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20.1.1.1
(02-22-2008)
Overview
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This section discusses the new chapter format of the Penalty IRM 20.1.
It also includes the:
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Purpose of penalties,
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Criteria for penalty relief,
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Methods of appealing penalties,
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Master file Indicators, and
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Administrative Procedures
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The 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.
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The penalty handbook provides guidance to all areas of the IRS for all
penalties imposed by the Internal Revenue Code (IRC). It sets forth procedures
both for assessing and abating penalties, and contains discussions on topics
such as various types of relief from the penalties.
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IRM 20.1 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 Servicewide Penalties group
prior to distribution, and must remain consistent with:
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The procedures set forth in this IRM, and
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The philosophy of the penalty policy statement.
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See Exhibit 20.1.1-7. for the
Table of Abbreviations and Acronyms, and See
Exhibit 20.1.1-8. for the Dictionary of Key Terms.
20.1.1.1.1
(02-22-2008)
Background
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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.
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In November 1987, the Commissioner established a task force to study
civil penalties, and 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, accuracy of information), and made recommendations where warranted
to resolve the inconsistencies. Those recommendations were, in part, that
the IRS should:
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Develop and adopt a single penalty policy statement emphasizing that civil
tax penalties exist for the purpose of encouraging voluntary compliance,
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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,
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Revise existing training programs to ensure consistent administration
of penalties in all functions for the purpose of encouraging voluntary compliance,
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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,
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Finalize its review and analysis of the quality and clarity of machine-generated
letters and notices used in various areas within the IRS,
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Consider ways to develop better information concerning the administration
and effects of penalties, and
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Develop a Master File database to provide statistical information regarding
the administration of penalties. That information would be continuously reviewed
for the purpose of suggesting changes in compliance programs, educational
programs, penalty design and penalty administration.
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In keeping with the Commissioner’s Executive Task Force Report
and Congressional recommendations, the consolidated penalty IRM was developed.
20.1.1.1.2
(02-22-2008)
Organization of IRM 20.1
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This handbook is arranged in a user-friendly format. The chapters follow
the logical sequence of events when working a penalty case. Appropriate headings
are provided that describe the text that follows.
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The handbook is designed for use both as an everyday reference guide
and as a training document. Figures and examples are included in the text
where they are most useful. Figures that are referenced frequently throughout
the text are included as chapter exhibits to conserve space.
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The handbook contains criteria, guidelines, and procedures for asserting,
not asserting, and abating penalties. Chapters are included covering the penalty
policy statement and philosophy, the application of reasonable cause, and
the procedures for penalty appeals. The sections in IRM 20.1 are:
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This section contains Exhibits to assist the user in researching penalty
issues:
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See Exhibit 20.1.1-1., Penalty
Policy Statement
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See Exhibit 20.1.1-2., Penalty
Relief Application Chart
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See Exhibit 20.1.1-3., Penalty
Reason Code Chart
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See Exhibit 20.1.1-4., Penalty
Transaction Codes
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See Exhibit 20.1.1-5., Penalty
Reference Numbers — 500 Series
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See Exhibit 20.1.1-6., Penalty
Reference Numbers — 600 Series
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See Exhibit 20.1.1-7., Table of
Abbreviations and Acronyms
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See Exhibit 20.1.1-8., Dictionary
of Key Terms.
20.1.1.1.2.1
(02-22-2008)
Requesting Changes and Updating IRM 20.1
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The Servicewide Penalties group has overall responsibility for coordinating
and approving any update to IRM 20.1. Servicewide Penalties' role is to ensure
consistency in penalty administration.
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IRM 1.11.2.13 provides instructions for recommending changes to an IRM,
including IRM 20.1. When changes to a specific section of IRM 20.1 are recommended,
the appropriate IRM author is responsible for reviewing the recommended changes.
This responsibility includes:
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Initially determining the need for an amendment of, or announcement calling
attention to, provisions in IRM 20.1.
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Deciding whether a revision will be in the form of a Manual Transmittal
for a direct and immediate update to the Manual or a Manual Supplement prescribing
procedures for a temporary implementation period before inclusion in the handbook
(direct amendment by Manual Transmittal is preferable).
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Ensuring accuracy and completeness of any revision and providing a statement
regarding the effect on functional documents and other provisions of the handbook.
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Ensuring revisions and announcements conform with the style and format
of the IRM.
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Coordinating proposed revisions and announcements with other units within
a function, other functions as appropriate, and other analysts in Servicewide
Penalties.
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Prior to implementing these changes, obtaining approval from the Servicewide
Penalties Program Manager and the Director, Exam Policy, SB/SE.
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If special instructions are issued "in an emergency situation
"
, see text of Internal Management Document System Handbook ( IRM 1.11.1). A copy of the document must also be furnished
to the Servicewide Penalties group within 30 days of issuing the special instructions.
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All areas must forward the requested change, in writing, to Servicewide
Penalties, and Servicewide Penalties will coordinate the requested change
through the document clearance process. Corrections and updates will be verified,
as appropriate, before they are incorporated into IRM 20.1, in accordance
with established procedures (clearance/review).
20.1.1.1.3
(02-22-2008)
Responsibility
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Overall responsibility for penalty programs is assigned to the Servicewide
Penalties group. Servicewide Penalties is a matrix organization residing in
Exam Policy (Small Business/Self Employed) Division. Servicewide Penalties
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 taxpayer attitudes
and opinions, and determining appropriate action necessary to promote voluntary
compliance.
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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.
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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 (Action
61 cases) and correct disposition of penalty cases and encourages consistent
administration of penalties. See IRM 21.3.3.4.2for
Action 61 requirements and guidelines.
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All employees should keep the following objectives in mind when handling
each penalty case:
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Similar cases and similarly-situated taxpayers should be treated alike.
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Each taxpayer should have the opportunity to have their interests heard
and considered.
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Strive to make a good decision in the first instance. A wrong decision,
even though eventually corrected, has a negative impact on voluntary compliance.
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Provide adequate opportunity for incorrect decisions to be corrected.
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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).
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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.
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Endeavor to promptly process and resolve each taxpayer’s case.
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Resolve each penalty case in a manner which promotes voluntary compliance.
20.1.1.1.4
(02-22-2008)
Security Standards
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Service officials and managers must communicate security standards contained
in the Manager’s Security Handbook ( IRM 1.4.6
) to subordinate employees and establish methods to enforce them.
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Employees are responsible for taking required precautions to provide
security for the documents, information, and property which they handle in
performing official duties.
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Employees using 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 10.81provides
the authority and standards for Information Technology security.
20.1.1.1.5
(02-22-2008)
Taxpayer Advocate Service (TAS) Guidelines
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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 an appropriate response to an inquiry. The purpose of TAS
is to give taxpayers someone to speak for them within the IRS—an advocate.
TAS guarantees that taxpayers will have someone to make sure their rights
are protected, 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 concerning problems related to Federal taxes meet TAS criteria.
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The purpose of the criteria is to ensure that problems and complaints
which have not been handled properly through normal channels are included
in TAS. See IRM 13.1,Taxpayer
Advocate Case Procedures.
20.1.1.1.6
(02-22-2008)
Form 911 - Request for Taxpayer Advocate Service Assistance
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Form 911, Request for Taxpayer Advocate
Service Assistance (and Application for a Taxpayer Assistance Order (ATAO))
may be initiated by an IRS employee on behalf of the taxpayer to request review
of an account if:
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The taxpayer is experiencing or about to experience a "
significant hardship"
; and
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The non-TAS employee dealing with the problem cannot or will not relieve
that hardship immediately.
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See IRM 13.1.7.8 for additional information.
Note:
The ATAO procedure will not result in forgiveness of a valid tax liability.
It only delays enforcement action, if appropriate.
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