Interim Guidance on Penalty Relief Advocacy

February 7, 2012

Control No.: TAS TAS-13-0212-007

Expiration Date: 2/6/2013

Impacted IRM(s): IRM 13.1

MEMORANDUM FOR TAXPAYER ADVOCATE SERVICE EMPLOYEES

FROM: /s/ Nina E. Olson

National Taxpayer Advocate

SUBJECT: Interim Guidance on Penalty Relief Advocacy, and

Using the Reasonable Cause Assistant (RCA)

The purpose of this memorandum is to help TAS employees discern how they

can best advocate on behalf of taxpayers seeking penalty abatements, including

abatement requests that the IRS considers using the Reasonable Cause

Assistant (RCA). This memorandum consolidates and clarifies current guidance

in the Internal Revenue Manual, Service Level Agreements, and Delegation

Orders. Although this guidance is specific to penalty relief, Case Advocates can

apply the general techniques and advocacy mindset to many other situations

(e.g., examination cases).

Existing TAS guidance already provides some direction and information about

advocating for penalty relief.

• In general, TAS employees do not have the delegated authority to

make penalty abatement determinations on behalf of the IRS.

• TAS uses Operations Assistance Requests (OARs) as described in

IRM 13.1.19, TAS OAR Process (03-18-2011) to resolve requests for

penalty relief.

IRM 1.2.50.3, Delegation Order No. 13-2 (Rev. 1) (Mar. 3, 2008) states “This does not,

however, include the authority to: … accept/deny penalty abatement requests under the

procedures contained in IRM 20.1.1.3 and IRM 21 (or successor provisions).” TAS does retain

delegated authority to adjust Trust Fund Recovery Penalties (TFRP) in very narrow situations to

reflect satisfaction of the TFRP by means other than payment by the taxpayer in question.

• TAS delegated authorities do not preclude TAS from making specific

recommendations to the IRS to abate penalties. TAS employees can

recommend the IRS reach a particular result in its penalty relief

determination if TAS supports the recommendation with facts and

appropriate documentation. See IRM 13.1.4.2.3.4, Recommendations

vs. Determinations (04-01-2003) for more information.

Background: Reasonable Cause Assistant (RCA)

Introduction

The Reasonable Cause Assistant is a decision-support software program

designed to help IRS employees determine penalty relief for Individual Master

File (IMF) Failure to File (FTF), IMF Failure to Pay (FTP), and Business Master

File (BMF) Failure to Deposit (FTD) penalties through the Accounts Management

Services (AMS) desktop application. See IRM 20.1.1.3.6, Reasonable Cause

Assistant (RCA) (12-11-2009). The IRS requires its employees (including

Revenue Officers) to use the program where available for penalty abatement

requests. RCA programming applies reasonable cause standards against the

reasonable cause categories chosen by the user and the answers selected and

dates entered in response to the questions posed by the RCA. To reach the

correct determination, users must choose the applicable categories and answers

based on the information provided by the taxpayer.

The RCA Conclusion

In specific circumstances, the RCA requires the taxpayer to provide

documentation to support his or her claim before the system determines penalty

relief. The RCA will reach one of five possible conclusions for the MFT and the

tax period reviewed (listed in order of priority):

• Abate - reasonable cause established; remove penalty.

• Suspend - insufficient information; no conclusion reached.

• Sustain - reasonable cause not established.

• Mixed - abate one penalty/sustain the other.

• Other - not a reasonable cause issue. For example, a taxpayer

disputes how the IRS computed a penalty.

Suspend Conclusion

The RCA reaches a Suspend conclusion if information about the taxpayer’s claim

is missing or incomplete. The Additional Information

section explains what further information is required to substantiate the claim.

The RCA displays all information needed to support a showing of reasonable

cause.

Example: The taxpayer has not documented his statement that he was in

the hospital at the time his tax return was due, which prevented him from

timely filing.

Sustain Conclusion

When the RCA determines the taxpayer does not qualify for an abatement of

penalties, it reaches a Sustain conclusion. The Module Conclusion section will

explain the reasoning behind the conclusion.

Example: The taxpayer does not qualify for penalty relief under

reasonable cause, statutory exception, or administrative waiver, so the

RCA denies the FTP abatement request.

Mixed Conclusion

When the RCA reaches a mixed conclusion, the Additional Information Section

only addresses the penalty sustained.

Example: The RCA may determine the taxpayer met reasonable cause

for abatement of the FTF penalty but not for the FTP penalty.

First-Time Abate – Clean Compliance History

The RCA provides an option for penalty relief if the taxpayer has not previously

been required to file a return, or if the IRS has not assessed FTF, FTP, or BMF

FTD penalties against the taxpayer in the past three years. First-Time Abate

(FTA) is also available if the IRS fully abated penalties assessed in the prior

three years for reasonable cause. See IRM 20.1.1.3.6.1, FTA (12-11-2009). The

RCA will attempt to apply relief based on FTA before considering reasonable

cause. Since the FTA is an administrative waiver and not abatement for

reasonable cause, IRS employees are not required to go through a reasonable

cause analysis to use FTA. Users must manually review modules in the three-

year penalty history that are in retention. Eighty-two percent of all FY 2009

penalties abated under the RCA were attributable to the FTA waiver.

Reasonable Cause Category Selection

The Reasonable Cause FTF/FTP Category Selection Screen displays a list of

possible reasons users can select, if applicable, based on the nature of the

taxpayer’s penalty relief request. Some factors in the Category Selection are:

• Casualty – fire destroyed records;

• Records unobtainable / destroyed;

• Unavoidable absence;

• Death or serious illness in the taxpayer’s immediate family;

• Illness – unable to manage affairs; and

• IRS error – programming problems.

Abort/Override Conclusion

The user can abort an incorrect conclusion.

Example: The taxpayer filed a 2010 tax return late. The RCA correctly

concluded there was no reasonable cause to abate the penalty. However,

the RCA failed to allow First-Time Abate because the method used by the

IRS to resolve a stolen identity problem on the 2008 tax return. The RCA

incorrectly concluded the taxpayer is not eligible for First-Time Abate. The

Case Advocate researches the taxpayer’s compliance history and

determines the penalties assessed and reversed two years ago are all

attributable to another taxpayer filing under this taxpayer’s Social Security

number. The Case Advocate recommends that the IRS abort the RCA

conclusion and allow First-Time Abate.

The abort conclusion requires an explanation, which the Office of Servicewide

Penalties reviews. If the case includes unique individual facts and circumstances

that the RCA cannot consider, those elements must be carefully analyzed and

must show, in accordance with the reasonable cause guidelines, that despite the

exercise of ordinary business care and prudence, the taxpayer was unable to

comply within the prescribed time. A determination to abort/override the RCA’s

conclusion cannot conflict with law or IRS policy.

Building the Case for Penalty Relief

Researching Relief Standards for the Penalty

Case Advocates must apply their knowledge of reasonable cause criteria,

statutory exceptions, and administrative waivers when they contact the taxpayer

to explore what information the taxpayer has available to make the strongest

case for penalty abatement. Different penalties can have different relief

standards, and some do not allow for reasonable cause abatement at all. See

IRM 20.1, Penalty Handbook, for more information. Case Advocates should

consult the Internal Technical Advisor Program (ITAP) staff if they need

assistance in researching the relief standards for a particular penalty. See

Attachment 1 of this memorandum for some examples.

Requesting Information from the Taxpayer

Review the taxpayer’s request for penalty relief. During initial contact with the

taxpayer, have a conversation before asking for documentation. Explain the

penalties assessed by the IRS, and discuss the relief standards available,

including reasonable cause if applicable. Verify your understanding of the

circumstances the taxpayer wants the IRS to consider. Explain that you need to

ask relevant questions to explore available options for penalty relief. Explain the

documentation needed to support the request, including alternative sources if the

taxpayer does not have access to the types of records initially requested. Ask

open-ended questions and listen for cues that the taxpayer’s individual

circumstances may make it difficult to provide documentation. Start with the

assumption that you believe the taxpayer, even though they may not be able to

provide timely or fully consistent answers. Work with them to assemble the best

documentation they can provide.

Establish a due date for the taxpayer to provide the information.

Case Advocates will also explain TAS will forward the relevant documents to the

IRS to advocate for penalty relief. See IRM 13.1.5.6, Communicating

Confidentiality Rules to Taxpayers and Taxpayers’ Representatives (02-01-

2011), for more information.

Considering Taxpayer Burden

If the IRS will consider a penalty abatement request using the RCA, Case

Advocates should weigh taxpayer burden when requesting information. If the

taxpayer will qualify for FTA relief, and the documentation to support reasonable

cause will be extensive or difficult for the taxpayer to gather, Case Advocates

should discuss with the taxpayer or representative the option of submitting a

signed written request for penalty abatement without documentation. Explain

that using the First-Time Abate will exclude its use again for the next three years.

Allow the taxpayer to make this decision, and document your explanation and the

taxpayer’s decision on TAMIS. See IRM 13.1.18.3 (15), Initial Contact (02-01-

2011) for TAMIS history documentation requirements. The IRS will abate the

penalty using FTA. See Examples 1 and 2 in Attachment 1 of this memorandum.

Alternatively, if the taxpayer will qualify for FTA relief, but the taxpayer is willing

to provide (without excess burden) reasonable cause documentation, they should

do so. If TAS can advocate for reasonable cause, the taxpayer’s compliance

history will remain clean and the FTA is preserved if the taxpayer needs it in a

future tax year. See Example 3 in Attachment 1 of this memorandum.

In cases where the IRS has not yet considered or received the taxpayer’s penalty

abatement request, Case Advocates should secure a signed written request for

penalty abatement as a best practice if the Refund Statute Expiration Date

(RSED) is near expiration, even if the amount of the penalty is below the oral

statement criteria in IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty

Relief (12-11-2009). Case Advocates should send the written informal claim via

OAR as soon as possible, so that the IRS receives it on or before the RSED.

This will protect taxpayers from the RSED expiring while the IRS considers the

abatement request.

Analyzing How Best to Advocate for Relief

Case Advocates will analyze the taxpayer’s information to determine how best to

advocate for penalty relief. If the penalty is an IMF Failure to File, IMF Failure to

Pay, or BMF Failure to Deposit penalty, Case Advocates will use the RCA to

analyze whether penalty relief may be appropriate due to reasonable cause,

statutory exception, or administrative waiver.

Although TAS generally does not have the delegated authority to abate penalties,

TAS employees nonetheless have access to the RCA because they must build

their cases prior to sending an OAR to the Operating Division (OD)/Function.

This includes determining whether the taxpayer is entitled to penalty abatement.

Case Advocates using the RCA will determine what category or categories (if

any) will result in abatement. If the RCA decides to sustain the penalty, Case

Advocates should review the facts and circumstances to determine if an RCA

override is appropriate, and should consult ITAP if they need help making this

determination.

IMPORTANT: After using the RCA, Case Advocates must always “Cancel”

out of the RCA program before it makes any adjustments.

Deciding the Type of OAR Recommendation to Make to the IRS

Once Case Advocates receive the taxpayer’s information and evaluate it against

penalty relief standards (including reasonable cause), Case Advocates must

choose between two types of OAR recommendations.

Advocating For Penalty Relief

If analysis supports abatement, using neutral OAR language would not effectively

advocate for the taxpayer. Case Advocates must direct the IRS to abate the

penalty based on the law, facts, and supporting documentation. The OAR will

include a request to contact the Case Advocate before sustaining the penalty and

rejecting the OAR, so TAS can discuss the disagreement with the function before

the taxpayer receives a denial letter.

Sample language for the OAR when TAS supports abatement: “Based

on the information provided, it is TAS’s position that $(insert dollar amount

or “all” as applicable) of the (insert type) penalty is eligible for abatement

based on (reasonable cause or first-time abate) due to (category of

reasonable cause, statutory exception, or administrative waiver). (Insert

an explanation of why the supporting documentation supports such a

position.) We recommend you abate the penalty for reasons explained

above. If you disagree and intend to sustain the penalty, contact me with

an explanation and allow me three work days to review your reasoning

before you sustain the penalty, per the Service Level Agreement (SLA).”

If the IRS function decides to sustain the penalty, the three-workday period TAS

requested will give TAS a window of time to elevate the issue and consider a

Taxpayer Assistance Order (TAO) before the IRS denies penalty abatement.

When documentation supports advocating for penalty relief, an OAR should not

take a neutral stance and simply ask the IRS to make a penalty relief

determination. Although neutral language can be appropriate in other situations

(see the following section), it is not appropriate when the facts and circumstances

allow TAS to advocate for penalty relief.

Example of an underdeveloped OAR when TAS can advocate for

penalty relief: “Based on the information provided, consider the

taxpayer’s request for (insert type of penalty) relief. Input the necessary

adjustments for any penalty abated. If you deny the request, send the

proper disallowance letter with appeal rights to the taxpayer, and provide a

copy to TAS.”

Recommending the IRS Consider the Penalty Relief Request

If the Case Advocate’s analysis of the facts and supporting documentation does

not support abatement and the IRS has not yet made a determination on the

penalty abatement request, then Case Advocates should use neutral language in

their OAR recommendations to ask the IRS to consider the penalty abatement.

The taxpayer is entitled to receive a decision on the abatement request, even if

the information received does not support abatement. To do otherwise would

create delays beyond those that brought the taxpayer to TAS in the first place,

and would deny the taxpayer his or her proper appeal rights. See IRM 13.1.19.4

(4), OAR Preparation (02-01-2011) and Example 6 in Attachment 1 of this

memorandum for examples of neutral language.

Sample neutral language for the OAR when TAS is unable to

advocate for penalty relief: “Based on the information provided, consider

the taxpayer’s request for (insert type of penalty) relief. Input the

necessary adjustments for any penalty abated. If you deny the request,

send the proper disallowance letter with appeal rights to the taxpayer, and

provide a copy to TAS.”

Note: As advocates, TAS employees should advocate zealously for the best

result possible for the taxpayer under the law, after conducting an independent

and impartial review of the facts and explaining our position to the IRS. Case

Advocates should only use neutral language if the facts and accompanying

documentation do not support abatement.

Advocating for the “In Between” Cases

The two sections above describe situations where the taxpayer has a strong and

a weak case, respectively. Case Advocates may also encounter “in between”

cases.

Example: The taxpayer does not qualify for First-Time Abate, but does

seek penalty relief for reasons that meet reasonable cause. However, the

documentation received is incomplete, includes conflicting information, or

only covers a portion of the period for which the taxpayer seeks penalty

relief.

In these situations, Case Advocates must use their good judgment and discretion

to determine if a follow-up request to the taxpayer for more information would be

beneficial. The follow-up contact could point out the weaknesses in the

information received and suggest additional information that would strengthen

the case. Case Advocates should ask themselves the following questions when

deciding whether to make a follow-up contact for additional information.

• During previous contacts, did the Case Advocate ask for the missing

information, and did the taxpayer state whether it was available?

• Would a follow-up contact provide the Case Advocate an opportunity to

explain why the IRS needs the information requested and to determine

if the taxpayer had problems securing that information? The Case

Advocate and taxpayer may be able to identify alternative

documentation sources.

• Can TAS advocate for penalty relief by considering the existing

information in a manner most favorable to the taxpayer?

After careful consideration of these questions, Case Advocates will again use

their good judgment and discretion to determine whether to

• Make a follow-up contact to the taxpayer for additional information;

• Issue an OAR that advocates for penalty relief; or

• Issue an OAR that recommends the IRS consider the penalty relief

request using neutral language.

Note: When making follow-up contacts for additional information, Case

Advocates should avoid the perception that they are burdening the taxpayer with

repeated information requests. The initial request for documentation should be

as complete as possible, but must include only the information TAS needs to

advocate for relief of the taxpayer’s problem.

Deciding How to Resolve Disagreements with the IRS Penalty

Determination

When the IRS disagrees with an OAR relief recommendation and sustains the

penalty, Case Advocates should review the reasons given to determine if and

how TAS should dispute the determination. If Case Advocates agree with the

IRS’s explanation, then Case Advocates will close their OARs without further

action (or if the IRS suspended the request pending TAS review, Case

Advocates should advise the employee assigned the OAR to proceed with

sustaining the penalty). The taxpayer can still exercise appeal rights per the

denial letter. Case Advocates will advise the taxpayer of their appeal rights

provided in the denial letter during the closing contact per IRM 13.1.21.1.2 (2)(f),

Closing Actions (05-17-2010).

If TAS decides to dispute the IRS’s OAR determination, the action can occur at

three levels.

• Using the guidance in IRM 13.1.19, TAS OAR Process (03-18-2011)

and the applicable Service Level Agreement, Case Advocates can:

o Negotiate with the assigned IRS employees; or

o Elevate the disagreement so the managers of the employees

involved can discuss the OAR.

• Using the guidance in IRM 13.1.20, TAS Taxpayer Assistance Order

(TAO) Process (02-01-2011), Local Taxpayer Advocates (LTAs) can

advocate for abatement with the appropriate IRS management official

through a TAO.

Internal Revenue Code (IRC) § 7811 (b)(2)(D) permits TAS to issue a TAO that

requires the IRS to take any action permitted by law, with respect to a taxpayer

as described in IRC § 7811 (b). If the LTA believes the taxpayer is entitled to

penalty relief, use the TAO to persuasively advocate for such relief. State your

position and the desired action in the TAO, and require the IRS to expedite,

reconsider, or review its position in light of the information provided. See IRM

13.1.20.3.1, Terms of a TAO (12-15-2007) for more information. LTAs should

not write the TAO passively to ask the IRS simply to review the prior decision to

sustain the penalty. The TAO must argue convincingly that expedited

consideration, reconsideration, or review at a higher level is warranted.

Sample language for the TAO: “It is TAS’s position that the IRS should

abate the penalties described below. Reconsider abating $(insert dollar

amount) of the (insert type) penalty for (MFT YYYYMM) based on

(reasonable cause, statutory exception, administrative waiver, etc.) due to

(category of reasonable cause, exception, or waiver). (Explain why the

documentation supports a request to reconsider the IRS’s previous

penalty determination.)”

OAR dispute elevation can occur at all three levels, even if the IRS initially

ignored TAS’s request to suspend a denial of penalty abatement, to allow a

discussion between TAS and the function. Even if the OD/Function issued a

denial letter and input the disallowance adjustment, the OD/Function can reverse

that decision and abate the penalty without Appeals involvement.

Advocating During the Appeals Process

At any level of OAR disagreement, it may be more productive for the taxpayer to

raise the issue in Appeals, rather than continuing to dispute the abatement denial

with the OD/Function. Appeals can consider case law and hazards of litigation.

If the issue is grey or mixed, Appeals may be a better option for settlement.

Discuss this with the taxpayer or his or her representative, and if the taxpayer

decides to go to Appeals, the taxpayer must file an appeal to the denial of

penalty relief. Once the taxpayer’s penalty appeal package is in Appeals, Case

Advocates can use the OAR process to advocate for penalty relief to Appeals.

Case Advocates will keep the TAS case open until Appeals makes its penalty

relief decision. See IRM 13.1.21.1.3.2 (1)(b), Appeals (02-01-2011) for more

information.

If TAS does not extend its involvement into the penalty appeal, taxpayers can still

exercise the appeal rights described in the disallowance letter on their own.

Note: Even though this memorandum is specific to penalties, TAS employees

can use the advocacy process described here to help taxpayers facing other

issues. When TAS can make a case for relief, Case Advocates should direct the

IRS to take a specific course of action to provide relief. Limit the use of neutral

language to situations where TAS is unable to advocate for relief based on the

available information.

Effect on Other Documents

This guidance will be incorporated into a new section of IRM 13.1, Taxpayer

Advocate Case Procedures, Legislative History and Organizational Structure.

Contact

If you have any questions, please contact Mara Christian, Chief, Policy Group, at

505-837-5707.

Attachment

Examples

Example 1: Advocating for First-Time Abate Rather Than Reasonable

Cause

The First-Time Abate (FTA) is an administrative waiver that generally allows a

taxpayer relief from certain penalties if the taxpayer had not been previously

required to file a return, or if the IRS has not assessed certain penalties in the

prior three years. FTA is also available if the IRS fully abated for reasonable

cause penalties assessed in the prior three years. See IRM 20.1.1.3.6.1, FTA

(12-11-2009) for more information. The Reasonable Cause Assistant prompts

users to abate penalties via the FTA option by default for qualified taxpayers.

Case Advocates will recommend use of the FTA when no other options apply. If

using FTA will result in a larger penalty abatement or when the other options

would burden the taxpayer due to documentation requirements, the Case

Advocate should discuss the FTA option with the taxpayer. If the taxpayer

decides to pursue the FTA option, TAS will recommend the IRS use FTA to

abate the penalty.

If a taxpayer requests Failure To Pay (FTP) penalty abatement, but can only

support reasonable cause for a short period, the RCA will allow FTP abatement

only for the period in question, not in full. Case Advocates should use their

judgment in these situations to determine if advocating for use of the FTA would

be in the best interest of the taxpayer and discuss the various options for relief

with the taxpayer. For example, if a taxpayer with a clean compliance history

requests FTP penalty abatement due to a two-week illness but the tax remained

unpaid for one year, then the Case Advocate should recommend that the

taxpayer seek full abatement based on FTA, not reasonable cause. Case

Advocates should access the RCA to confirm it will abate the FTP penalty based

on FTA.

Suggested language for the OAR: “The taxpayer provided a signed

written statement requesting the FTP penalties be removed in full. The

taxpayer experienced a medical emergency that prevented him from

paying on time, and has a clean compliance history. The taxpayer full

paid the tax on the account. Because the medical emergency was for

such a short period, it is TAS’s position that the entire FTP penalty is

eligible for abatement under the First-Time Abate waiver per IRM

20.1.1.3.6.1, First Time Abate (12/11/2009). We recommend you abate

the penalty for the reasons explained above. If the RCA conclusion is to

sustain any part of the FTP penalty, please suspend the case, contact me

with an explanation, and allow me three work days to review your

reasoning before you sustain the penalty, per the Service Level

Agreement (SLA).”

Attachment

Example 2: Advocating Use of First-Time Abate

The taxpayer requests abatement of FTF and FTP penalties in a written, signed

statement which explains that the taxpayer usually files timely and pays in full,

but does not give a reason for filing and paying late this year. The Case

Advocate contacts the taxpayer to ask relevant and appropriate questions but

finds no specific reason why the taxpayer did not file or pay timely. The taxpayer

fully paid the tax owed with the late return. Accessing the RCA, the Case

Advocate finds the RCA concludes the taxpayer compliance history qualifies the

taxpayer for First-Time Abate.

Suggested language for the OAR: “The taxpayer provided a signed

written statement requesting abatement of the FTF and FTP penalties. I

verified the taxpayer has not been charged FTF or FTP penalties in the

past three years. The taxpayer paid the tax in full. It is TAS’s position that

all of the FTF and FTP penalties on the account are eligible for abatement

under the First-Time Abate waiver per IRM 20.1.1.3.6.1, First Time Abate

(12-11-2009). We recommend you abate the penalties for the reasons

explained above. If the RCA conclusion is to sustain either penalty,

please suspend the case, contact me with an explanation, and allow me

three work days to review your reasoning before you sustain either

penalty, per the Service Level Agreement (SLA).”

Example 3: Advocating Not To Use First-Time Abate

The use of FTA is sometimes not in the best interest of the taxpayer. If TAS can

advocate for the IRS to abate the penalty for reasonable cause rather than FTA,

the taxpayer’s compliance history will remain clean and the FTA is preserved for

a future tax year if the taxpayer needs it.

The taxpayer requests Failure to File (FTF) and FTP penalty abatement due to a

fire (casualty), and provides a report from the Fire Department stating an

electrical short caused a fire that extensively damaged the taxpayer’s home two

weeks before the filing deadline. The taxpayer filed two months later after

recreating records. Accessing the RCA, the Case Advocate confirms the

casualty causing lost records will abate the FTF and FTP penalties based on

reasonable cause, but also finds the RCA could remove the penalty based on

FTA. After discussing the options with the taxpayer, the Case Advocate

recommends that the IRS abate the penalty due to reasonable cause, not FTA.

Suggested language for the OAR: “A fire in the taxpayer’s home destroyed

records needed to file a return. See the supporting documentation provided. It is

TAS’s position that the entire FTF and FTP penalty is eligible for abatement due

to reasonable cause (casualty destroyed records) as the taxpayer filed the return

with full payment two months after the fire. The two-month delay represented the

time it took

Attachment

the taxpayer to recreate the records necessary to file an accurate return.

We recommend you abate the penalties for the reasons explained above.

If the RCA conclusion is to sustain either penalty or to utilize FTA, please

suspend the case, contact me with an explanation, and allow me three

work days to review your reasoning before you sustain the penalty, per the

Service Level Agreement (SLA).”

Example 4: Advocating for Relief Due to IRS Error

The taxpayer receives a balance due notice, pays the amount due, receives a

refund for the same amount, then receives another balance due notice (and the

cycle repeats several times). Case Advocate research finds the balance owed is

due to adjustments of timely withholding credits. The Case Advocate also

discovers this is a known IDRS programming problem that requires manual

restriction of the FTP penalty.

Many IDRS programming problems can cause over-assessment of the FTP

penalty.

• Multiple transaction codes 520 and 521 on the account;

• Multiple collection status codes of 60 and 64 on the account; and

• Reversed refundable credits.

The Case Advocate conducts a compliance check and finds the IRS charged a

correct FTP penalty in a prior year, so full abatement of the FTP penalty under

First-Time Abate is not available. However, the taxpayer is still eligible for partial

penalty relief due to the IRS error for the tax period open in TAS. The case

advocate makes a referral to a Campus Technical Advisor (CTA) for assistance

due to the complexity of a manual FTP computation. Accessing the RCA, the

Case Advocate identifies an IRS error category, but finds the RCA cannot

compute the erroneous penalty, and the IRS must input the abatement manually.

The Case Advocate and CTA manually compute the proper FTP penalty for the

period.

Suggested language for the OAR: “The balance due on the account is the

result of an IRS programming problem for the FTP penalty. (Include a

description of the programming problem identified.) The balance due is the result

of an adjustment of timely credits. I have provided a computation showing the

correct FTP penalty. I recommend assignment of this OAR to a penalty

computation specialist to verify our computation. It is TAS’s position that the FTP

penalty on the account is excessive due to IRS error. We recommend you abate

the FTP penalty so it matches the FTP computation I provided. If the RCA

conclusion is to sustain the FTP penalty, please suspend the case, contact me

with an explanation, and

IRM 20.1.2.1.5, Manual Penalty Adjustments (Apr. 19, 2011).

Attachment

allow me three work days to review your reasoning before you sustain the

penalty, per the Service Level Agreement (SLA).”

Example 5: Advocating for Unavoidable Absence

The taxpayer requests FTF and FTP penalty abatement because he was

hospitalized due to an accident, and provides a doctor-signed statement

confirming the hospitalization. The taxpayer also states there was no one to

handle his affairs. The Case Advocate verifies the taxpayer has a clean

compliance history. The taxpayer filed and paid the tax in full in mid-May. The

doctor’s statement shows the span of hospitalization began before April 15 and

ended a few days before the taxpayer filed. Accessing the RCA, the Case

Advocate selects all appropriate categories, and verifies the RCA will reach a

conclusion to abate the penalties in full for reasonable cause.

Suggested language for the OAR: “The taxpayer was hospitalized

unexpectedly from April xx through May xx, preventing him from filing and

paying his taxes timely. The doctor’s statement verifies hospitalization

through the dates indicated. The taxpayer filed and paid the tax in full

promptly once released from the hospital. The taxpayer states there was

no one to handle his affairs. It is TAS’s position that all of the FTF and

FTP penalties are eligible for abatement due to unavoidable absence. We

recommend you abate the penalties for the reasons explained above. If

the RCA conclusion is to sustain either penalty, please suspend the case,

contact me with an explanation, and allow me three work days to review

your reasoning before you sustain either penalty, per the Service Level

Agreement (SLA).”

Example 6: Advocating When the Explanation Does Not Meet Reasonable

Cause

The taxpayer requests abatement of FTF and FTP penalties. The Case

Advocate conducts a compliance check and finds recent assessments of both

penalties. During initial contact, the Case Advocate has a conversation with the

taxpayer, and explains acceptable reasonable cause standards for both

penalties. The Case Advocate explains the need to ask some respectful but

specific questions to determine if there are circumstances that may merit

reasonable cause. Why are you filing your tax returns late? Did you file an

extension? Are there circumstances preventing you from filing and paying

timely? The taxpayer states he works a lot, did not have time to file his return or

request an extension, and could not pay the tax timely. Accessing the RCA, the

Case Advocate explores the available categories, but cannot find a reason to

abate the penalty, and sees no facts or circumstances that will justify overriding

the RCA decision to sustain the penalties.

Attachment

The Case Advocate has an honest discussion with the taxpayer, stating TAS can

forward the abatement request to the IRS for consideration. However, the

circumstances described do not appear to meet the standard of ordinary

business care and prudence needed to abate the penalties for reasonable cause.

Based on the reason the taxpayer came to TAS, the Case Advocate might also

say that even though the IRS will most likely deny the abatement request, it still

has a responsibility to timely consider and respond to the request. TAS will make

sure the IRS does so, and if the IRS denies the abatement request, TAS will

make sure the taxpayer receives the proper appeal rights.

Suggested neutral language for the OAR: “Based on the information

provided, consider the taxpayer’s request for FTF and FTP penalty relief.

Input the necessary adjustments for any penalty abated. If you deny the

request, send the proper disallowance letter with appeal rights to the

taxpayer, and provide a copy to TAS.”