March 3, 2015 – I copied this in it’s entirety from the official IRS.Gov website. No changes have been
made except that in this specific section I deleted the IRS Logo from the page. I am not affiliated with
the IRS any longer, and I have no authority to use their logo. This information is provided to assist
(primarily) real estate appraisers intending to perform; or already performing appraisals intended for
use before IRS or as support for IRS tax returns to be filed. ALL are urged to contact IRS directly to assure
their own competency before IRS; and to assure themselves that they fully understand how IRS
interprets “Qualified Appraisal & Qualified Appraiser”; signed Michael F. Ford; FORMER GS‐13 Senior
Real Estate Appraiser, IRS/ Large Business & International Division, Engineering & Valuation, Field
Part 20. Penalty and Interest
Chapter 1. Penalty Handbook
Section 1. Introduction and Penalty Relief
20.1.1 Introduction and Penalty Relief
h 126.96.36.199 Overview
h 188.8.131.52 Purpose of Penalties
h 184.108.40.206 Criteria for Relief From Penalties
August 05, 2014
(1) This transmits revised IRM 20.1.1, Penalty Handbook, Introduction and Penalty Relief.
(1) Minor editorial changes have been made throughout this IRM. Web site addresses, legal references,
and IRM references were reviewed and updated as necessary. Significant changes to this IRM are
reflected in the table below.
IRM Change Details
Removed IRC 6716 in the code section column for IRM 20.1.11.
IRM Change Details
Inserted new paragraph (1) and renumbered remaining. Removed redundant statement
from paragraph (2).
Added statement "after you have informed the taxpayer regarding the existence and
role of the Taxpayer Advocate Service (TAS)."
IRM 220.127.116.11.3 Added new paragraph (9) and renumbered remaining content.
Added new paragraph (1) and renumbered existing paragraphs. Included changes made
with Interim Procedural Update (IPU) 13U1157 issued 06‐]27‐]2013 to add a note to
Included changes made with IPU 14U0623 issued 04‐]03‐]14‐]13 (previously issued as IPU
13U0690 on 04‐]05‐]2013) to update policy statement references.
Added "Reasonable Cause" to the title for clarification.
Changed the IRC 7508A reference from presidentially to federally.
Moved (3)(a) and (b) to IRM 18.104.22.168.3.1 (3).
Changed first sentence from a question to a statement.
Added Major Disasters to title for clarification.
Included changes made with IPU 13U1157 issued 06‐]27‐]2013 to change Modernization
and Information Technology Services (MITS) to Information Technology (IT).
Included changes made with IPU 13U1282 issued 07‐]26‐]2013 to update the information
for sending penalty appeals cases.
Added new paragraph (1) to clarify subsection does not pertain to all IRM 20.1.1
penalties and renumbered remaining paragraphs.
Updated to include the following IPU content:
h IPU 13U1705 issued 12‐]06‐]13 (previously issued as 12U0248 on 01‐]25‐]12) to
IRM Change Details
change reference (3)(f) to (5)(f).
h IPU 14U0623 issued 04‐]03‐]14‐]13 (previously issued as IPU 13U0690 on 04‐]05‐]
2013) modified the first time abate (FTA) policy.
Updated to include changes made with IPU 14U0623 issued 04‐]03‐]14‐]13 (previously
issued as IPU 13U0690 on 04‐]05‐]2013) to removed the statement that the Reasonable
Cause Assistant (RCA) can be used on Business Master File (BMF) accounts with no
posted Transaction Code (TC) 150.
Updated to include changes made with IPU 13U1705 issued 12‐]06‐]13 (previously issued
as 12U0248 on 01‐]25‐]12) to correct the TC 28X explanation.
A. Updated to include changes made per the following IPUs:
h IPU 13U1705 issued 12‐]06‐]13 (previously issued as 12U0248 on 01‐]25‐]
12) was incorporated to correct IRM references.
h IPU 13U1282 issued 07‐]26‐]2013 was incorporated to add an exception
to Penalty Reference Number (PRN) 565 for married filing joint (MFJ)
B. Clarified penalty computation rates with respect to PRNs 537 and 581.
C. Added PRN 594.
A. Updated to include changes made per the following IPUs:
h IPU 13U1706 issued 12‐]06‐]13 (previously issued as 12U0379 on 02‐]14‐]
12) to update PRN 627 penalty rate applicable to tax returns and claims
for refund for tax years ending on or after 12/31/2011
h IPU 13U1282 issued 07‐]26‐]2013 to update PRNs 603, 613, 625, 659, and
660 to reflect new 7XX PRN used for assessing a continuation penalty
instead of PRN 619. Also updated PRN 619 to show it's now used to
assess a continuation penalty only for a PRN 623 initial penalty
B. Updated PRN 606 to clarify penalty computation rates.
C. Updated PRN 619 to indicate it is now used to assess a continuation penalty only
for an initial penalty assessed with PRN 623 (IRC 6038). PRN 619 is no longer
used with initial penalties assessed with PRNs 603, 613, 625, 659, and 660.
IRM Change Details
D. Updated PRN 624. PRNs 714–718 replace PRN 624 effective Jan. 2014.
E. Updated PRN 635. It is not used for IRC 6651(f) penalty assessments as of July 2,
F. Updated PRN 686. It is the sole PRN now used for IRC 6651(f) penalty
G. Added PRNs 642 (IRC 6722(e)) and 683 (IRC 6662(j)).
A. Updated to include changes made per the following IPUs:
h IPU 13U1157 issued 06‐]27‐]2013 to add PRN 711 information.
h IPU 13U1282 issued 07‐]26‐]2013 to add PRNs 701 through 705.
B. Added PRNs 714‐]718 that are now used for IRC 6695(a)‐](e) penalty assessments
(previously assessed with PRN 624).
C. Added PRNs 780 (IRC 6662(b)(6)) and 781 (IRC 6662(i)).
Updated to include changes made with IPU 13U1705 issued 12‐]06‐]13 (previously issued
as 12U0248 on 01‐]25‐]12) to reflect the correct Document 6209, "IRS Processing Codes
and Information" sections.
Effect on Other Documents
IRM 20.1.1, Introduction and Penalty Relief, dated November 25, 2011, is superseded. The following
Servicewide Electronic Research Program (SERP) IRM Procedural Updates (IPUs), issued between
January 25, 2012 through December 6, 2013, have been incorporated into this IRM: 12U0248, 12U0379,
13U0690, 13U1157, 13U1282, 13U1705, 13U1706, and 14U0623.
All IRS employees who work with penalties.
Acting Director, Examination Policy
1. This IRM section discusses the purpose of penalties and provides the legal authorities, criteria
for relief, and other general information about penalties. This information is for employees who
work with penalties when examining returns, collecting taxes, and other compliance activities,
including employees in Small Business Self‐]Employed (SB/SE) Division, Large Business and
International (LB&I) Division, Tax Exempt and Government Entities (TE/GE) Division, Appeals,
Criminal Investigation, and other IRS offices.
2. IRM 20.1, Penalty Handbook, is the primary source of authority for the administration of
penalties by the IRS. IRS functions may develop additional guidance or reference materials for
their specific functional administrative needs. However, such reference material must receive
approval from the Office of Servicewide Penalties (OSP) prior to distribution and must remain
consistent with the policies and general procedural requirements set forth in IRM 22.214.171.124.1,
Policy Statement 20‐]1 (Formerly P–1–18), at http://irm.web.irs.gov/link.asp?link=126.96.36.199.1, and
any other guidance relating to IRS penalties. See also IRM 188.8.131.52.2.
3. OSP has overall responsibility for coordinating and approving any update to IRM 20.1, Penalty
Handbook. OSP's role is to ensure fairness and consistency in penalty administration.
4. This IRM contains exhibits to assist the user in researching penalty issues:
h Exhibit 20.1.1‐]1, Penalty Relief Application Chart
h Exhibit 20.1.1‐]2, Penalty Reason Code Chart
h Exhibit 20.1.1‐]3, Penalty Transaction Codes
h Exhibit 20.1.1‐]4, Penalty Reference Numbers‐]500 Series
h Exhibit 20.1.1‐]5, Penalty Reference Numbers‐]600 Series
h Exhibit 20.1.1‐]6, Penalty Reference Numbers‐]700 Series
h Exhibit 20.1.1‐]7, Table of Abbreviations and Acronyms
h Exhibit 20.1.1‐]8, Dictionary of Key Terms
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
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:
A. Develop and adopt a single penalty policy statement emphasizing that civil tax penalties
exist for the purpose of encouraging voluntary compliance.
B. 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).
C. Revise existing training programs to ensure consistent administration of penalties in all
functions for the purpose of encouraging voluntary compliance.
D. 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.
E. Finalize its review and analysis of the quality and clarity of machine‐]generated letters
and notices used in various areas within the IRS.
F. Consider ways to develop better information concerning the administration and effects
G. Develop a Master File database to provide statistical information regarding the
administration of penalties. 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.
3. In keeping with the Commissioner’s Executive Task Force Report and Congressional
recommendations, the consolidated penalty IRM was developed.
Organization of IRM 20.1, Penalty Handbook
1. IRM 20.1, Penalty Handbook, serves as the foundation for addressing administration of penalties
by various IRS functions. By providing one source of authority for the administration of
penalties, the IRS greatly reduces inconsistencies regarding penalty application.
Refer to IRM 9.1.3, Criminal Statutory Provisions and Common Law, for criminal penalty provisions.
2. The 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 are as follows:
IRM Title Code Reference(s)
Introduction and Penalty
Failure to File/Failure to Pay
IRC 6651, IRC 6698, and IRC 6699
Estimated Tax Penalties (ES) Individual‐]IRC 6654 and Corporate‐]IRC 6655
Failure to Deposit Penalty
Return Related Penalties IRC 6662, IRC 6662A, IRC 6663, and IRC 6676
Material Advisor Penalties
IRC 6694, IRC 6695, IRC 6700, IRC 6701, IRC 6707, IRC
6707A, IRC 6708, IRC 6713, IRC 7407, and IRC 7408
IRC 6011, IRC 6721, IRC 6722, IRC 6723, and IRC 6724
Employee Plans and Exempt
IRC 6652, IRC 6684, IRC 6685, IRC 6690, IRC 6692, IRC
6693, IRC 6704, IRC 6710, IRC 6711, and IRC 6714
IRC 6038, IRC 6038A, IRC 6038D, IRC 6039E, IRC 6039G, IRC
6039F, IRC 6652(f), IRC 6677, IRC 6679, IRC 6683, IRC 6686,
IRC 6688, IRC 6689, and IRC 6712
IRC 856(g)(5), IRC 6652(a)/(b)/(j)‐](l), IRC 6657, IRC 6672,
IRC 6673, IRC 6674, IRC 6682, IRC 6697, IRC 6702, IRC
6705, IRC 6706, IRC 6709, IRC 6720B, IRC 6720C, IRC 7268,
IRC 7519, and IRC 9707
Excise Tax and Estate and
Gift Tax Penalties
IRC 4103, IRC 6166, IRC 6653, IRC 6675, IRC 6715, IRC
6715A, IRC 6717, IRC 6718, IRC 6719, IRC 6720A, IRC 6725,
IRM Title Code Reference(s)
IRC 7270, IRC 7271IRC 7272, IRC 7273, IRC 7275, IRC 7304,
and IRC 7342
Penalties Applicable to
Requesting Changes and Updating IRM 20.1
1. Refer to IRM 184.108.40.206.1, Requesting Changes to the IRM.
2. OSP has overall responsibility for coordinating and approving any update to IRM 20.1, Penalty
1. Overall responsibility for penalty programs is assigned to OSP. OSP is a matrix organization
residing in Examination Policy (Small Business/Self Employed) Division. OSP is charged with
coordinating policy and procedures concerning the administration of penalty programs,
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.
2. 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 and philosophy. Attention should be directed to the coordination of penalty
programs between offices and functions to make sure that approaches are consistent and
penalty information is used for identifying and responding to compliance problems.
3. 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
administration of penalties.
4. All employees should keep the following objectives in mind when handling each penalty case:
A. Similar cases and similarly‐]situated taxpayers should be treated alike.
B. Each taxpayer should have the opportunity to have his or her interests heard and
C. Strive to make a good decision in the first instance. A wrong decision, even though
eventually corrected, has a negative impact on voluntary compliance.
D. Provide adequate opportunity for incorrect decisions to be corrected.
E. 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).
F. Use each penalty case as an opportunity to educate the taxpayer, help the taxpayer
understand his or her legal obligations and rights, assist the taxpayer in understanding
his or her appeal rights, and in all cases, observe the taxpayer’s procedural rights.
G. Endeavor to promptly process and resolve each taxpayer’s case.
H. Resolve each penalty case in a manner which promotes voluntary compliance.
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
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.
Taxpayer Advocate Service (TAS) Guidelines
1. While the IRS is always striving to improve its systems and provide better service, some
taxpayers still have difficulty obtaining a solution to a problem or a timely and appropriate
response to an inquiry. The purpose of TAS is to give taxpayers someone to speak for them
within the IRS‐]an advocate. An advocate conducts an independent and impartial analysis of all
information relevant to the taxpayer's problem. TAS guarantees that taxpayers will have
someone to make sure their rights are protected and someone to turn to when the system is
not responsive to their needs. TAS steps in and takes action on behalf of taxpayers when their
complaints or inquiries meet TAS criteria. See IRM 13.1.1, Taxpayer Advocate Case Procedures,
Legislative History and Organizational Structure.
2. The purpose of the criteria is to ensure that problems and complaints that have not been
handled properly through normal channels are reviewed in TAS. See IRM 13.1.7, Taxpayer
Advocate Service (TAS) Case Criteria.
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 220.127.116.11, Same Day Resolution by
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
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 the following:
h Defining standards of compliant behavior,
h Defining consequences for noncompliance, and
h 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
h Written materials that clearly explain the rules, and
h Forms that permit the self‐]computation of tax liability.
3. In addition to (2) above, the IRS must also provide a means to preserve and enhance our
voluntary compliance by fairly, consistently, and accurately administering a system of penalties.
4. Although penalties support and encourage voluntary compliance, they also serve to bring
additional revenues into the Treasury and indirectly fund enforcement costs. However, these
results are not reasons for creating or imposing penalties.
5. Penalties advance the mission of the IRS when they encourage voluntary compliance. The IRS
has formalized this obligation to the public in its mission statement.
6. Voluntary compliance is achieved when a taxpayer makes a good faith effort to meet the tax
obligations defined by the Internal Revenue Code.
7. Penalties support voluntary compliance by assuring compliant taxpayers that tax offenders are
identified and penalized.
8. The IRS has the obligation to advance the fairness and effectiveness of the tax system. Penalties
should do the following:
h Be severe enough to deter noncompliance,
h Encourage noncompliant taxpayers to comply,
h Be objectively proportioned to the offense, and
h Be used as an opportunity to educate taxpayers and encourage their future compliance.
9. IRS personnel may educate taxpayers and encourage their future compliance by doing the
A. Discussing causes for the delinquency and listening to taxpayers' reasons and concerns for
B. Ensuring that taxpayers understand their filing and paying responsibilities, and
C. Being alert to information received in discussions with taxpayers that indicate possible reasons
for abatement of a penalty.
10. Penalties should relate to the standards of behavior they encourage. Penalties best aid
voluntary compliance if they support belief in the fairness and effectiveness of the tax system.
This belief encourages compliance in areas that cannot be reached through audits or other
programs. The IRS’s approach to penalties is embodied in Penalty Policy Statement 20‐]1. See
IRM 18.104.22.168.1, Policy Statement 20‐]1 (Formerly P–1–18), at
Fair and Consistent Approach to Penalty Administration
1. The IRS’s approach to penalty administration must ensure the following:
A. 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, and procedures),
overall confidence in the tax system is jeopardized.
B. 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.
C. 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.
D. 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.
Managerial Approval for Penalty Assessments
1. IRC 6751(b)(1) states, in general, that no penalty under the IRC 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.
2. Notwithstanding the exception noted in paragraph 3 below, this approval requirement will also
apply to the imposition of any fraud penalty including fraudulent failure to file penalty under IRC
3. IRC 6751(b)(2) provides an exception to the managerial approval requirement for penalties
calculated through electronic means. This exception applies to the following penalties:
h IRC 6651, Failure to File Tax Return or to Pay Tax,
h IRC 6654, Failure by Individual to Pay Estimated Income Tax,
h IRC 6655, Failure by Corporation to Pay Estimated Income Tax, and
h Any other penalties automatically calculated through electronic means (see paragraph 5
4. For purposes of this section, the term "penalty" includes any addition to tax or any additional
amount (IRC 6751(c)).
5. Penalty automatically calculated through electronic means encompasses something more than
merely an electronic device to perform arithmetic functions to determine the amount of a
penalty. Instead, the assessment of a penalty qualifies as one calculated through electronic
means if the penalty is assessed free of any independent determination by an IRS employee as
to whether the penalty should be imposed against a taxpayer.
6. The managerial review and approval must be documented in writing and retained in the case
file. The manager must indicate the decision reached, sign, and date the case history document.
7. IRC 6751(b) does not require the IRS to provide the taxpayer with a copy of the manager's
written approval of penalties assessed against the taxpayer. However, the IRS may wish to
provide the taxpayer with a courtesy copy of the document showing that a manager approved
the penalties. Taxpayers are entitled to request these documents under the Freedom of
Information Act (FOIA).
8. IRC 6751(b) provides that the assessment of a penalty shall be approved (in writing) by the
immediate supervisor of the individual making the initial determination of such assessment.
Generally, an immediate supervisor is the person who writes an employee's evaluation or
approves the employee's leave. On‐]the‐]job instructors do not qualify as the immediate
supervisor for the purpose of IRC 6751(b).
9. LB&I Directive, Codification of Economic Substance Doctrine and Related Penalties, requires
Director of Field Operations (DFO) approval for assertion of economic substance doctrine
penalties by LB&I. See LMSB Control No.: LMSB‐]20–0910–024 at
10. In addition to the information provided in IRM 22.214.171.124.3.1, IRM 126.96.36.199.3.2, and IRM
188.8.131.52.3.3 additional information pertaining to the requirements for specific penalties
includes, but is not limited to the following:
h IRM 184.108.40.206.7.5, Fraudulent Failure to File—IRC 6651(f).
h IRM 220.127.116.11.4, Managerial Approval of Penalties, return related penalties.
h IRM 18.104.22.168.1.2, Managerial Approval for Assessment of Penalties, prepare, promoter
and material advisor penalties.
h IRM 22.214.171.124, Field Examination Procedures, appraisal penalties.
h IRM 126.96.36.199.2, Penalty Case Creation, IRC 6702, frivolous return penalties.
Examination Change Reports Assessing Penalties
1. A tax examination change report (e.g., Form 4549, Income Tax Examination Changes) that
includes penalties may be approved by a manager in writing after the report is presented to a
taxpayer for signature. The report does not have to be reviewed by a manager prior to
discussions with the taxpayer regarding the penalties. Nor does the report have to be reviewed
before the taxpayer agrees to the penalties. However, the manager must perform a meaningful
review of the employee's penalty determination prior to assessment.
2. The manager should verify the following:
A. The penalties were fairly imposed and accurately computed.
B. The employee did not improperly assert the penalties in the first instance as a
C. The employee's conclusions regarding "reasonable cause" (or the lack thereof) were
Automated Underreporter Program
1. When the IRC 6662 accuracy‐]related penalties for negligence and substantial understatement
are assessed under the Automated Underreporter Program (AUR) without an employee
independently determining the appropriateness of the penalty, the penalty is automatically
calculated through electronic means and may be assessed without written managerial approval
of the penalty.
2. However, if a taxpayer responds either to the initial letter proposing a penalty or to the notice of
deficiency that the program automatically issues, an IRS employee must consider the response.
3. When considering the response, the employee must make an independent determination as to
whether the response provides a basis upon which the taxpayer may avoid the penalty.
Whether the employee decides to apply the penalty or not, the employee's independent
determination of whether the penalty is appropriate means that the penalty is not automatically
calculated through electronic means. Accordingly, IRC 6751(b)(1) requires written managerial
approval of an employee's determination to assert the penalty.
4. Also see IRM 188.8.131.52.4, Managerial Approval of Penalties.
IDRS Command Code FTDPN
1. IRC 6751(b) applies, and managerial approval is required, when an IRS employee does not use
IDRS Command Code (CC) FTDPN to determine whether the failure to deposit (FTD) penalty
applies (IRC 6656). This determination is not free of any independent determination by an IRS
employee as to whether the penalty should be imposed against a taxpayer.
2. Managerial approval is not required when CC FTDPN is used to determine an FTD penalty. For
example, managerial approval is not required if CC FTDPN was used to determine the penalty on
the following types of cases:
A. CP 194, Data for Computation of Possible FTD Penalty on Forms 941, CT‐]1, 720, 940, 943,
B. CP 207, Proposed averaged FTD Penalty (amounts less than $75,000), Request for
Correct ROFTL Information
C. CP 207L, Proposed Averaged FTD Penalty (>= $75,000), Request for Correct ROFTL
D. CP 193, Duplicate Filing Condition
The FTDPN print‐]out becomes part of the case source document.
Criteria for Relief From Penalties
1. Generally, relief from penalties falls into four separate categories:
h Reasonable cause
h Statutory exceptions
h Administrative waivers
h Correction of IRS error
2. Appeals may recommend the abatement or non‐]assertion of a penalty based on these four
criteria as well as "hazards of litigation."
3. In the interest of fairness, the IRS will consider requests for penalty relief received from third
parties, including requests from representatives without an authorized power of attorney. While
information may be accepted, no taxpayer information may be discussed with a third party
unless a valid power of attorney or other acceptable authorization is secured in writing from the
taxpayer. See IRM 184.108.40.206.1.
A. If additional information is needed, contact the taxpayer or the taxpayer's authorized
B. If the validity of the request is questionable, contact the taxpayer.
C. In all cases involving third party requests for penalty relief, advise the taxpayer of the request
and the action taken.
All information contained within IRM 220.127.116.11 only applies after the account to be considered for
penalty relief has been thoroughly analyzed and corrected, if necessary, in accordance with procedural
requirements contained in the IRM to ensure the account properly reflects all acts of compliance. In
addition, refer to IRM 18.104.22.168.3.1, 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 his or her
When penalty relief is warranted (including a determination not to assert a penalty that is otherwise
warranted), a penalty reason code (PRC) is required to indicate the reason a penalty is being removed or
suppressed. See IRM 22.214.171.124.1, Master File Penalty Reason Codes. Also, see Exhibit 20.1.1‐]2, Penalty
Reason Code Chart.
Unsigned or Oral Requests for Penalty Relief
1. Consider requests for relief from the failure to file (FTF), failure to pay (FTP), and/or failure to
deposit (FTD) penalties using the reasonable cause assistant (RCA), when applicable, to
determine if the taxpayer is eligible for the first time abate (FTA) administrative waiver. See IRM
126.96.36.199.6, Reasonable Cause Assistant (RCA), for RCA use and IRM 188.8.131.52.6.1, 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 failure to
file (FTF), failure to pay (FTP) and/or failure to deposit (FTD) penalties may be considered if the
following is true:
A. The request is received either orally or in writing, but is unsigned, AND
B. The request is received from the taxpayer, the taxpayer's authorized representative or a
third party, AND
C. The penalties do not exceed ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß (e.g., tax period), AND
D. Reasonable cause criterion is met.
If RCA is used, the oral statement authority (OSA) threshold in paragraph (2)(c) is increased to ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß
≡ß ≡ß ≡ß and/or ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß . RCA will be used, where available. If an employee cannot use RCA, he
or she should seek managerial approval to consider oral and unsigned requests at the ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß ≡ß
3. When an unsigned or oral request for relief is received, the IRS employee must document the
case file or adjustment document clearly restating the information provided by the taxpayer.
A. If the relief criteria are clearly established, abate or request the abatement of the
penalty(ies) following functional guidelines. See IRM 184.108.40.206.5.2.
B. If the relief criteria are not clearly established, do not abate the penalty(ies). Follow
functional guidelines for disallowing the request. See IRM 220.127.116.11.5.3.
4. When an unsigned or oral request for penalty relief is received for two or more penalties, ask
the taxpayer to submit a signed written request for relief from all penalties if either of the
following is true:
A. Any penalty exceeds the amount that can be considered, or
B. 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:
h FTF and FTP penalties that totaled less than ≡ß ≡ß , but more than ≡ß ≡ß ≡ß ≡ß , and
h A FTD penalty greater than ≡ß ≡ß ≡ß ≡ß , and
h RCA was not used and managerial approval for higher level OSA threshold was not
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.
5. The OSA thresholds in this subsection allow for consideration of the facts provided to establish
penalty relief without a signed written statement for the FTF, FTP, and/or FTD penalties only.
6. The taxpayer must provide a written statement, signed under the penalty of perjury, requesting
penalty relief for all other penalties. For example, requests for relief received either orally or
without an authorized signature may NOT be considered for the following:
h TIN penalties,
h Information return penalties, or
h Penalties assessed by a compliance program.
Refer to IRM 18.104.22.168.9.2 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.
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 be assessed. Reasonable cause relief is
generally granted when the taxpayer exercised ordinary business care and prudence in
determining his or her tax obligations but nevertheless failed to comply with those obligations.
2. In the interest of equitable treatment of the taxpayer and effective tax administration, the nonassertion
or abatement of 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.
A. 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.
B. If a reasonable cause provision applies only to a specific IRC section, that reasonable
cause provision will be discussed in the IRM 20.1 section relating to that specific IRC
section. See Exhibit 20.1.1‐]1, Penalty Relief Application Chart.
C. 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 22.214.171.124.2.2, Ordinary Business Care and Prudence.
4. The wording used to describe reasonable cause provisions varies. Some IRC penalty sections also
require evidence that the taxpayer acted in good faith or that the taxpayer's failure to comply
with the law was not due to willful neglect. See specific IRM 20.1 sections for the rules that
apply to a specific IRC penalty section. See IRM 126.96.36.199.2, Organization of IRM 20.1.
5. Taxpayers have reasonable cause when their conduct justifies the non‐]assertion or abatement
of a penalty. Each case must be judged individually based on the facts and circumstances at
hand. Consider the following in conjunction with specific criteria identified in the remainder of
A. What happened and when did it happen?
B. 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?
C. How did the facts and circumstances result in the taxpayer not complying?
D. How did the taxpayer handle the remainder of his or her affairs during this time?
E. Once the facts and circumstances changed, what attempt did the taxpayer make to
6. Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s
noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within
a reasonable period of time.
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:
Treas. Reg. 1.6664–4 Accuracy‐]Related Penalties
Treas. Reg. 301.6651–1(c)
Failure to File a Tax Return and/or Failure to
Pay tax Penalties
Treas. Reg. 301.6723–1A(d) and Treas. Reg.
Information Returns Penalties
Treas. Reg. 1.6694–2(e)(1)‐](6) and Treas. Reg.
301.6707–1T Q&A (4)
3. The following Internal Revenue Service policy statements contain specific criteria that may
affect the imposition of penalties:
h Policy Statement 20–2, Penalties and Interest Not Asserted Against Federal Agencies.
See IRM 188.8.131.52.2.
h Policy Statement 3–2, Reasonable Cause for Late Filing of Return or Failure to Deposit or
Pay Tax When Due. See IRM 184.108.40.206.2.
h Policy Statement 3–3, Timely Mailed Returns Bearing Foreign Postmarks to Be Accepted.
See IRM 220.127.116.11.3.
h 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 18.104.22.168.5.
See IRM 1.2.1, Servicewide Policies and Authorities‐]Policies of the Internal Revenue Service.
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 he or she 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:
A. 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 22.214.171.124.2, Reasonable Cause.
B. 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.
C. Length of Time: Consider the length of time between the event cited as a reason for the
noncompliance and subsequent compliance. See IRM 126.96.36.199.2, 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.
D. 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:
A. 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).
B. 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.
2. If someone other than the taxpayer, or the person responsible, is authorized to meet the
obligation, consider the reasons why that person did not meet the obligation when evaluating
the request for relief. In the case of a business, if only one person was authorized, determine
whether this was in keeping with ordinary business care and prudence.
3. Information to consider when evaluating a request for penalty relief based on reasonable cause
due to death, serious illness, or unavoidable absence includes, but is not limited to, the
A. The relationship of the taxpayer to the other parties involved.
B. The date of death.
C. The dates, duration, and severity of illness.
D. The dates and reasons for absence.
E. How the event prevented compliance.
F. If other business obligations were impaired.
G. 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
person" eligible for disaster relief as provided for in IRM 188.8.131.52, Disaster Assistance and
Emergency Relief‐]Overview. Also see IRM 184.108.40.206.3.6, Official Disaster Area.
2. For taxpayers not considered an "affected person," 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, he or she was unable to comply with
4. Factors to consider include the following:
h Effect on the taxpayer’s business
h Steps taken to attempt to comply
h If the taxpayer complied when it became possible
5. The determination to grant relief from each penalty must be based on the facts and
circumstances surrounding each individual case. Determine if the event resulted in a
circumstance for which other penalty relief criteria may apply. For example, if the taxpayer was
unable to access his or her records as the result of a fire. See IRM 220.127.116.11.2.2.3, Unable to
Obtain Records. If the taxpayer, or responsible party, was unable to comply because he or she
was hospitalized as the result of an accident. See IRM 18.104.22.168.2.2.1, Death, Serious Illness, or
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
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, he or she was unable to comply.
4. Information to consider when evaluating such a request includes, but is not limited to, an
explanation as to the following:
h Why the records were needed to comply.
h Why the records were unavailable and what steps were taken to secure the records.
h When and how the taxpayer became aware that he or she did not have the necessary
h If other means were explored to secure needed information.
h Why the taxpayer did not estimate the information.
h If the taxpayer contacted the IRS for instructions on what to do about missing
h If the taxpayer promptly complied once the missing information was received.
h 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 that 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
A. When and how the taxpayer became aware of the mistake.
B. The extent to which the taxpayer corrected the mistake.
C. The relationship between the taxpayer and the subordinate (if the taxpayer delegated
D. If the taxpayer took timely steps to correct the failure after it was discovered.
E. 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.
A. Is the taxpayer claiming he or she did not comply due to specific advice he or she
received from someone, whether orally or in writing, or
B. Is the taxpayer claiming he or she relied on someone else to comply on his or her
2. Certain sections of the IRC and treasury regulations provide relief from certain penalties based
on erroneous advice. See IRM 22.214.171.124.3.4, Advice, to first determine if a statutory exception or
administrative waiver applies.
3. If the taxpayer states he or she relied on written or oral advice from the IRS but does not qualify
for relief in accordance with the criteria in IRM 126.96.36.199.3.4.1, Written Advice From the IRS, or
IRM 188.8.131.52.3.4.2, Oral Advice From the IRS, refer to IRM 184.108.40.206.2.2, Ordinary Business Care
and Prudence, to determine if the taxpayer exercised ordinary business care and prudence in
relying on the IRS's advice.
4. The taxpayer may try to establish reasonable cause by claiming he or she relied on another party
to comply on his or her behalf or that another party provided erroneous advice. Generally, this
is not a basis for reasonable cause, particularly for filing or paying obligations, since the
taxpayer is responsible for meeting his or her tax obligations and that responsibility cannot be
delegated. However, other factors to consider include:
A. Was the taxpayer unable to comply because he or she did not have access to his or her
own records? See IRM 220.127.116.11.2.2.3, Unable to Obtain Records.
B. Was the failure to comply due to a change in the tax law the taxpayer could not
reasonably be expected to know? See IRM 18.104.22.168.2.2.6, Ignorance of the Law.
5. Consider all facts and circumstances presented by the taxpayer to determine if, despite the
exercise of ordinary business care and prudence, the taxpayer nevertheless was unable to
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 22.214.171.124.2.2, Ordinary Business Care and
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:
A. The taxpayer’s education.
B. If the taxpayer has previously been subject to the tax.
C. If the taxpayer has been penalized before.
D. If there were recent changes in the tax forms or law which a taxpayer could not
reasonably be expected to know.
E. The level of complexity of a tax or compliance issue.
3. Reasonable cause should never be presumed, even in cases where ignorance of the law is
4. The taxpayer may have reasonable cause for noncompliance due to ignorance of the law if the
following are true:
A. A reasonable and good faith effort was made to comply with the law, or
B. The taxpayer was unaware of a requirement and could not reasonably be expected to
know of the requirement.
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 126.96.36.199.2.2, Ordinary Business Care and Prudence.
2. If the taxpayer claims forgetfulness or an oversight by another party, consider the following:
A. Relying on another person to perform a required act is generally not sufficient for
establishing reasonable cause.
B. It is the taxpayer’s responsibility to file a timely return and to make timely deposits or
payments. This responsibility cannot be delegated.
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:
Legal Reference Title IRM Reference
IRC 6654(e)(1), (2), or (3) Estimated Tax Penalties (ES) IRM 20.1.3
IRC 7502(a) and IRC
7502(e) (IRC 7502(e))
does not apply to
deposits due after Dec.
Timely Mailing Treated as Timely Filing
IRM 20.1.2 and IRM 20.1.4
IRC 6724(a) or IRC
Waiver; Definitions and Special Rules,
Information Return Penalties
Abatement of Any Penalty or Addition
to Tax Attributable to Erroneous
Written Advice by the Internal
Time for Performing Certain Acts
Postponed by Reason of Service in
Combat Zone. This provision applies
only in a presidentially declared
IRM 188.8.131.52.2.1, Combat
IRC 7508A and Treas. Reg.
Authority to Postpone Certain
Deadlines by Reason of Federally
Declared Disaster or Terroristic or
IRM 25.16, Disaster Assistance
and Emergency Relief and IRM
184.108.40.206.2.2, Federal Disaster
2. Legislation with retroactive provisions may provide guidance on associated penalties. As a result
of that retroactive provision, the IRS may issue a news release or other guidance with
instructions for the disposition of the related penalties.
3. IRC 6205 provides for an interest‐]free adjustment when an employer underreported and
underpaid certain employment taxes if specific conditions are met by the employer to report
the error and pay the tax due. Prior to Jan. 1, 2009, IRC 6205 and related treasury regulations
were silent in regard to penalties. Consequently, IRS extended an administrative waiver to
certain penalties. See IRM 220.127.116.11.3.2, Administrative Waivers.
A. 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
B. 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 Determination
of Worker Classification (NDWC).
4. Effective Jan. 1, 2009, Treas. Reg. 31.6205–1 and Treas. Reg. 31.6302–1 have been amended for
interest‐]free adjustments. When all conditions have been met for an employer to qualify for an
interest‐]free adjustment, the amount timely paid will be deemed to have been timely deposited
by the employer. In other words, tax deemed to have been timely deposited is not subject to
the failure to deposit (FTD), failure to pay (FTP), and failure to file (FTF) penalties. See IRM
18.104.22.168.6, Adjusted Employer's Federal Tax Return or Claim for Refund, IRM 20.1.2, Failure to
File/Failure to Pay Penalties, and IRM 20.1.4, Failure to Deposit Penalty, for required procedures
and additional information.
A. When all regulatory requirements have been met for the amount paid to be considered
timely deposited by the employer, penalties should not be assessed.
B. 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 he or she met all requirements for an interest‐]free adjustment?
If And Then
The adjustment was input with Transaction
Code (TC) 290, see IRM 22.214.171.124.6, Adjusted
Employer's Federal Tax Return or Claim for
Refund, to determine if reversal of the TC
290 and reassessment with TC 298 is
Manual penalty reversal is
required (Master File will
Use Penalty Reason
Code (PRC) 044.
If And Then
The adjustment was input with TC 298,
IRS asserted the penalty(ies)
Refer to IRM
Correction of Service
IRS asserted the penalty(ies)
Explain the reason
for the penalty(ies)
to the taxpayer.
The taxpayer did not meet all requirements
for an interest‐]free adjustment,
Established he or she was
unable to comply timely due
to reasonable cause, (see
IRM 126.96.36.199.2, Reasonable
Use the appropriate
PRC for penalty
abatement listed in
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.
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.
2. An administrative waiver may be necessary when there is a delay by the IRS in the following:
A. Printing or mailing of forms,
B. Publishing guidance (e.g. writing of Regulations), or
C. Other conditions.
3. IRC 6205 permits adjustments to be made, without interest, to correct underpayments of
employment taxes. The amount of the underpayment must be paid by the time an adjusted
return (e.g., Form 941–X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for
Refund) is filed or interest will begin to accrue from that date.
4. For errors discovered on or after January 1, 2009, see IRM 188.8.131.52.3.1 for penalty information
related to interest‐]free adjustments for employment taxes.
5. For errors discovered prior to Jan. 1, 2009, take the following action to meet the IRS’s
responsibility to provide fair and consistent treatment to taxpayers:
A. 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.
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.
B. The tax adjustment will be represented by a TC 298/308, with an interest computation
C. If one of the previously identified penalties has been assessed and a request for
abatement is received, the abatement will be done as an administrative waiver if the
penalty is based on the TC 298/308 tax increase (provided the tax increase was paid by
the due date of the tax period in which it was ascertained).
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 that an undue hardship must be more than an
inconvenience to the taxpayer. The taxpayer must show that he or she would sustain a
substantial financial loss if required to pay a tax or deficiency on the due date.
A. 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.
B. 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.
2. The extension of time to pay does not provide the taxpayer with an extension of time to file. Nor
does the extension of time to pay relieve the taxpayer of any appropriate penalties. See IRM
184.108.40.206.3.2, Extensions of Time to Pay‐]IRC 6161.
3. Undue hardship may also support relief from the addition to tax for failure to pay tax if the
explanation for the noncompliance supports such a determination. However, the mere inability
to pay does not ordinarily provide the basis for granting penalty relief. Under Treas. Reg.
301.6651–1(c), the taxpayer must also show that he or she exercised ordinary business care and
prudence in providing for the payment of the tax liability.
A. 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.
B. 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.
C. In the case where a taxpayer files bankruptcy, consider inability to pay a factor if the
insolvency occurred before the tax payment due date.
4. If payroll was met, taxes were withheld and should be available for deposit. Employers must
reserve money withheld from employees’ wages in trust until deposited. The employer should
not use the money for any other purpose. Undue hardship does not support relief from the
penalty under IRC 6672, Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax
(Trust Fund Recovery Program).
5. Information to consider when evaluating a request for penalty relief includes, but is not limited
to, the following:
A. When did the taxpayer know he or she could not pay?
B. Why was the taxpayer unable to pay?
C. Did the taxpayer explore other means to secure the necessary funds?
D. What did the taxpayer supply in the way of supporting documentation, such as copies of
E. Did the taxpayer pay when the funds became available?
6. Use the appropriate PRC if penalty relief is warranted. See Exhibit 20.1.1‐]2.
1. This section discusses the following three basic types of advice that may qualify for statutory,
regulatory, or administrative penalty relief:
A. Written advice provided by IRS
B. Oral advice provided by IRS
C. Advice provided by a tax professional
2. Information to consider when evaluating a request for abatement or non‐]assertion of a penalty
due to reliance on advice includes, but is not limited to, the following:
A. Was the advice in response to a specific request and was the advice received related to
the facts contained in that request?
B. Did the taxpayer reasonably rely on the advice?
3. The following instances address some situations where penalty relief may not be appropriate
even though the taxpayer relied on written advice from the IRS regarding an item on a filed
A. 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.
A taxpayer may be considered to have reasonably relied on advice received after the return was filed if
he or she then filed an amended return that conformed with such written advice.
B. A taxpayer may not be considered to have reasonably relied on written advice
unrelated to an item included on a return, such as advice on the payment of estimated
taxes, if the advice is received after the estimated tax payment was due.
C. If the taxpayer, or his or her authorized representative, provided the IRS or the tax
professional with adequate and accurate information, the taxpayer is entitled to penalty
relief for the period during which he or she relied on the advice. The period continues
until the taxpayer is placed on notice that the advice is no longer correct or no longer
represents the IRS’s position.
4. The taxpayer is placed on notice as the result of any of the following events that present a
contrary position and occur after the issuance of the written advice:
A. Written correspondence from the IRS that its advice is no longer correct or no longer
represents the IRS’s position.
B. Enactment of legislation or ratification of a tax treaty.
C. A U.S. Supreme Court decision.
D. The issuance of temporary or final regulations.
E. The publication of a revenue ruling, revenue procedure, or other statement in the
Internal Revenue Bulletin (IRB).
5. Generally, Form 843, Claim for Refund and Request for Abatement, is required to be filed to
request penalty abatement based on erroneous written advice by the IRS. However, if Form 843
is not filed and the information provided demonstrates that abatement of the penalty is
warranted, the penalty should be abated, whether or not a Form 843 is provided. Information
required to be provided includes the following:
A. The taxpayer's written request for advice,
B. The erroneous written advice furnished by the IRS to the taxpayer and relied on by the
C. The report (if any) of tax adjustments that identifies the penalty or addition to tax and
the item relating to the erroneous written advice.
More Internal Revenue Manual