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

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

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

Abatements. Information on penalty abatements, penalty reason codes (PRC), and penalty reference numbers (PRN) is provided in IRM 20.1.1.3 Criteria for Relief from Penalties. The First-Time Abate policy does not apply to the penalties in this chapter. Oral testimony does not apply to the penalties in this chapter.

Penalty Reason Codes. A list of penalty reason codes is provided in Exhibit 20.1.1-3, Penalty Reason Code Chart.

Penalty Transaction Codes. A list of penalty transaction codes is provided in Exhibit 20.1.1-4 Penalty Transaction Codes.

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

Campus sites and/or Field Compliance (Field) functions determine when a penalty should be imposed.

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

The First-Time Abate policy does not apply to the penalties in this chapter.

Oral testimony does not apply to the penalties in this chapter.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IRC 6652(b) provides for a penalty for failure to report tip income.

The penalty is assessed on any employee who fails to timely and properly report tips to his employer, as required by IRC 6053(a), on:

Every employee who receives $20 or more in tips from wages or compensation in any calendar month must report the tips in one or more written statements. The written report should include both cash and charge (credit and debit card) tips and be given to the employer by the 10th day of the month following the month of receipt (if the 10th day of the month falls on a Saturday, Sunday, or legal holiday, by the next business day). In any month the employee worked for two or more employers and received tips while working for each, the $20 rule applies separately to the tips received while working for each employer and not to the total tips received.

For purposes of this penalty, the term "wages" means all payments for services done by an employee for the employer, including the cash value of any benefits not paid in cash. The term "wages" does not include payments such as:

For purposes of this penalty, the term "compensation" means any form of fee paid to an individual for services as an employee to one or more employers. The term does not include payment for:

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

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

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

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

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

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

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

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

IRC 6652(k) provides for a penalty for failure to timely make a report required under IRC 1202(d)(1)(C) Partial exclusion for gain from certain small business stock.

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

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

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

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

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

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

Failure to file also includes the requirement to file on magnetic media as required by IRC 6011(e) Regulations requiring returns on magnetic media, etc.and Treas. Reg. 1.6011-2 Returns, etc., of DISC's and former DISC's.

Corporations are not required to file Form 8806:

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

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

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

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

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

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

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

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

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

A change in capital structure occurs if:

Effective May 25, 2007, The Small Business and Work Opportunity Tax Act of 2007 Provision 8245 increased the bad check minimum penalty. The amount of the bad check penalty is:

Prior to May 25, 2007, the bad check penalty was:

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

When a payment or deposit received by the Treasury is dishonored, the payment or deposit is identified on Master File and IDRS when the payment or deposit is reversed.

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

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

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

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

If it is determined that the penalty should be abated:

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

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

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

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

Paper checks that go through the Remittance Strategy for Paper Check Conversion (RS-PCC) are converted to an electronic format, but they are still considered a paper check. They are liable for an IRC 6657 bad check penalty when returned unpaid by a financial institution (bank).

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

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

Bad check penalties are not assessed on Electronic Funds Transfer (EFT) payments.

IRC 6657, Bad checks, only addresses the assessment of penalties for insufficient funds on paper checks or money orders. There will be no assertion of this penalty on any form of dishonored payment that is not made by paper check or money order.

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

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

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

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

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

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

The penalty is:

.

See IRM 5.7, Trust Fund Compliance.

Determined by the Collection function.

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

IRC 6673 also provides for procedures for Tax Court to award sanctions and costs to the IRS when any attorney or other person admitted to practice before the Tax Court has excessively and annoyingly increased the proceedings in any case that:

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

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

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

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

The penalty is $50 for each willful failure to provide or for furnishing a false or fraudulent statement can be assessed and collected in the same manner as the tax on employers.

The penalty is

When an indication of willful failure is discovered, the investigating office will suspend the inquiry and report the findings to the Criminal Investigation function. See IRM 9.1.3, Criminal Statutory Provisions and Common Law.

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

The penalty is $ 500 for each false statement.

The penalty is:

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