Section 10. Identification and Processing of Frivolous Documents

5.20.10 Identification and Processing of Frivolous Documents

Manual Transmittal

October 05, 2018

Purpose

(1) This transmits revised IRM 5.20.10, Abusive Tax Avoidance Transactions, Identification and Processing of Frivolous Documents.

Material Changes

(1) IRM 5.20.10.1 updated to include internal controls under Program Scope and Objectives.

(2) IRM 5.20.10.2(1) provided additional information on the "Truth About Frivolous Arguments" and updated the link on the Internal Revenue Service web site.

(3) IRM 5.20.10.2(4) updated IRM citation.

(4) IRM 5.20.10.3(4) updated IRM citation.

(5) IRM 5.20.10.4.3(3) updated to remove Publication 2105 as it is no longer an enclosure with Letter 3176.

(6) IRM 5.20.10.4.3(3)(a) updated to change time period from 30 to 60 days for taxpayer to respond to Letter 3176.

(7) IRM 5.20.10.4.3(4) updated organizational titles and updated link.

(8) IRM 5.20.10.5 added to provide guidance on IRC 6702 penalty abatement.

(9) IRM 5.20.10.6 added to provide guidance on IRC 6702 penalty reduction.

(10) IRM 5.20.10.7(4) updated IRM citation.

(11) Editorial corrections made throughout IRM 5.20.10.

Effect on Other Documents

Audience

Effective Date

Kristen E. Bailey
Director, Collection Policy
Small Business/Self-Employed

Program Scope and Objectives

1. Purpose. This IRM provides guidance to Field Collection employees on the appropriate processing of frivolous returns and other specified frivolous submissions subject to penalty under IRC 6702 as well as frivolous correspondence not subject to IRC 6702.
2. Audience. The audience is revenue officers in Small Business/Self-Employed (SB/SE) Field Collection.
3. Policy Owner. The Director of Collection Policy is responsible for issuing policy for the Abusive Tax Avoidance Transaction (ATAT) program.
4. Program Owner. The program owner is Collection Policy, Global Strategic Compliance, an organization within SB/SE Division.
5. Primary Stakeholders. The primary stakeholders are SB/SE Collection and Return Integrity & Compliance Services (RICS) in the Wage & Investment (W&I) Division.
6. Program Goals. IRC 6702 is intended as a deterrent to address those situations where a taxpayer continues to assert a frivolous argument or who demonstrates intent to delay or impede the administration of the tax law. This IRM provides guidance to revenue officers on their role in administering IRC 6702.

Background

1. The filing of frivolous returns and submissions is an ATAT characteristic of the actions by some taxpayers. Frivolous arguments have been challenged in court and the Service has been successful in defending these cases. The IRS, through the use of IRC 6702, addresses non-compliance based on unfounded legal or constitutional arguments. The Service does, however, have a responsibility to respond to taxpayer’s questions.
2. Potential fraud indicators may be present in frivolous submissions (see IRM 25.1.2.3, Indicators of Fraud.) Initiate discussion with your manager, if appropriate.

Authority

1. Congress has delegated to the IRS the responsibility of administering the tax laws, known as the Internal Revenue Code, found in Title 26 of the United States Code. Congress enacts these tax laws, and the IRS enforces them.
2. IRC 6702 addresses and contains separate and distinct requirements for two Frivolous Tax Submissions categories.

• Frivolous Tax Returns under IRC 6702(a)
• Specified Frivolous Submissions under IRC 6702(b)

Responsibilities

1. The Director, Collection Policy is the executive responsible for the policy and procedures to be employed by Collection personnel.
2. Field Collection Group Managers and Territory Managers are responsible for ensuring compliance with the guidance and procedures described in this IRM.

Program Management and Review

1. Program Reports:

1. The Collection Activity Reports (CAR) report number 5000-23 provides an overview of staff hours expended and workload data for Field Collection.
2. The CAR report number 5000-1 provides an overview of common Taxpayer Delinquent Account (TDA) activity such as issuances, dispositions, credits and inventory.

1. Collection Policy conducts ATAT program reviews as necessary to verify compliance with IRM requirements and to address Treasury Inspector General for Tax Administration/General Accounting Office findings.
2. Case reviews are conducted by Group Managers to ensure compliance with this IRM.
3. Operational reviews are conducted by the Territory Manager and Area Director annually to evaluate program delivery and conformance to administrative and compliance requirements.

Program Controls

1. Group Managers, as well as Territory Managers and Area Directors, are required to approve certain revenue officer case actions. The IRM outlines when approval is required and the level of approval necessary.

Acronyms

1. This table lists commonly used acronyms and their definitions:

Related Resources

1. Additional information and guidance on ATAT collection issues can be found in the following IRM sections.

1. See IRM 5.20.1 through 5.20.12 for additional information on ATAT collection issues.
2. See IRM Part 5 for additional information on general collection issues.
3. See IRM 25.25.10 for information on the Frivolous Return Program (FRP.)

Frivolous Submissions Subject to IRC § 6702

1. Notice 2010-33, Frivolous Positions, as prepared by the Office of Chief Counsel, lists arguments identified as frivolous for purposes of the IRC 6702 penalty. This listing may be updated if new frivolous positions are identified. It can be accessed on the Internal Revenue Service website at http://www.irs.gov/irb/2010-17_IRB/ar13.html. The Office of Chief Counsel annually updates The Truth About Frivolous Arguments , which contains additional information about court opinions addressing common frivolous arguments. Access this document on the Internal Revenue Service website at https://www.irs.gov/tax-professionals/the-truth-about-frivolous-tax-arguments-introduction.
2. Section 407 of the Tax Relief and Health Care Act of 2006 increased the amount of the IRC 6702 penalty from $500 to $5,000 and broadened it to impose the IRC 6702 penalty against taxpayers who file all types of purported returns of tax and certain "specified frivolous submissions."
3. These specified frivolous submissions include frivolous requests for:

• Collection Due Process (CDP) hearings,
• installment agreements,
• offers in compromise (OIC),
• and taxpayer assistance orders (generally such written requests are made on Form 911.)

IRC 6702 Penalty Assessments

1. The IRC 6702 penalty may be assessed against a taxpayer who submits either a frivolous tax return (IRC 6702(a)) or a specified frivolous submission (IRC 6702(b)). A frivolous submission not meeting the definitions described below will not be subject to IRC 6702 penalty assessment.
2. IRC 6702(a) provides that a person who files a purported tax return , including an original or amended return, is subject to a penalty of $5,000 if it meets two tests. First the return either (i) does not contain information on which the substantial correctness of the return can be judged or (ii) contains information that on its face indicates that the self-assessment is substantially incorrect. Second, the return is either (i) based on a position listed in Notice 2010–33 (or subsequent guidance) or (ii) reflects a desire to delay or impede the administration of Federal tax laws.

Note:

When the taxpayer timely files a correct and complete return, the section 6702 penalty should not be assessed based solely on the fact that the taxpayer enclosed a letter with the return explaining why the taxpayer is not paying the self-assessed tax due. If a penalty has been assessed, it should be abated.

1. Request for a CDP hearing,
2. An application for an installment agreement,
3. An OIC, or
4. A taxpayer assistance order.