF) can be issued by users that are not profiled as an RO user through RCA providing the reason(s) for denial and explaining the appeal procedures.

1. "Special Insert" and "Return Address" codes are required on the Letter 0852C and Letter 0853C to generate the appropriate appeals coordinator's name and return address. Enter the codes established by your local Campus User Support function (normally used on Letter 0854C). These codes are also available on the SERP Penalty Appeal Coordinators List page.
2. If the codes entered do not generate the correct information, report the problem to your local User Support function.

Note:

RCA for BMF

1. RCA cannot consider BMF FTP and FTF penalty relief at this time. However, because most BMF accounts that have been penalized for FTF and FTP penalties also include a FTD penalty, RCA should be used to consider penalty relief for the FTD penalty.

1. If the same reasons are used for requesting FTF and FTP penalty relief (as they usually are), the RCA conclusion can generally apply to all three penalties.

Note:

The FTD penalty is based on failing to make timely deposits in the proper format that were due during the tax return period (most due no later than the 15th of the month following the end of the tax period), while the FTF and FTP penalties are based on failing to file a tax return and/or pay all tax due by the last day of the month that follows the end of the tax period. Consequently, the date(s) of the event(s) that prevented compliance with the different requirements may not support removal of all penalties. Review the facts and circumstance thoroughly before applying RCA’s FTD penalty determination to the FTF and/or FTP penalties.

Note:

If the facts and circumstances justify abatement for the FTF penalty and/or FTP penalty but not the FTD penalty, do not select the option to include the penalty or penalties being abated on the RCA Letter Data screen.

RCA Conclusions/Determinations

1. RCA programming applies the reasonable cause standards outlined throughout IRM 20.1.1.3.2 , Reasonable Cause, against the reasonable cause category or categories chosen by the RCA user and the answers selected and/or dates entered (if applicable) to the questions posed by RCA. Therefore, to ensure the correct determination is reached, users must make every effort to choose the applicable category or categories and answers (correct date(s) entered, etc.) based on the information provided by the taxpayer. RCA will reach 1 of 5 possible conclusions for the MFT and tax period (module) reviewed (listed in order of priority):

Caution:

When the FTP penalty is being abated for reasonable cause, refer to IRM 20.1.2.2.4.1, Penalty Abatements and Re-assessments, for additional information and, if necessary, edit the TC 271 amount defaulted by RCA.

Note:

Not applicable to revenue officers except on BMF modules and a valid record of federal tax liability (ROFTL) is not readily available, when applicable.

• IMF—Abate one penalty/sustain the other penalty
• BMF—Abate a portion of the FTD penalty applicable to one or more late deposit(s)/sustain a portion of the FTD penalty applicable to one or more late deposit(s). Also see IRM 20.1.4.3, Restrictions on Assessments

Caution:

In some instances on BMF accounts (FTD penalty), RCA reviews each late-deposited liability. When this is the case, the RCA "module conclusion" only applies to the late-deposited liability(ies) selected for review. Consequently, it may be necessary to access RCA more than once if all late-deposited liabilities were not late for the same reason(s).

1. Made an unbiased analysis of the facts of the case,
2. Properly applied the law and IRS policy to the facts of the case, and
3. Performed the actions in (a) and (b) fairly and consistently compared to similar cases.