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Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 4. Failure to Deposit Penalty (Cont. 2)

20.1.4  Failure to Deposit Penalty (Cont. 2)

20.1.4.11 
Overview of Manual (Restricted TC 180/181) and Systemic (Computer Generated TC 186/187)

20.1.4.11.4 
Issuing FTD Penalty Proposals—Letter 313C

20.1.4.11.4.1  (10-26-2007)
Replies to Letters

  1. Associate the taxpayer’s reply with the suspense copy. If not located, the case may have been processed as a "No Reply" .

  2. If taxpayer provides a completed Record of Federal Tax (ROFT) liability schedule.

    1. Recompute the penalty.

    2. Assess or adjust the penalty, if required.

    3. Send CP 568 or appropriate correspondex letter to inform the taxpayer of the correct penalty amount, the reason for the adjustment and the correct balance due.

  3. Taxpayer provides an unacceptable ROFT or other correspondence.

    1. Contact the taxpayer to explain why the information provided by the taxpayer is unacceptable.

    2. Include the appropriate Schedule of Tax Liability. Highlight pertinent areas if it would help the taxpayer.

    3. Advise the taxpayer that if we do not receive acceptable information within 20 days, the proposed penalty amount will be assessed.

    4. Suspend the case for 30 days.

20.1.4.11.4.2  (10-26-2007)
No Response Cases

  1. If the taxpayer does not reply within the suspense period, research IDRS for an open DUPF control base, or to see if a duplicate/amended (TC 976) filing condition is present. (TC 976 usually generates CP193/293).

    1. A taxpayer may re-submit a tax return with the completed ROFT information rather than providing the Schedule of Tax Liability that was sent with the Letter313C.

    2. If a duplicate filing condition is present, refer to Business Tax Returns and Non-Master File Accounts guidelines (See IRM 21.7.9.4, Duplicate Filing Conditions Procedures) for working multiple issues.

  2. For no response cases, assess the averaged penalty.

20.1.4.11.4.3  (10-26-2007)
15 Percent 4th Tier Penalty

  1. Under the four tier penalty system, the 15 percent penalty rate is applied to the balance due (tax only) that remains unpaid after notice and demand for the FTD penalty (e.g., 23–C date plus 10 days). The fourth tier is not systemically marked or assessed, if the FTD penalty (systemic TC 186) was not previously assessed. See LEM20.1.4.11.7.1.

  2. When assessing an FTD Penalty as a result of a Letter313C and there is unpaid tax on the module the 15 percent tier penalty may be applicable. Assess the FTD penalty using:

    1. Blocking series 000–099 to indicate a refile DLN (original return or mag tape facsimile is available), or

    2. Blocking series 150–159 to indicate a non-refile DLN.

  3. Suspend or otherwise monitor the module for 5 cycles. If payment of the outstanding tax has not been received within 10 days of the 23-C date of TC 180:

    1. Multiply the unpaid tax amount by 5 percent (total penalty is limited to 15 percent, of which 10 percent has already been assessed),

    2. input TC 180 for the result of above amount,

    3. use the same PCC as in the original assessment/adjustment.

    4. Use blocking series 000–099 to indicate a refile DLN (original return or mag tape facsimile is available), or

    5. Use blocking series 150–159 to indicate a non-refile DLN.

    6. See LEM20.1.4.11.7.1.

  4. When assessing an FTD Penalty as a result of a Letter313C and the 15 percent tier penalty is not applicable, (e.g., when the tax is full paid)

    1. Use blocking series 130–139 to indicate a refile DLN (original return or mag tape facsimile is available), or

    2. use blocking series 140–149 to indicate a non-refile DLN.

    3. Use of blocking series 130/149 will prevent the issuance of CP294 which indicates that the 15 percent rate may be applicable.

20.1.4.11.5  (10-26-2007)
CP 207/207L Notices

  1. Master File generates CP 207/207L notices, in an effort to secure a valid ROFT, for Form941, 940, 943, 944 945, and 1042 filers when:

    1. The ROFT section of the return was incomplete/illegible, or

    2. The total tax liability did not equal the net taxes. See LEM20.1.4.11.5.

      Note:

      CP 207L indicates that the averaged penalty amount is $100,000 or more. The "L" signifies "Large" dollar amount and the notices are reviewed by the Ogden or Cincinnati LCTU prior to mail out.

  2. A negative entry will invalidate the ROFT, even if the total tax liability reported on the ROFT equals the net taxes.

    1. It is especially important to contact the taxpayer if this is the situation, so they will understand that their ROFT was rejected due a negative entry and that it is impossible to have a negative liability—an adjustment may reduce subsequent liability(ies) to zero, but never below.

    2. Therefore, if a prior period tax adjustment results in a decrease in a tax liability, the taxpayer is to reduce the liability for the same day that the error was discovered and by the amount of the tax decrease resulting from the error, but not below zero. Any remaining decrease should be applied to subsequent liabilities on the schedule.

  3. Exception: For tax periods prior to January 1, 2006, accounts with a balance due, credit balance, or math error are notissued CP 207/207L. Master File assesses the FTD Penalty instead, with penalty Computation Code 11 (TC 186, PCC 11), and issues the first notice.

  4. Master File generates the proposed penalty taxpayer notice ( CP 207/207L) and "holds" the FTD Penalty assessment action for 15 cycles (weeks).

  5. If there is no reply to a CP 207/207L or if the reply is not resolved and input by the 13th cycle(week) after issuance of the CP 207/207L, Master File will systemically assess an averaged penalty (TC186).

  6. Blocking series 140-149 is used for CP 207/207L processing and it denotes a non-refile DLN. However, if the original return is available, input the adjustment in blocking series 130-139, which denotes a refile DLN.

  7. Contact the taxpayer for additional information if there is enough time to receive the information and input the resulting adjustment by the 13th week after generation of CP 207/207L.

20.1.4.11.5.1  (10-26-2007)
Replies to Notices

  1. CP 207/207L penalty adjustments must be input by the 13th cycle after generation of the notice to allow time for posting of the adjustment before the automatic 15 cycle (week) hold expires.

  2. If the taxpayer provides a completed Record of Federal Tax (ROFT) liability schedule:

    • Compute the penalty based on the taxpayer’s figures.

    • If no penalty applies input a TC 180.00 with PRC 010 in the 4th position, to prevent the systemic assessment of the averaged penalty, and send an explanation to the taxpayer.

    • If a penalty applies, assess the penalty with the appropriate 1st position PCC, and send an explanation to the taxpayer.

      Note:

      See IRM 20.1.4.11.2.2 for a list of the valid PCC codes.

  3. Taxpayer provides an unacceptable ROFT, payment without ROFT, and/or other correspondence.

    1. Contact the taxpayer for additional information if there is enough time to receive the information and input the resulting adjustment by the 13th week after generation of CP 207/207L.

    2. If the 13th week after the generation of CP 207/207L has expired, allow the computer to assess the averaged penalty.

    3. Return the unacceptable ROFT or other correspondence to the taxpayer and explain why the information is unacceptable.

    4. Include a new ROFT. Highlight pertinent areas if it would help the taxpayer.

    5. Inform the taxpayer that a penalty adjustment notice will be issued and to submit the necessary information, as soon as possible, for reconsideration of the penalty.

  4. Taxpayer requests reasonable cause with or without providing a liability schedule.

    1. Follow procedures for processing reasonable cause requests.

    2. If additional information for a reasonable cause determination is needed, proceed as follows: Send Letter1382C for additional information, if there is enough time to receive the reply and input the resulting adjustment by the 13th week after generation of CP 207/207L. If there is not enough time to prevent systemic assessment of the penalty, inform the taxpayer that a penalty adjustment notice will be issued and to submit the necessary information, as soon as possible, for reconsideration of the penalty.

    3. Before considering or denying reasonable cause, recalculate the penalty using the corrected ROFT the taxpayer provided to determine if a penalty is in fact due.

    4. If the recalculation results in a penalty due, then follow the reasonable cause procedures. See IRM 20.1.1, Reasonable Cause, and Exhibit 20.1.1-3, Penalty Abatement/Assertion Reason Code Chart.

    5. If the taxpayer did not provide an acceptable ROFT, reasonable cause cannot be considered or denied, follow procedures in (3) above.

  5. Taxpayer submits Form 941c or amended return to reduce the tax. In situations where the CP207 was generated because the ROFT did not mathematically agree with the TC 150, the taxpayer may reply with an adjustment to decrease the assessed tax. (This usually occurs with Form941c or an amended return.)

  6. Review the validity of the tax decrease per customer service procedures. If the adjustment is allowable, consider the FTD penalty issue on the revised tax. Determine if new tax and ROFT figures now agree.

    1. If so, compute FTD penalty based on the ROFT information. Input TC 180 .00 or assess the penalty, as appropriate.

    2. If not, contact the taxpayer for a new ROFT, if time permits. If time does not permit, average the new tax, assess the penalty and inform the taxpayer to submit a new ROFT after notification of the averaged penalty assessment is received.

  7. If a tax decrease will not be input by the 13th week following CP207/207L generation, follow the procedures below.

    1. If a tax decrease is being delayed, input TC 180 .00 to prevent automatic generation of the averaged penalty. Input the appropriate penalty adjustment when the TC 291 is input.

    2. If the adjustment is being disallowed, inform the taxpayer of the disallowance and the need to submit a revised ROFT after he/she receives notification of the averaged penalty assessment.

20.1.4.11.5.2  (10-26-2007)
Late Replies to Notices

  1. If the taxpayer provides the corrected ROFT information after the 13th cycle (week) but before automatic assessment (15th cycle), compute the correct penalty to determine if it differs from the proposed averaged penalty. See LEM20.1.4.11.5.2 if the correct penalty differs from the proposed penalty.

  2. Inform the taxpayer that we did not receive the reply in time to prevent the penalty from being automatically assessed and that we will adjust the account and issue a corrected notice.

  3. Suspend the case until the TC 186 posts and then input the appropriate TC 18X, or

  4. If the reply is received after Master File automatically assesses the penalty (TC186), the reply should be treated as any other reply to an assessed penalty notice. Adjust the penalty as appropriate using:

    1. Blocking series 000-049 when the original tax return is part of the source document, or

    2. Blocking series 150-179 when the original tax return is not available.

20.1.4.11.6  (10-26-2007)
CP 276A and CP 276B (Notification of FTD Penalty Waiver)

  1. See LEM 20.1.4.11.6

20.1.4.11.7  (10-26-2007)
CP 294 (Possible 15% FTD Penalty)

  1. Under the four tier penalty system, the 15 percent penalty rate is applied to the balance due (tax only) that remains unpaid after notice and demand for the FTD penalty (e.g., 23–C date plus 10 days). The fourth tier is not systemically marked or assessed, if the FTD penalty (systemic TC 186) was not previously assessed. See LEM20.1.4.11.7.1.

  2. At the time of the systemic (TC 186) FTD penalty assessment (computed at the time of the TC 150 posting), Master File:

    • Identifies modules with tax owing

    • sets a deferred action code (DA) that expires in five cycles

    • marks the FTD penalty (TC186) as a potential 15 percent with a Penalty Indicator Code (PIC) 001, and

    • generates a CP 294 when conditions are met in item (3) (b) below.

  3. After expiration of the 5 cycle DA, Master File reanalyzes the account.

    1. If payment of the outstanding tax has not been received within 10 days of the 23-C date of TC 186, Master File will generate a second TC 186 marked with a PIC 002 for the fourth tier amount, and generate the appropriate taxpayer notice.

    2. However, if a TC 180/181 (in other than the 130/140 blocking series) posts before the five cycle delay expires, a CP 294will be issued instead, requiring a manual review of the potential fourth tier penalty assessment.

  4. If the initial penalty is assessed (TC 180) manually, Master File cannot review, recompute or set the potential fourth tier PIC 001, or flag for the issuance of the CP 294 as outlined in item number (3) b) above.

  5. When adjusting an account where the additional fourth tier penalty may apply, and the systemic review of the 4th tier penalty is restricted at Master File, suspend or otherwise monitor for the appropriate number of cycles (generally 5 cycles). Manually assess the fourth tier penalty amount or close the case as appropriate.

20.1.4.11.7.1  (10-26-2007)
Processing CP 294 Notices (Possible 15% FTD Penalty)

  1. Upon receipt of CP 294, the Campus takes the following actions:

    1. Review available account information. Determine net unpaid tax as of the 23–C date plus 10 days. Consider only posted credits to determine net unpaid tax. Suspend an account until any pending or unpostable credits are resolved.

    2. See LEM20.1.4.11.7.1.

  2. When the net unpaid tax is determined:

    1. Multiply this amount by 5 percent (total penalty is limited to 15 percent, of which 10 percent has already been assessed),

    2. input TC 180 for the result of above amount,

    3. use the same PCC as in the original assessment/adjustment.

    4. use blocking series 130/139 when adjusting CP294 with original return or mag tape facsimile, or,

    5. use blocking series 140/149 when adjusting CP294 without original return.

    6. See LEM20.1.4.11.7.1.

  3. Master File generates the appropriate taxpayer notice.

20.1.4.11.8  (10-26-2007)
Taxpayer Responses

  1. Be sure that you are familiar with the CAUTION and instructions shown below. See IRM 20.1.4.12.1 before attempting to respond to any taxpayer requests for adjustment or explanation of their account.

20.1.4.11.8.1  (10-26-2007)
Payment Information

  1. If the taxpayer claims the Service did not properly credit the account,

    1. review the cancelled check, bank data, or other information the taxpayer provided about the payment.

    2. Determine if the payment posted correctly to the account.

  2. If the deposit is not on the account, follow the functional procedures for tracing the payments.

  3. Proof of payment for EFTPS. See Rev. Proc. 97–33.

    1. For an Automated Clearing House (ACH) debit or credit entry, a statement prepared by the taxpayer’s financial institution showing a transfer (that is, a decrease to the taxpayer’s account balance) will be accepted as proof of payment if the statement: shows the amount and the date of the transfer; and identifies the US Government as the payee.

    2. For an ETA same-day payment, taxpayers may request that their financial institution obtain a statement from the FRB that executed the transfer. This statement will be accepted as proof of payment if the statement: shows the amount and the date of the transfer; and identifies the US Government as the payee.

    3. For purposes of this section, statements prepared by a financial institution include statements prepared by a third party that is contractually obligated to prepare statements for the financial
      institution.

  4. If the payment has posted to the correct account after Master File generated the original penalty (TC 186), an automatic recomputation of the penalty occurs. Notify the taxpayer that the payment has been properly applied or that the payment was properly credited.

  5. If the payment posted to the correct account, after a manually assessed penalty (TC 180), recompute the penalty using the latest payment information.

  6. If a payment posted after the 15 percent rate is in effect, it may not be necessary to recompute the penalty.

  7. If the payment posted, but the transaction date does not agree with the information provided. See IRM 20.1.4.14.

  8. See IRM 20.1.4.2.6 for information regarding the application of payments

20.1.4.11.8.2  (10-26-2007)
Revised Record of Federal Tax Liability (ROFT) Provided

  1. Taxpayers may submit revised ROFT liability breakdown information. It is possible for a change in the liability information to have no effect on the previous tax but could result in a penalty change only. Therefore, the ROFT area must be considered before a "True Dup" determination can be made. Anytime the taxpayer changes ANY information or lines on the ROFT, a penalty computation is required (even if no penalty was originally assessed) to determine the applicable FTD penalty.

  2. A revised ROFT received may be a reply to CP207/207L or Letter313C.

    1. Check TXMOD to determine if Master File issued a CP 207/207L.

    2. Check ENMOD/TXMOD to see if a Campus issued Letter313C.

    3. If either was issued and the penalty has not been assessed, coordinate with the FTD Penalty Function.

    4. If neither CP 207/207L nor Letter313C was issued, follow instructions in (3) and (4) below.

      Note:

      The CP 207/207L notice history may drop from the TIF before the CP 207/207L reply is received and processed, or before the average penalty is systemically assessed 15 cycles later. Therefore, the notice history section cannot always be used to determine if the CP 207/207L systemic averaged penalty assessment is outstanding. The best way to identify if a CP 207/207L was issued is to check the tax module for a Schedule Indicator Code (SIC) of either "1" or "7" . A SIC of "1" or "7" indicates that Master File computed the penalty by averaging the tax and generated a CP 207/207L notice (Proposed Averaged Penalty) to the taxpayer in the cycle of the TC 150.

  3. Since taxpayers file their returns under "penalty of perjury" , taxpayer requests to revise or add return information must be resolved appropriately. Oral requests to change the dates or liability amounts on the ROFT are NOT accepted.

  4. Upon receipt of a legible, complete (no negative amounts) liability schedule, recompute the penalty using the new ROFT information, unless the tax liability is within the de minimis amount to deposit. See IRM 20.1.4.2.2.1 and LEM 20.1.4.4.1.

  5. If the revised ROFT is not legible, not complete, or has negative amounts, attempt to resolve the discrepancy by telephone contact with the taxpayer or authorized representative.

  6. If the information in the new ROFT requires a penalty recalculation, input the penalty update.

    Caution:

    See LEM 20.1.4.11.8.2.

  7. If the recomputed penalty does not require a penalty adjustment, then input a TC 180 for .00 with PRC 010 (even if there was no previous posted TC 18X) to indicate that no penalty was due per the revised ROFT.

  8. Remember to attach the penalty computation to your adjustment doc.

20.1.4.11.8.3  (10-26-2007)
Amended or Supplemental Return

  1. Anytime the taxpayer changes ANY information or lines on the ROFT, a penalty computation is required (even if no penalty was originally assessed) to determine the applicable FTD penalty.

  2. When the taxpayer files an Amended return and ROFT that results in a tax adjustment, recompute and update the penalty using the new tax information and new ROFT. Assumption, Amended return and ROFT are correct.

  3. If the taxpayer files a Supplemental (additional) return and ROFT that results in a supplemental tax increase, recompute and update the penalty using the new combined liability amounts from the original ROFT and from the supplemental ROFT. Assumption, Supplemental return and ROFT are correct.

  4. See IRM 20.1.4.2.2.1for de minimis exception (no ROFT required) and LEM 20.1.4.4.1.

  5. When recalculating the FTD penalty on a related tax adjustment (TC) 290/291/300/301, input a corresponding FTD penalty transaction (TC 18X) as follows:

    1. If the recalculation results in a penalty adjustment, then input the appropriate TC 180/181, to assess or abate the penalty.

      Caution:

      See LEM 20.1.4.11.8.3.

    2. If the recalculation results in NO penalty adjustment , then input a TC 180 .00, to denote a penalty no change per the required penalty recalculation.

      Note:

      See IRM 20.1.4.12.1(9) on the use of reason codes.

  6. The adjustment will generate a new first notice ( CP) 210/220.

  7. At the expiration of the five cycles (following the input of the tax increase) reanalyze the account, if the taxpayer has not paid the full amount of the tax assessed within 10 days of the 23c date of the new first notice that IRS sent asking for payment of the additional tax due, the fourth tier of the FTD penalty applies. Assess (TC 180) an amount equal to 5% of the unpaid tax (the amount of the tax increase) and close the case.

  8.  DO NOT assess the FTD Penalty if there is a reasonable cause indicator on the account, as follows:

    • Computer Condition Code (CCC) "J" in the return record, or

    • Transaction Code (TC) 181/180 with RC 62 or a Penalty Reason Code (PRC).

  9. Revised ROFT not provided or is invalid on a tax increase.

    1. Attempt to resolve the discrepancy by telephone contact with the taxpayer or authorized representative. See IRM 20.1.4.15.1.

    2. If the discrepancy in the ROFT cannot be resolved by telephone contact, and the tax is being increased, use averaging and assess the penalty using PCC 011. A blank ROFT and Notice 746are included with the adjustment notice whenever a PCC 011 is indicated.

  10. Revised ROFT not provided or is invalid on a partial tax decrease.

    If And Then ...
    the tax is being partially decreased... no penalty is present no penalty recalculation or penalty adjustment is necessary.
    the tax is being partially decreased on a module with an FTD penalty that was previously charged on the higher tax, the partial tax decrease (with no penalty decrease) could result in the module having a penalty higher than 10% of the net tax liability.
    1.  If this situation would exist, input a partial penalty abatement to adjust the net penalty amount equal to 10% of the net tax liability.
    2.  If this situation would not exist, advise the taxpayer to submit a revised ROFT for a possible reduction of the FTD Penalty.

    Exception:

    If the tax is being partially decreased on a module with a 4th tier 15% FTD penalty that was previously charged on the higher tax, the partial tax decrease (with no penalty decrease) could result in the module having a combined penalty higher than 10% of the net tax liability and 5% of any remaining unpaid tax. If this situation would exist, input a partial penalty abatement to adjust the net penalty to equal 10% of the net tax liability and 5% of the decreased tax liability that was not deposited after the 10th day following the first balance due notice or the day on which notice and demand for immediate payment is given.

  11. The above instructions apply also to amended returns received from IRCsection 6020(b) or jeopardy assessments (Doc. Code 51).

20.1.4.11.8.4  (10-26-2007)
Form 941c Supporting Statement To Correct Information

  1. Another common form of adjustment is Form 941c, Statement to Correct information. FTD penalty may or may not be applicable on these adjustments, depending on the circumstances and the applicable transaction codes.

    1. If TC 290/291 is input, follow instructions in IRM 20.1.4.12.8.3 above.

    2. If TC 298 is input, no adjustment/assessment of FTD penalty should be made. See IRM 21.7.2.4.18.3.1.

20.1.4.11.9  (10-26-2007)
CAWR and FUTA

  1. Combined Annual Wage Reporting (CAWR) and Federal Unemployment Tax Adjustment (FUTA) cases are internally initiated adjustment cases. These Form 941 and 940 subsequent adjustment cases are worked similarly to amended returns for the respective forms.

  2. The FTD penalty may be assessed whether or not the adjustment is interest free. The Internal Revenue Code provides relief from interest under Section 6205, but not from the FTD penalty.

  3. See IRM 20.1.7 Information Returns, for CAWR Information Return Penalties.

20.1.4.11.9.1  (10-26-2007)
Computation of the FTD Penalty (CAWR and FUTA Notices)

  1. If a taxpayer responds to a CAWR or FUTA notice and agrees with the increase to their taxable amount, or does not respond and we increase the taxable amount based on our information, assess the tax increase as well as an FTD penalty at 10 percent of the TC 290 amount using PCC 018 , and normal penalty considerations and adjustment procedures.

  2. Because the assessment results from reconciliations with SSA or information from individual states, a revised ROFT is not applicable. Even if submitted, the revised ROFT would have no penalty impact.

  3. The account will then be subject to normal procedures for monitoringfor the possible assessment of the additional 5 percent fourth tier amount.

  4. At the expiration of the five cycles, if the taxpayer has not paid the full amount of the tax assessed in (1) above within 10 days of the 23c date of the TC 290, the fourth tier of the FTD penalty applies. Assess (TC 180) an amount equal to 5% of the unpaid tax (the amount of the tax increase) and close the case.

  5. If the additional 5-percent FTD penalty was assessed on a no reply or agreed CAWR/FUTA assessment and that tax increase is later reversed, the total FTD penalty (15-percent) related to the tax assessment would be abated.

  6. If the adjustment is for a tax decrease, check the account for a prior TC 186 assessment. If the account has a prior TC 186 or TC 180, input the TC 181 for 10 percent of the TC 291. The TC 181 cannot exceed the amount of previously assessed TC 18X.

20.1.4.12  (10-26-2007)
Master File Assessments and Recomputations

  1. Initial Systemic FTD Penalty Calculation in the TC 150 Return Posting Cycle —The Record of Tax Liability (ROFT) information is processed as part of the TC 150 return and uploads to Master File in the cycle of the return (TC 150) posting and the penalty is systemically calculated if the ROFT is valid.

  2. Credit Transfers on a Module not Restricted (no TC 180/181) —After the systemic FTD penalty is initially calculated, Master File will recalculate the FTD penalty when credits are transferred in or out of an unrestricted (no TC 180/181) module, using the original (TC 150) ROFT information and updated payment information.

    Caution:

    Therefore, when credits are transferred out (updated) and a partial tax decrease (TC 291) is processed (even if there was no FTD penalty charged on the full TC 150 tax amount) the penalty must be manually recalculated and the module restricted to stop Master File from systemically recalculating the penalty using the updated payment information, and incorrect original (higher) ROFT amounts.

  3. Credit Transfers on a Restricted Module (TC 180/181) — When transferring credits in or out of a module that is restricted (TC 180/181), the penalty is not systemically recalculated by Master File because neither the original or corrected ROFT information is accessible by Master File.

    Caution:

    The corrected ROFT must be secured and the penalty manually recalculated in situations where the credit transfer could potentially impact the penalty. If it is determined that the penalty must be recalculated, then

    1. attempt to secure a faxed copy of the corrected ROFT from the taxpayer if possible, or

    2. otherwise order the DLN of the source document that caused the restriction (TC 180/181) to obtain the corrected ROFT.

  4. Subsequent Amended/Supplemental Return or Revised ROFT — Master File is ONLY able to compute the FTD penalty on the initial ROFT information supplied with the original return. Therefore, any adjustment to the tax when an amended or supplemental return is filed or when a revised ROFT is submitted requires a manual recalculation and update of the penalty. Assumption: The revised tax return and/or ROFT are correct and the revised tax is not within the de minimis to deposit. See IRM 20.1.4.2.2.1 for de minimis amounts. For ROFT info, see LEM20.1.4.4.1.

  5. Use the information in the new ROFT to recalculate the penalty when warranted. If the information in the new ROFT is used to recalculate the penalty, input the penalty update (along with the TC 29X/30X) using the guidelines, as follows:

    1. If the recalculation requires a penalty adjustment, then input the appropriate TC 180/181 as required, to assess or abate the penalty.

    2. If the recalculation requires NO penalty adjustment , then input the required TC 180 .00, to denote a penalty no change per the penalty recalculation.

    Note:

    See IRM 20.1.4.12.1(9) on the use of reason codes.

20.1.4.12.1  (10-26-2007)
Manual Adjustments

  1. Before adjusting or abating any FTD penalty, you must check for conditions that will prohibit you from taking action on the account.

    Caution:

    These conditions include, but are not limited to:

    1. The case has an open control base to another Campus or Area Office.

    2. The case has a Large Case (LCI) or Coordinated Industry Case (CIC) indicator, or certain freeze conditions.

    3. The control history indicates recent taxpayer contact, pending transactions, or penalty waiver considerations by another area.

  2. Use BMFOLI to determine the account location. If the account is controlled to another area, you must coordinate with that area before adjusting or abating the penalty.

  3. Although computer software is available for calculating penalties, you must still know how the penalty is computed. See the Most Recent Payment Allocation Method in Chapter 7 of Part 21 of the Job Aids located on SERP. The "Most Recent Payment Allocation Method" Job Aid will provide guidance on the method of applying deposits per Rev. Proc. 2001-58.

  4. Command code BMFOL can be used to research FTD liability data before manual computation of FTD penalties. Several screens will be displayed based on the input definer code. See IRM 2.3.59, IDRS Terminal Responses, for a listing of screen displays.

  5. Check the Penalty Computation Codes (PCC) and Schedule Indicator Codes (SIC) on the taxpayer’s account. This may provide information on how the penalty was previously computed.

  6. Use CC FTDPN to both help determine how the penalty was computed and to determine the amount of adjusted penalty. Use Form 6844 to compute the penalty if IDRS is not available. If needed, request the penalty assessment document to determine the previous computation procedure.

  7. Always attach a PIFTD/FTDPN print or manual penalty computation behind the IDRS source document as part of the supporting information.

  8. Use the information in the new ROFT to recalculate the penalty as follows:

    1. If the penalty recalculation results in a penalty adjustment , then input the appropriate TC 180/181 as required, to assess or abate the penalty.

    2. If the penalty recalculation results in NO penalty adjustment, then input the required TC 180 .00, to denote a penalty no change per the penalty recalculation.

  9. Reason codes must be used to explain the reason for the penalty update and are required with the input of a TC 18X.

    Exception:

    CP194 Notices (Possible FTD Penalty) — A penalty reason code is not required to explain the reason for a (TC 180 .00) penalty "no change" when the penalty was calculated using the valid ROFT that was provided with the original return. See IRM 20.1.4.11.3.

    1. Use a 1st position Penalty Computation Code (PCC) to explain the reason for a (TC 180) penalty assessment.

    2. Use a 4th position Penalty Reason Code (PRC) to explain the reason for a (TC 180 .00) penalty "no change".

    3. Use a 4th position PRC to explain the reason for a (TC 181) penalty abatement.

  10. It is important to reconsider the FTD penalty whenever adjusting the tax amount. How does the change to tax affect the ROFT?

    1. It is not necessary to input a manual TC 181 when reducing (TC 291/301) the net tax to zero, as long as the computer generated (TC186) FTD penalty has not been restricted (TC180/181). If no FTD restriction is present (and a manual TC 181 has not been included with the TC 291/301 tax abatement), then Master File will generate a systemic TC 187 to reduce the FTD penalty to zero.

    2. The presence of a manual TC 180/181 on the module will prevent, even a total tax decrease, from posting. Therefore, when a tax adjustment is input without the required secondary TC 18X, the adjustment will not post. Unpostable Code 336, Reason Code 2 identifies these situations. These unpostables will be returned to the originator for reinput of the tax adjustment along with the required TC 18X used to address the penalty.

20.1.4.12.2  (10-26-2007)
Command Code FTDPN

  1. The command code FTDPN may be used on IDRS to compute the FTD penalty and will provide the taxpayer with an explanation of how the FTD penalty was computed.

  2. IDRS CC FTDPN can only be used on Forms 940, 941, 943, 944, 945, and CT-1 accounts to compute the FTD penalty.

  3. CC FTDPN can compute the penalty using the averaging method (if the liability breakdown is invalid), or by using the actual liability breakdown when valid.

  4. If FTDPN displays a penalty"MISMATCH" with Master File, the penalty must be validated for accuracy.

  5. See Exhibit 20.1.4-9for a summary of CC FTDPN capabilities with its various definers. Refer to IRM 2.3, IDRS Terminal Inquiries, for complete information on IDRS command codes.

20.1.4.12.3  (10-26-2007)
CP 568 FTD Penalty Notice

  1. CP 568 provides the taxpayer with written information involving inquiries on FTD issues and gives an explanation of the taxpayer’s account using both posted and pending transactions reflected on the taxpayer’s account.

  2. In order for a computation to be provided, the specific tax module must be on IDRS. If the module is not on IDRS the account will have to be established. The CP 568 is generated from CC FTDPN.

  3. FTDPN provides the option to issue a CP 568 at the end of each computation. It can consist of just text or be accompanied by a full or partial account transcript.

  4. You can review the CP 568 on-line and make appropriate changes to the letter before issuance to the taxpayer. These notices must be 100 percent reviewed prior to issuance in order to prevent bad notices due to systemic or tax examiner error.

  5. See IRM 2.3.28 for more information.

20.1.4.12.4  (10-26-2007)
Form 6844

  1. The Form 6844, FTD Computation Worksheet, may be used as an aid to manually compute FTD penalty.

20.1.4.13  (10-26-2007)
Treasury Financial Agent Mishandling

  1. When a taxpayer makes a timely deposit to an authorized depositary (bank) by coupon or electronic request, the bank transmits the deposit to the Treasury Financial Agent (TFA), and the TFA delays transmitting the deposit to the Treasury, the taxpayer’s account may be charged a Federal Tax Deposit (FTD) penalty for a late deposit. The taxpayer can be relieved of the portion of the penalty due to this delay, if:

    1. It can be determined that the delay occurred after the payment was received by the bank and transmitted to the TFA, and

    2. The TFA has an incident report and/or takes responsibility.

  2. DO NOT initiate a credit transfer to change the date of the misdated deposit. In the case of a TFA error or delay, take the following actions:

    1. If the return has NOT posted, refer the case to the Penalty Prevention & Resolution Group (PPRG) in Ogden’s Large Corp/ Technical Team 104 – Fax 801-620-4368 for determination that the TFA has provided information to stop an FTD penalty from being assessed (pre-return posting & TC186, FTD penalty.) We are only using TC971 AC-309, in this instance, and A/C 309 is restricted to the PPRG. See IRM 20.1.4.14for TC 971 A/C 30X input.

    2. If the return has posted, recompute the FTD penalty using CC FTDPN by overlaying the date on the deposit screen with the IPD (intended payment date) to determine what (if any) penalty would have been assessed if the deposit had not been delayed. Input TC181 with PRC-032 for the difference. This is general penalty relief.

      Reminder:

      It is not necessary to obtain or fax Form 13287 to the TT&L Coordinator in the instance of a TFA error.

    3. Penalty relief for deposit delays by payroll processors is not available at this time, as we do not have the authority (in the Internal Revenue Code) to charge a penalty against them. This is considered an issue between payroll processors and the taxpayer (their client), according to the contract liability clause in their service agreement.

    4. Due to Treasury Regulations, the date of a deposit/ payment CANNOT be changed, unless it is an IRS error.

20.1.4.14  (10-26-2007)
Misdated Deposits

  1. A discrepancy may exist between the IRS transaction date of deposit, (TC 650 date) and the taxpayer’s claimed deposit date. This occurs when:

    1. The Campus makes an error during FTD processing,

    2. the authorized depositary (bank or a financial institution) or Treasury’s Financial Agent (TFA) or Federal Reserve Bank (FRB) mishandles or misdates the deposit,

    3. a third party delays, mishandles or misdates the deposit, or

    4. the taxpayer uses an unauthorized depositary.

  2. To resolve the discrepancy, determine how it was caused. If necessary, secure and review the following items for FTD.

    • IRS microfilm/microfiche copy of the FTD,

    • IRS microfilm/microfiche copy of the Advice of Credit (AOC), and

    • front and back of taxpayer’s canceled check, bank statement or bank letter.

  3. For ACH CREDITS (EFTPS) secure and review the following:

    1. A statement prepared by their financial institution (bank) indicating (1) the date the taxpayer notified the bank to make the deposit; (2) that sufficient funds were present to satisfy the deposit; (3) the amount and date of the transfer, and (4) that the payee was identified as the US Government.

    2. The bank should provide a transaction trace number for the deposit. The IRS uses this (EFT) trace number to research the payment.

  4. For ACH DEBITS (EFTPS) secure and review the following:

    1. The ACH Debit acknowledgment number from the EFT financial agent used to trace and establish the date and time that the Financial Agent was asked to initiate a debit transaction. The number is given to the taxpayer at the conclusion of the taxpayer's phone call or successful PC transmission.

    2. A copy of the taxpayer's bank statement or other bank records that shows a withdrawal from an account that had a sufficient level of funds to cover the taxpayer's deposit and that the payment had not been reversed or returned.

  5. When a taxpayer makes a timely deposit to an authorized depositary (bank) by coupon or electronic request, and the bank delays transmitting the deposit to the Treasury, the taxpayer’s account may be charged a Federal Tax Deposit (FTD) penalty for a late deposit. The taxpayer can be relieved of the portion of the penalty due to this delay, if:

    1. It can be determined that the delay occurred after the bank received the payment, and

    2. The bank takes responsibility for the delay.

  6. DO NOT initiate a credit transfer to change the date of the misdated deposit. In the case of a bank error or delay, the Federal Reserve Board assesses a "cost of funds" (loss of interest) penalty and debits the bank’s Treasury Tax & Loan (TT&L) account. Due to inconsistent backup provided by the IRS, banks were challenging the penalty and the Federal Reserve Board would reverse the disputed charges.Form13287 (Catalog No. 34294M, October 2002),Bank Payment Problem Identification, was developed to provide sufficient backup.

  7. When a taxpayer claims bank error or delay, secure the following information from the taxpayer:

    1. A written statement prepared by the financial institution indicating:
      1. The date taxpayer notified the institution to make the deposit,
      2. That