The In-Business Trust Fund (IBTF) pyramiding taxpayer warrants priority consideration.

The Trust Fund Recovery Penalty (TFRP) could be an issue with corporate taxpayers. If the TFRP has not been addressed by Collection, and a short TFRP statute for assessment exists (less than 180 days), notify Collection of the short ASED statute and document the notification. This will not be a request for an investigation of the TFRP, but merely notice of a possible statute problem.

If the taxpayer is a corporation where personal liability for employment taxes cannot be established without a TFRP, indicate in the case file whether a TFRP investigation is ongoing.

If a taxpayer dies after requesting a CDP hearing, the actions to take depend on the existence of probate or various requirements under local law.

If a representative signed the Form 12153, the representation with respect to the Form 2848 signed by the deceased taxpayer is now invalid as the Form 2848 terminates by operation of law upon the death of the taxpayer. Actions taken prior to the taxpayer's death are valid, so if a CDP conference has taken place, Appeals should still issue a Notice of Determination or Decision Letter.

The executor or administrator of the estate should decide whether to continue the hearing, assuming an executor or administrator is appointed. If the executor does not withdraw the hearing request, the CDP hearing may be on hold pending resolution of probate.

Probate law varies widely from state to state. If there is a probate, the CDP hearing should proceed to determine if proper procedures were followed and to inform the executor or administrator of potential fiduciary liability if the taxes are not paid from the decedent's estate.

If the Service files a proof of claim, the liability may be fully paid through the probate estate. Appeals should contact the Advisory Unit to advise them of the situation so proof of claim filing or other appropriate action can be taken. If the liability becomes moot through payment, Appeals should ask for withdrawal of the CDP hearing request.

If there is no requirement for probate, the personal representative or any successor in interest (e.g., spouse, trustee, surviving joint tenant, etc.) MAY be authorized to sign on behalf of the estate. However, first determine that there is no requirement for probate and that either the successor in interest is appointed personal representative under the decedent's will or the successor in interest otherwise qualifies. When in doubt, the beneficiary may petition the probate court to be appointed.

If no successor in interest is willing to sign the withdrawal or continue the CDP hearing, issue the determination on the available information.

Even if it appears there are no assets remaining upon decedent's death issue the determination so that Collection may investigate whether any assets were transferred after the IRC 6321 or 6324 lien arose.

Appeals employees should contact local Area Counsel concerning local law on probate for the given jurisdiction.

A CDP/EH case may be received with a CI indicator TC 914, 916 or 918. These balance due modules will have an IDRS Z- or -Z freeze code.

If a taxpayer files bankruptcy after filing for a CDP or equivalent hearing, suspend Appeals proceedings and place in ACDS E/BNK status.

Do not issue a Notice of Determination or Decision Letter or solicit a Form 12257 Waiver or Form 12256 Withdrawal.

There are certain exceptions and permissible actions which do not violate the automatic stay, that should be taken on CDP/EH cases with a concurrent bankruptcy proceeding. See IRM 8.7.6.2 for a discussion of the following:

Check IDRS for a bankruptcy filing before issuing the Notice of Determination or Decision Letter. Bankruptcy filings are identified on TXMOD by TC 520, cc's 60-67, 83 and 85-89.

Consult Area Counsel if you learn that a Notice of Determination or Decision Letter was issued on an open bankruptcy case. If Counsel agrees, use Letter 4130 (CG), Rescission of Notice of Determination Concerning Collection Actions Under Section 6320 & 6330 After Bankruptcy Filing, available on APGOLF to rescind the Notice of Determination or Decision Letter.

11 U.S.C. 362(a)(8) precludes the commencement or continuation of a proceeding before the Tax Court concerning the debtor. For cases filed on or after October 17, 2005, 362(a)(8) was amended and prohibits the commencement or continuation of a Tax Court proceeding concerning:

Thus, if the automatic stay is in effect and applies to the tax liabilities at issue when the taxpayer appeals the determination to the Tax Court, the appeal is void and the Tax Court lacks jurisdiction over the appeal.

A prior bankruptcy proceeding may constitute a prior opportunity for a hearing on the liability, if the same tax periods are later involved in CDP. However, the facts and circumstances of the bankruptcy case need to be evaluated to determine whether the taxpayer had an actual opportunity to contest the liability in the bankruptcy.

Payment and collection activity of any federal tax liability will be suspended for the period of time that an individual serves in one of the situations described below, plus the period of continuous qualified hospitalization attributable to an injury received while serving in one of these situations, plus the next 180 days:

The suspension of payment and collection activity may also apply to individuals serving in support of the U.S. Armed Forces in one of the above situations, such as:

Appeals will hold these cases and suspend on ACDS as E/OTH. Follow-up periodically to determine when collection is no longer suspended and a CDP hearing can be scheduled.

The Department of Justice (DOJ) has the sole authority to settle or otherwise compromise liabilities in the following cases:

If there is any indication that one or more of the above conditions exist:

If the taxpayer submits an OIC in a CDP hearing, only DOJ has the authority to settle the case. Convey the settlement proposal to DOJ for its consideration. DOJ may request an offer investigation and recommendation from Appeals as to whether DOJ should accept or reject the offer.

The provisions of IRC §6103 and corresponding regulations apply to third-party contacts made for the purpose of collecting or determining a tax liability.

IRC 7602(c) requires the IRS to:

Advance third-party contact notification can be verified on IDRS. Transaction Code (TC) 971 Action Code (AC) 611 posted on an IDRS module identifies third-party notification. IDRS systemically generates TC 971 AC 611 when either Notice 518 (for delinquent return modules) or Notice 504 (for balance due modules) is issued.

While Appeals does not typically make third-party contacts or receives cases where 3rd party contact notices were not already provided, hearing officers must review for TC 971 AC 611 when contacting a third party.

If a TC 971 AC 611 is not present, the hearing officer will send the taxpayer Letter 3164, Third Party Contact Letter.

With respect to OIC investigations, there is no need to verify the issuance of the Notice of Third Party Contact. The Form 656 operates as a waiver of the Third-Party Notice requirement.

An issue is precluded under IRC §6330(c)(4) where the taxpayer participated meaningfully in any previous hearing under IRC 6320 or in a previous administrative or judicial proceeding where the same issue was already raised, considered and decided.

The previous administrative hearing should be a hearing with Appeals and the files for that hearing should show the taxpayer presented arguments with respect to the issue to the hearing officer, and the files should show the reason(s) for Appeals's decision on the issue. Similarly, if a court has entered a decision on an issue in a judicial proceeding to which the taxpayer was a party, then the taxpayer is precluded from having the issue considered in the CDP hearing.

IRC §6305 states that federal courts have no jurisdiction to restrain or review the assessment and collection of Child Support Obligation (CSO) cases. The statute also states that the assessment and collection are not subject to review by the Secretary in any proceeding. This has been interpreted to mean that CSO cases have no CDP or CAP hearing rights. A special notice, Letter 3524, Final Notice - Notice of Intent to Levy is issued on CSO "Bal Dues" . Both the Notice and Demand and this special Notice of Intent to Levy notice are all that is required on these cases. Advise the taxpayer to contact the CSO agency to resolve the matter.

The Tax Relief and Health Care Act of 2006 (TRHCA) added IRC 6330(g) to IRC 6330. IRC 6330(g) provides "...if the Secretary determines that any portion of a request for a hearing under this section or IRC §6320 meets the requirement of clause (i) or (ii) of IRC 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review."

The requirements of clause (i) or (ii) of IRC 6702(b)(2)(A) are met and Appeals may disregard any portion of the CDP or EH hearing request when the request:

Frivolous positions : Hearing requests made on or after January 14, 2008 contain a frivolous position if they state a position identified as frivolous in Notice 2008-14 (effective January 14, 2008) or its successor notice or any revenue ruling issued since the publication of the notice. Hearing requests made from March 16, 2007 to January 13, 2008 contain a frivolous position if they state a position identified as frivolous in Notice 2007-30 (effective March 16, 2007).

Desire to delay or impede the administration of federal tax laws : A hearing request contains a statement reflecting a desire to delay or impede the administration of federal tax laws if it contains one or more of the following attributes:

Hybrid request : A hearing request that contains both a frivolous/desire-to-delay issue and a legitimate issue.

If the liability for a year in a CDP proceeding is fully paid during the hearing, the taxpayer may not challenge the existence or the amount of the underlying liability. Any such challenge must be made through the refund claim process.

Once the liability has been paid in full, there is generally no determination to be made regarding the collection action because no levy will take place and the Federal tax lien with respect to the fully paid liability will be released. However, if the tax is paid in full through a refund offset or through a state income tax levy, the taxpayer may raise as an issue the return of the funds because, for example, the loss of the funds is causing an undue hardship or because of one of the reasons listed in IRC 6343(a) or (d).

If appropriate, the specialist or the hearing officer may solicit a withdrawal of a request for a hearing with respect to the fully paid liability if there are no innocent spouse or interest abatement issues. If the taxpayer does not wish to withdraw the CDP request, the Service must issue a Notice of Determination. See IRM 8.22.2.2.16.1(2) regarding how to address the collection action in the Notice of Determination.

In a CDP hearing, a taxpayer may raise, and Appeals must consider, a liability that arose as a result of math error notice adjustments.

Pursuant to IRC 6213(b), when there is a mathematical or clerical error made on the taxpayer's return, the Service is not required to issue a statutory notice of deficiency if an amount of tax in excess of the erroneous amount shown on the return is due and the taxpayer has been notified that the corrected tax has been or will be assessed.

IRC 6213(g)(2) defines the term "mathematical or clerical error" and enumerates sixteen circumstances in which the Service may summarily assess the deficiency resulting from the "mathematical or clerical error" .

If a determination is made that the tax liability was incorrectly assessed under the math error procedures, the resulting tax assessment is invalid.

Frivolous returns, in some instances, were processed incorrectly under Math Error Notice procedures prior to January 1, 2001. These returns reported "0" on the line items for wages and tax liability and a Form W-2 was attached reporting income in the box for "wages, tips, other compensation" . In some instances, an information return was filed reporting income sufficient to create an income tax liability.

Accordingly, if these conditions exist in CDP cases in Appeals, the tax assessment is invalid and the Appeals employee will take steps to have the tax abated.

Frivolous returns filed by taxpayers that were processed incorrectly under Math Error Notice procedures may not be valid returns. Consequently, the three-year period of limitations for assessment under IRC 6501(a) does not typically apply, and the Service may retain any amounts properly collected (including any withholding credits). Return the tax year to the Service for commencement of deficiency procedures.

In a CDP hearing with taxpayers who are partners in TEFRA entities, taxpayers will generally not be able to raise challenges to the underlying liability, to the extent that it involves the deficiencies in tax relating to disallowance or adjustment of losses, deductions, or credits regardless of whether the deficiencies were assessed, by settlement agreement, by defaulted Final Partnership Administrative Adjustment (FPAA), or by federal court decision.

For years covered by TEFRA, where a notice of deficiency is the rare exception, investors who have not entered into settlement agreements may attempt to challenge the underlying liability on the grounds that they "did not otherwise have an opportunity to dispute" such liability. This argument, however, will fail for most investors because after an FPAA is mailed to the Tax Matters Partner (TMP), IRC 6226(a) allows the TMP 90 days in which to file a petition for a readjustment of partnership items with the Tax Court, the United States Court of Federal Claims, or the United States District Court in which the partnership's principal place of business is located under IRC 6226(b). If the TMP does not file, any notice partner or notice group may file a petition with any of these courts within 60 days after the close of the 90-day period. Regardless of which partner files the petition, IRC 6226(c) provides that:

Every investor of a partnership for whom a petition was filed in the Tax Court, the United States Federal Court of Claims, or the federal district court in response to an FPAA is precluded from challenging his liability at a CDP hearing because the investor has had the opportunity to dispute the liability.

An investor's claim that he never received notice of the FPAA (and therefore that he did not have the opportunity to dispute the partnership liability) generally must be rejected. IRC 6223(g) obliges a TMP to "keep each partner informed of all administrative and judicial proceedings for the adjustment at the partnership level of partnership items" . IRC §6230(f) further provides that the failure of the TMP to provide any notice or perform any action required under the TEFRA procedures on behalf of a partner does not affect the applicability of any proceeding or adjustment to such partners.

By complying with the notice requirements of IRC §6223, the IRS generally gives all partners in a TEFRA partnership "an opportunity to dispute" the resulting liability within the meaning of IRC 6330(c)(2)(B).

The tax year of the partnership or S corporation subject to TEFRA procedures will determine whether the taxpayer can raise challenges to the underlying liability to the extent that it involves penalties or additions to tax relating to the TEFRA entity. Where a reduction in the penalties or additions to tax appears warranted, discuss the issue with the Appeals TEFRA Technical Guidance Coordinator.

Taxpayers can seek interest abatement as part of a CDP hearing, and may argue for abatement relating to a specific period of time. Abatement of any amount of interest cannot be incorporated into a CDP liability challenge if the taxpayer has previously sought IRC 6404(e) relief from Appeals or has had an opportunity to dispute the denial of interest abatement in Appeals. Hearing officers should evaluate the specific circumstances of an individual investor's case, but generally Appeals personnel should not grant abatement of interest under IRC 6404(e) in any TEFRA-related CDP case without special circumstances. Where abatement appears warranted, discuss the issue with the Appeals TEFRA Technical Guidance Coordinator who will coordinate a response with the Appeals Program Analyst responsible for the abatement of interest program.

Where a reduction in the penalties or additions to tax appears warranted, first discuss the issue with the Appeals Technical Guidance Coordinator for TEFRA. In the event a taxpayer claims that he did not receive proper notification of the adjustment, the hearing officer should review the case file for the following indications of proper notification such as:

For partnership years ending after August 5, 1997, a taxpayer cannot assert partner level defenses to penalties or additions to tax if he received a notice of computational adjustment giving him or her an opportunity to file a refund claim within 6 months after the IRS mailed the computation to the taxpayer. See IRM 6230(c)(1)(C) and IRC 6230(c)(2)(A).

A taxpayer cannot contest erroneous mathematical computations applying the determined partnership items to the taxpayer's return, including interest computations, if the taxpayer received a notice of computational adjustment giving the taxpayer an opportunity to file a claim within 6 months after the IRS mailed the computation.

If the taxpayer was issued and received a notice of deficiency relating to the partnership items adjustments, the taxpayer may not dispute issues that were or could have been raised in that deficiency proceeding.

For additional information see IRM 8.19.8.

A taxpayer may raise any appropriate spousal defenses at a CDP hearing unless the Commissioner has already made a final determination as to spousal defenses in a statutory notice of deficiency or final determination letter. See IRC 6330(c)(2).

Taxpayers must claim a spousal defense under IRC §66 or IRC §6015 in writing. Form 8857, Request for Innocent Spouse Relief, is typically used for requesting a spousal defense.

With rare exception, the Covington Centralized Innocent Spouse Operation (CCISO) investigates Innocent Spouse claims raised in CDP. Exceptions to CCISO investigating claims are listed below.

If spousal defense is raised as an issue in a CDP case, there is a second (besides CDP) suspension of the collection statute. Under IRC 6015(e)(2), the CSED is suspended from the date the claim is filed until it is withdrawn, a waiver is filed, or expiration of the ninety (90) calendar day period after the date notice of the IRS' final determination is mailed provided for filing a petition with Tax Court or, if a Tax Court petition is filed, until the Tax Court decision becomes final, plus 60 additional days.

EITC liability issues will be considered in a CDP or EH case when the taxpayer:

The EITC issue may be considered along with, but outside the jurisdiction of, a CDP or EH case when the taxpayer is precluded from raising the liability in CDP. The ATM must approve review of the EITC liability outside the jurisdiction of the CDP case.

The following guidance only pertains to those CDP or EH cases where Appeals has determined that law requires review of the EITC liability or that review is appropriate under an exception approved by an ATM.

If the EITC issue is considered in CDP, the CDP case is carded in with Feature Code "EI" .

If the EITC issue is considered outside of CDP, a separate "I" case is carded in on ACDS with Feature Code "EI" . This case should reference the CDP case as the key case. The CDP case will not show the "EI" Feature Code.

A three-digit code is used to track information regarding the source of EITC cases. The hearing officer will identify this three-digit code from the following list and request that APS load the code into the ACDS PROJCD field. The project codes are:

For more information on Project Codes see IRM 4.19.14.2.

The Service determined that Son of Boss transactions, described in Notice 2000-44, 2000-2 C.B. 255 are abusive and were designed, marketed, and undertaken solely to create tax benefits unintended by any reasonable interpretation of the tax laws. The Service believes that it would prevail in litigation on the merits of these transactions and that the imposition of penalties would be upheld. For efficient tax administration reasons, the Service offered taxpayers an opportunity to resolve their civil tax liabilities under the Son of Boss settlement initiative described in Announcement 2004-46, 2004-1 C.B. 964 to avoid litigation.

Taxpayers who elected to participate in the Son of Boss settlement initiative were sent a closing agreement under section 7121 and were expected to full pay upon submission of the signed Form 906 closing agreement to the Revenue Agent within 30 days. Those taxpayers who indicated they could not pay the liability in full were required to submit complete financial statements and to agree to other financial arrangements, acceptable to the Service, before the Service would execute the closing agreement. Taxpayers were considered to be ineligible to participate in this initiative if an agreement regarding an acceptable financial arrangement was not reached. Taxpayers participating in the Son of Boss settlement initiative were eligible for certain tax benefits and penalty relief.

Under Announcement 2004-46, eligible taxpayers had until June 21, 2004 to elect to participate in the settlement initiative. For taxpayers who were either ineligible or who failed to elect and settle their cases under the settlement initiative, Announcement 2004-46 was clear there would be no administrative Appeals consideration in Son of Boss cases. For all taxpayers ineligible or not participating in the settlement initiative, the Service developed the cases, disallowed all tax benefits and attributes claimed from the Son of Boss transaction, including out-of-pocket costs and fees, determined appropriate penalties, including those under section 6662 or section 6663, and issued a Notice of Deficiency or Notice of Final Partnership Administrative Adjustment, as appropriate. The unresolved cases were to be treated as designated for litigation.

Despite the general designation of SOB cases for litigation, a SOB non-participant taxpayer may challenge a SOB liability within CDP when the conditions described in 8.22.2.2.11 are met. The Chief, Appeals has the sole delegated approval authority on matters relating to the settlement of the SOB liability in instances when the liability may be raised as a CDP issue. The closure-ready administrative file for a SOB case, where any part of the liability is at issue, whether the liability has been changed or not, must be routed for approval by Chief, Appeals. See IRM 8.22.2.2.11.5.4. Decisions in innocent spouse cases where the taxpayer seeks relief from a SOB liability will also be forwarded for approval by Chief, Appeals.

A Doubt as to Liability (DATL) Offer is a challenge to the underlying liability.

An offer based upon DATL generally should not be considered if challenges to the liability are precluded under IRC 6330(c)(2)(B).IRM 8.22.2.2.11

Where IRC 6330(c)(2)(B) does not apply, Appeals must consider a CDP DATL-OIC that was determined in United States Tax Court even in cases where the taxpayer signed a Closing Agreement. Do not send these cases back to Compliance as premature referrals thinking the offer is irrelevant because the matter was conclusively decided or settled. TIPRA requires consideration of the DATL-OIC and one of the following determinations in writing:

TIPRA statute rules apply where the taxpayer is not precluded by IRC 6330(c)(2)(B) from challenging the liability and files a DATL-OIC. IRM 8.22.2.4.7.1

A DATL-OIC must be carded-in as a separate WUNO. IRM 8.22.2.4.7.4 Procedures for establishing CDP/EH DATL or DATC OIC WUNO.

The taxpayer is entitled to submit a DATL OIC even though the law precludes the liability from being considered as part of the CDP case. Take the following steps for a precluded DATL-OIC:

The Brookhaven Campus Reconsideration Team will expedite the processing of disputed ASFR/SFR assessments raised in CDP/EH cases and make the necessary adjustments if the taxpayer provides a valid return.

You can determine whether the disputed liability is the result of an ASFR or an SFR assessment by reviewing a TXMOD for the following entries:

If Appeals secures a valid return from the taxpayer (see #6 below), send the return to the ASFR Recon Team for processing, whether or not the liability can be raised in CDP.

Take the following steps to determine whether the ASFR/SFR liability will be considered in CDP or considered under Appeals general authority:

Send the taxpayer the Substantive Contact Letter and request that the taxpayer provide an income tax return to replace the disputed ASFR/SFR return. Allow the taxpayer 15 days to provide a return. If the taxpayer fails to provide a return, continue working the case following established procedures. The taxpayer may still want to discuss a collection alternative.

The income tax return the taxpayer provides as a replacement for the ASFR/SFR must:

If the tax return meets all criteria listed in (6) above:

Include the following information on Form 3210:

If the taxpayer has unfiled returns required to be filed other than the CDP year, attempt to secure all unfiled returns for processing.

Brookhaven ASFR Reconsideration Team will:

If the taxpayer has other missing returns and only provides a signed replacement for the ASFR/SFR return and not the other missing returns, continue with the procedures to forward the replacement return to the ASFR Reconsideration Team for processing.

The hearing officer will "calendar" the case for 30 business days and check IDRS for adjustment posting. If adjustments do not post within 37 calendar days (7 additional days allowed for mailing time), follow-up with the ASFR unit at 631-654-6624.

The ASFR Reconsideration Team will process complete returns and input adjustments as needed. The processed returns will be sent to "classification" and may be selected for review (audit) at a later date.

Where the liability is eligible for consideration in CDP, document the following in the NOD/Decision Letter under Liability Issues or on the 12257 Waiver:

Where the liability is not eligible for consideration in CDP, document the following in the NOD/Decision Letter under Liability Issues or on the 12257 Waiver:

Where a liability remains after ASFR’s processing of the taxpayers return, discuss collection alternatives with the taxpayer following established procedures.

Liability issues raised in CDP are worked according to the following chart. This chart applies if the liability:

The Settlement Officer will first review the case to determine whether the liability is eligible for consideration in CDP. IRM 8.22.2.2.11

If the taxpayer is precluded from raising the liability issue, but the SO believes it would be prudent to work the issue, the SO will obtain ATM approval. The ATM will:

SO's will secure documentation from the taxpayer to support the liability dispute before the SO requests a separate WUNO for the TYPE of case to be worked.

Give the taxpayer or their representative 14 calendar days to provide documentation. Create a WUNO if any documentation is received. The AO may need to contact the taxpayer or their representative for additional documents or clarification of the documents provided.

After securing the administrative file and taxpayer documentation, the SO will follow procedures and request APS create a WUNO for the liability issue IF the liability issue is to be reassigned or transferred.

The SO will add Feature Code "DP" to both the CDP and the newly-created WUNO, generate Form 30/40 and forward it to their ATM with:

The SO ATM will use local procedures to determine the AO group that will work the liability issue, note the assignment on Form 30/40, and forward the case to APS. The SO will suspend work on the CDP unit and input one of the following status codes:

Upon receiving the reassigned/transferred case, the AO ATM will assign to an Appeals Officer.

The AO will give sufficient priority consideration to the CDP liability issue with the objective of completing consideration within 120 days of their assignment. The SO may contact the AO for a status report after 60 days. After 90 days, the SO will ask their ATM to contact the AO ATM. After 120 days, the issue may be elevated to the Area Director(s).

At completion of the liability determination the AO will prepare the following forms and submit to their ATM for approval:

After approving, the AO ATM will send the case to APS for reassignment/transfer back to originating SO.

A "Qualified Offer" is a proposal to settle a dispute as to the amount of a taxpayer’s liability. A taxpayer may submit a qualified offer in a CDP hearing as described below. In order to constitute a qualified offer, a taxpayer's proposal must meet the specific statutory requirements included in IRC 7430(g). For purposes of recovering administrative costs under IRC 7430, the taxpayer will be considered a "prevailing party" should a court determine the taxpayer's liability is equal to or less than the amount offered to settle in a valid qualified offer. Being treated as a "prevailing party" is a crucial element in determining if a taxpayer should be awarded administrative costs under IRC 7430.

A taxpayer may submit a "Qualified Offer" :

A qualified offer is not:

Appeals does not have to reject a qualified offer and does not have to justify an affirmative or "default rejection" in a determination letter.

An Appeals employee who receives a "Qualified Offer" during the course of a due process hearing should record its receipt and any Appeals response to the offer in the case activity record in the interest of developing a complete administrative record on which the Tax Court may rely.

A taxpayer has no potential right under §7430 to recover administrative costs, using a "Qualified Offer" , unless the liability in a CDP case could be properly at issue before the Tax Court. Where the taxpayer does not contest the underlying tax imposed in a due process hearing, the taxpayer has no potential for recovery of administrative costs under IRC 7430.

Consult Area Counsel on any unique or questionable qualified offer you receive to determine if it is a valid qualified offer.

A valid qualified offer should be considered within the 90-day period or before the later date specified by the taxpayer.

Trust Fund Recovery Penalty (TFRP) liabilities are not subject to deficiency procedures.

Taxpayers with TFRP liabilities are considered to have had a prior opportunity to dispute the liability if:

If the taxpayer challenges the TFRP penalty in CDP, take the following steps in determining whether the liability can be considered:

Return the file promptly to the Advisory CPM when it is no longer needed. The taxpayer may file an 843 claim so Advisory's ability to locate the case file is critical when trying to support the Service's position.

Frivolous Return Penalty IRC 6702(a), Specified Frivolous Submission Penalty IRC 6702(b), and IRC 6682 Questionable W-4 penalties do not receive a notice that gives the taxpayer an opportunity to go to Appeals. Therefore, issues involving these penalties may be raised in CDP.

IRC 6682 and related tax regulations allow the assessment of a $500 civil penalty for furnishing a false Form W-4:

IRC 6702(a) imposes a $5,000 civil penalty against any person who files a return (not limited to income tax returns), if the purported return does not contain information on which the substantial correctness of the self-assessed determination of tax may be judged or contains information that on its face indicates that the self-assessment is substantially incorrect and:

IRC 6702(b) imposes a $5,000 civil penalty against any person who submits a specified frivolous submission. A specified submission contains a position which the IRS has identified as frivolous under IRC 6702(c) or if the specified submission reflects a desire to delay or impede the administration of Federal tax laws. A specified frivolous submission may be:

There is no legal basis for abatement of these types of penalties due to Reasonable Cause; therefore Appeals has no legal authority to abate these penalties using reasonable cause criteria. The following example, however, may be a valid reason for abating the frivolous return penalty:

A taxpayer may challenge the assessment of the IRC 6682 and IRC 6702 penalties on the grounds that the assessment was not personally approved in writing by a superior in accordance with IRC 6751(b).

IRC 6751(b)(1) provides that no penalty 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. An exception to the "personally approved (in writing)" rule is IRC 6751(b)(2)(B) that provides that managers need not approve any addition to tax under IRC 6651, IRC 6654, or IRC 6655, or any other penalty automatically calculated through electronic means. The assessment of an IRC 6682 or IRC 6702 penalty does not qualify as one calculated through electronic means defined by IRC 6751(b)(2)(B). therefore the assessment of the penalty requires approval in writing.

The Frivolous Return Program unit is located in Ogden, Utah at the following address and maintains the back-up documents for frivolous penalties. The FRP toll free number is 1-866-997-0161:

A taxpayer who receives a letter or notice from Compliance informing them of their right to protest a penalty before Appeals, before they receive a CDP Notice entitling them to a CDP hearing, has had a "prior" opportunity to protest the liability.

The hearing officer may consider a challenge to a penalty liability, outside of CDP, under Appeals general authority, if the taxpayer failed to pursue the issue when the taxpayer received a prior opportunity:

If there is an open PENAP case in Appeals for which a determination has not been made when the taxpayer requests a CDP hearing, associate the open PENAP case with a CDP case for a determination under the CDP case. Do NOT add feature code "DP" to the associated PENAP case.

If the taxpayer raises a challenge to a penalty liability for the first time as a CDP issue, a separate PENAP case card will not be created. The issue will be addressed in the CDP/EH closing letter.

The IRS issued guidance in Rev. Proc. 2007-21; 2007-1 C.B. 613 and 2007-9 IRB 613 for taxpayers and material advisers who seek rescission of an IRC 6707 or IRC 6707A disclosure penalty if the penalty relates to a reportable transaction other than a listed transaction.

IRC 6707A, added to the code by the American Jobs Creation Act of 2004, provides a monetary penalty for the failure to include on any return or statement any information required to be disclosed under IRC §6011 regarding a reportable transaction. The provision recognizes the IRS's authority to rescind penalties for taxpayer who are required to disclose those transactions.

Rev. Proc. 2007-21, effective for rescission requests for which notice and demand for payment is made after October 22, 2004, is the exclusive method of requesting and the standards for applying rescission.

In accordance with IRC 6707A(d) and IRC 6707(c), a person (i.e., a taxpayer under IRC 6707A or material advisor under IRC 6707) requesting rescission of a penalty assessed under either IRC 6707A or IRC 6707 must request rescission in writing:

Taxpayers may not seek rescission of the IRC 6707 or 6707A penalties on the grounds specified in IRC 6707(c) and 6707A(d) through CDP.

A person may challenge the applicability of the penalty under IRC 6707 and IRC 6707A if the issue is not precluded by the taxpayer's having received a prior opportunity to contest the penalty in Appeals. ACDS may show a prior Type 6707 or Type 6707A case indicating that the taxpayer did have a prior Appeals hearing.

Where the taxpayer is able to raise the liability issue, Appeals may determine that the penalty does not apply or may propose a settlement amount with respect to the penalty based on litigation hazards. As part of its review and settlement consideration, Appeals may consider (a) whether the transaction involved is a reportable transaction other than a listed transaction; (b) whether the transaction involved is a listed transaction; (c) whether the person is subject to and complied with the reporting requirements of IRC 6011; and (d) whether the applicable statute of limitations bars assessment of the penalty.

The “Small Business Jobs Act of 2010”, signed September 27, 2010, amends the IRC 6707A calculation penalty calculation retroactively to penalties assessed after December 31, 2006. Taxpayers will receive a notice advising them that the new legislation has been enacted, and that the amount of their current IRC 6707A penalty will be reviewed by Examination. Additional guidance to Settlement Officers working CDP cases involving 6707A penalties will be forthcoming as procedures are developed in response to this new legislation.

Under IRC 6673, the Tax Court may impose a penalty of up to $25,000 against a taxpayer for:

If the Tax Court imposes the IRC 6673 penalty, the IRS assesses and collects the penalty in the same manner as a tax.

Collection Due Process (CDP) rights extend to collection of the IRC 6673 penalty and a notice of a right to a hearing must be given to the taxpayer when the IRS intends to collect the penalty.

The issues a taxpayer may raise at the CDP hearing involving the IRC 6673 penalty are limited. Because the court set the penalty amount, Appeals does not have the authority to reduce the penalty in return for future compliance.

The penalty cannot be compromised under doubt as to liability. Treas. Reg 301.7122-1(b)(1) states that doubt as to liability does not exist where the liability has been established by a court decision or judgment. See also Rev. Proc. 2003-71. Since the penalty is imposed by the court, it has obviously been established by court decision.

Counsel generally recommends against compromise of the IRC §6673 penalty under doubt as to collectibility or effective tax administration grounds. The penalty is an important tool used by the Tax Court to deter frivolous litigation. However, compromise on doubt as to collectibility grounds may be appropriate if the taxpayer has abandoned frivolous arguments and has come into tax compliance.

The hearing officer should minimally verify the following:

IRC §6700 provides a penalty for promoting abusive tax shelters.

IRC §6701 provides a $1,000 (individual) or $10,000 (if it relates to the liability of a corporation) penalty for aiding and abetting understatement of tax liability.

If the taxpayer files for a CDP hearing on a §6700/6701 penalty assessment, Appeals will review whether Compliance followed the legal and administrative procedures for notice and assessment, which are:

If the taxpayer has received the notice and demand describing the right to pay 15% of the penalty and to file a refund claim and ultimately to go to district court to dispute the penalty, the taxpayer has had an opportunity under IRC 6330(c)(2)(B) to dispute the penalty. Appeals will sustain the penalty and explain the taxpayer's recourse is to pay the penalty in full and file a claim for a refund.

The notice and demand with the specific language cited above is currently not sent to the taxpayer by certified mail. In conference, inquire whether the taxpayer received the notice and demand that notified the taxpayer of the refund claim procedures. If the taxpayer denies receipt, and there is no information in the file that demonstrates actual receipt e.g. taxpayer correspondence, refer to IRM 8.22.2.2.11 for procedures to refer the liability issue to an Appeals Officer.

IRC 6700 and 6701 penalties are Appeals Coordinated Issues. In the event that the taxpayer may raise the liability issue in CDP, the Appeals Officer will obtain the review and concurrence of the Technical Guidance Coordinator in the decision.

Appeals Processing (APS) is required to maintain a closed office file (COF) for every CDP/EH case Appeals closes. The time frame to maintain a COF is two years after end of the fiscal year in which the case is closed.

Closed office files are maintained for reviews by:

Mandatory for every COF are:

Mandatory for every COF when they are part of the administrative record are:

The hearing officer will clearly identify for APS any correspondence or other documents other than those listed above that should be retained in the closed office file.

Resulting from RRA98, PL 105-206, section 3201(d) requires that "the Secretary of the Treasury shall, wherever practicable, send any notice relating to a joint return under section 6013 of the Internal Revenue Code of 1986 separately to each individual filing the joint return." Congress enacted the provision to ensure that both spouses would be made aware of their tax situation with respect to their joint tax liabilities.

The following closing letters are sent separately to each individual requesting a hearing on a joint return:

Hearing officers will:

The "Summary of Determination" statement is found at the bottom of the Notice of Determination or Decision Letter. The summary statement:

If the liability in a CDP hearing is fully paid during the hearing, but the taxpayer does not wish to withdraw the CDP request, the Service must issue a Notice of Determination. If the taxpayer requested a determination with respect to the existence or the amount of the underlying liability, the Notice of Determination should state that Appeals did not make the requested determination because the liability was paid in full. Though the liability has been fully paid during the hearing, the taxpayer may have other issues that would need to be addressed. See IRM 8.22.2.2.10.4. Examples would include:

List the type(s) of tax and period(s), date of the CDP notice(s), and date of taxpayer's CDP request at the beginning of the attachment. This is to assist the court in determining if the taxpayer's petition concerns the actual taxes and tax periods listed on the CDP notice and considered in the hearing. Exhibit 8.22.2-1.