This IRM adheres to Penalty Policy Statement P-20-1, which addresses fair and equitable implementation and application of penalty provisions to most efficiently encourage voluntary compliance, and requires all IRS functions to develop procedures that promote:

As stated in IRC 7803(e)(3), the Appeals mission is to resolve Federal tax controversies without litigation on a basis that is fair and impartial to both the Government and the taxpayer, promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and enhances public confidence in the integrity and efficiency of the IRS. Appeals accomplishes its mission by considering protested and Tax Court cases and negotiating settlements in a manner which ensures Appeals employees act in accord with the Taxpayer Bill of Rights (TBOR) in every interaction with taxpayers.

IRC Subtitle F, Chapters 61 and 68, contain most of the international civil penalty provisions.

IRM 1.2.1.12.1, Policy Statement 20-1 (formerly P-1-18), Penalties are used to enhance voluntary compliance, sets forth the IRS’s position regarding penalties.

IRM 20.1.9, International Penalties, provides Servicewide instructions for working international penalty cases.

The Director, OS, is the executive responsible for Appeals' policy and procedural guidance.

The Director, PPQ&A, is responsible for program oversight.

The policy analyst shown on the Product Catalog page as the "Content POC (Point of Contact)" is the assigned author of this IRM.

PPQ&A provides trends and data analyses and detailed summary reports for Appeals.

See IRM Exhibit 8.1.1-1, Common Terms Used in Appeals, for common terms and definitions used in IRM Part 8.

The table below is a list of additional terms and acronyms used in this IRM.

This IRM is the primary source of guidance on this program.

IRM 8.11.4, Penalty Appeals (PENAP).

IRM 20.1.9, International Penalties, and its related sections.

The TBOR lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Taxpayer Bill of Rights.

In accordance with IRM 25.30.2.3, Statement of Commitment, Appeals will work cooperatively with the Taxpayer Advocate Service (TAS) to enhance the taxpayer experience. For more information, see IRM 25.30.2, Service Level Agreement between the IRS Independent Office of Appeals and the Taxpayer Advocate Service.

IRC 6751(b)(1) requires written supervisory approval of initial penalty determinations. Written approval may be required prior to issuing a notice letter. See IRM 20.1.1.2.3, Approval Prerequisite to Penalty Assessments, including exceptions to the supervisory-approval requirement, and IRM 20.1.1.2.3.1, Timing of Supervisory Approval.

Post assessed civil penalty cases are controlled on the Appeals Centralized Database System (ACDS) as "PENAP" type cases. Penalty appeal (PENAP) procedures generally apply to penalties that have already been assessed.

Penalty TCs indicate penalty assessment or abatement actions. Generally, when the penalty is assessed on a tax module, each penalty is assigned a TC. See IRM Exhibit 20.1.1-3, Penalty Transaction Codes, for a description of the penalty TCs and their related IRC sections.

Generally, Penalty Reference Numbers (PRNs) are used to identify penalties that are not based on information from a return. These are based on a failure to perform an act required by the IRC.

Generally, international information return penalties are assessed on MFT 13 (BMF) or 55 (IMF) and are identified by TC 240 and the appropriate PRN, but certain penalties can also be assessed on MFT 30. For example, the IRC 6038D penalty for failure to timely file Form 8938, Statement of Specified Foreign Financial Assets, is assessed on MFT 30 when taxpayers file an income tax return with joint filing status.

The following table identifies the common penalties that are disputed in Appeals. For a complete listing, see the Exhibits found in IRM 20.1.1-4 through IRM 20.1.1-6, Introduction and Penalty Relief.

Delinquency penalties are identified with the following transactions codes.

Reporting and filing requirements under the following withholding sections are subject to failure to deposit penalties as discussed in IRM 20.1.4, Failure to Deposit Penalty, when they are required to be reported using, and are applicable to, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Other penalties may also apply.

Reporting and filing requirements under the following withholding sections relating to non-publicly traded entities (i.e., amounts not otherwise reportable on Form 1042) are subject to the listed penalties, among others, for failure to transmit the withholding.

ATEs will consider settlements on cases with assessed penalties for less than the full amount assessed. Delegation Order 8-8 (Rev. 1) delegates the authority to settle cases to ATMs and Appeals Team Case Leaders as to their respective cases. See IRM 1.2.2.9.8, Delegation Order 8-8 (Rev. 1) (formerly DO-66, Rev. 15), Authority of Appeals in Protested and Tax Court Cases.

The ATM will sign the Form 5402, Appeals Transmittal and Case Memo.

The ATE will check the Appeals Issue Locator for a list of international penalties designated as an Appeals Coordinated Issue (ACI) or an Appeals Coordinated Issue with review and concurrence (ACI RC). ACI and ACI RC are referred to as coordinated issues. Coordinated issues include Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Return of Foreign Trust With a U.S. Owner, penalties, among others.

During the preliminary review, the ATE submits a referral, through their ATM, to International Operations on Form 13381, Appeals Technical Guidance Referral, which is required by IRM 8.2.1.6, Preliminary Review of a Case - ATE.

When a Collection AO identifies a civil penalty for which a referral to Area 11 must be submitted, the Collection AO creates a new WUNO to refer the liability issue to Area 11.

An Area 11 ATM or designated official assigns the new WUNO.

The Area 11 ATE acts as a consultant when making a determination on the liability.

Once the WUNO is assigned (CR-NR), the Area 11 ATE works the case similar to other penalty cases with the goal of closing the case within 120 days.

The ATE reviews the ACDS Case Summary Card for entity and return level information, including:

If the penalty is an ACI (check Appeals Issue Locator), the Area 11 ATE prepares and submits Form 13381. Update the WUNO by adding Feature Code "AI" (ACI) once a referral is submitted.

The administrative file should contain documentation associated with the disputed issue, for example, copies of notices issued to the taxpayer, compliance documents, and the taxpayer’s written statement with supporting documents that describes the reason(s) the liability should be changed.

Closing the liability referral. The ATE must:

The Area 11 ATM submits a STARS (Shared Team of Administrative & Redaction Support) request to transfer the referred WUNO back to the originator.

Account and Processing Support (APS) procedures for establishing penalty cases are located in IRM 8.20.5.32.1, Civil Penalty (MFT 13 & 55) Case Carding, and in IRM 8.20.5.32.6, Penalty Appeal (PENAP) Case Carding.

The ATM or designated official will assign the case to an ATE on ACDS.

An abatement is the reduction or elimination of an assessment. The authority for the IRS to make abatements come from IRC 6404. A penalty abatement request is not an informal claim for refund.

An "informal claim" must have a written component apprising the IRS a refund is sought and describe the legal and factual basis for the refund so the IRS may investigate the claim. See IRM 25.6.1.10.3.2.3, Informal Claims.

Consider the refund statute during the initial review of the case. IRC 6511 imposes the following limits for making a refund or credit of an overpayment:

If an agreement is reached on an overassessment, secure an agreement form using the procedures for agreement in a pre-90 day case (i.e., Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, or Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment) provided the form is executed and filed within the period of limitations for filing a claim for credit or refund. If Form 870 or Form 870-AD is not appropriate, consider the case type to identify the appropriate form for securing an agreement. See IRM 8.7.7.11, Securing an Agreement Form for an Overassessment (No Refund Claim Filed).

An abatement should not be made of any paid portion of an assessment for which a refund cannot be made. See IRM 25.6.1.10.1.1(6), Abatement Authority. The ATE is responsible for communicating with the taxpayer to let them know a portion of the paid penalty is not subject to abatement.

Penalties should not be abated on a full paid account if the overpayment created is barred from refunding because the refund statute of limitations has passed, and no condition exists that will extend the refund period. This is true even if the taxpayer’s claim for penalty abatement is based on reasonable cause. See IRM 25.6.1.10.1.1(7), Abatement Authority. On a full paid module, do not consider the merits of the claim and issue Letter 916C, Claim Incomplete for Processing; No Consideration, to close the case as a no consideration case.

Required information that is reported includes for a U.S. person with interest in:

See IRM 20.1.9.3.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for IRC 6038 penalties. IRC 6038 does not define reasonable cause. For reasonable cause considerations, see IRM 20.1.1.3.2, Reasonable Cause, and 26 CFR 301.6651-1(c).

Taxpayers are required to file complete and accurate information using:

The FTA penalty relief provisions generally do not apply to event-based filing requirements. However, see the exception in IRM 20.1.9.3.5(3) , Reasonable Cause, for the potential applicability of FTA relief to certain Form 5471 systemically assessed penalties with PRN 599 or 712.

IRC 6038A(a) and 26 CFR 1.6038A-2 generally require a reporting corporation to furnish detailed information regarding each person who is a related party and had any transaction with the reporting corporation during the taxable year. A reporting corporation is a domestic corporation that is 25% or greater foreign owned. In addition, a foreign owned U.S. disregarded entity is treated as a reporting corporation.

The due date is the date of the filer’s U.S. income tax or information return, including extensions. It is filed as an attachment to the reporting corporation's income tax return.

A foreign owned U.S. disregarded entity attaches its Form 5472 to a pro forma Form 1120 and files following the Form 5472 instructions. The foreign owned U.S. DE has the same tax year used by its owner for U.S. tax filing requirements or, if none, the calendar year.

See IRM 20.1.9.5.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief applies to this penalty. To show reasonable cause exists, the reporting corporation must make an affirmative showing of all the facts alleged as reasonable cause for the failure in a written statement containing a declaration that it was made under the penalties of perjury. See IRC 6038A(d)(3) and 26 CFR 1.6038A-4(b) , as well as IRM 20.1.1.3.2 , Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c)) .

Reasonable cause will be applied liberally when a small corporation had no knowledge of the IRC 6038A requirements, has limited presence in (and contact with) the U.S., promptly and fully complies with all requests to file Form 5472, and promptly and fully complies with all requests to furnish books and records relevant to the reportable transaction. A "small corporation" is defined as a corporation whose gross receipts for a taxable year are $20,000,000 or less. See 26 CFR 1.6038A-4(b)(2)(ii) for additional information.

The FTA penalty relief provisions generally do not apply to event-based filing requirements. However, see the exception in IRM 20.1.9.3.5(3) , Reasonable Cause, for the potential applicability of FTA relief to certain to certain Form 5472 systemically assessed penalties with PRN 711.

The following information returns are applicable to this section:

See IRM 20.1.9.7.1, Reporting and Filing Requirements, for information on reporting and filing requirements.

Reasonable cause: IRC 6038B(c)(2) provides that no penalty shall apply to any failure if the U.S. person shows such failure is due to reasonable cause and not due to willful neglect. To show reasonable cause exists, an amended return must be filed promptly after becoming aware of the failure. The amended filing must include the information that should have been included with the original return and include a written statement explaining the reasons for the failure to timely comply. See IRC 6038A(d)(3) and regulations thereunder, as well as IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c)).

IRC 6038C(a) and regulations generally require a reporting corporation to furnish information regarding each person who is a related party and had any transaction with the reporting corporation during the taxable year. A reporting corporation is a foreign corporation that is engaged in a trade or business within the U.S. at any time during a taxable year.

The due date is the date of the filer’s U.S. income tax or information return, including extensions. It is filed as an attachment to the reporting corporation's income tax return.

IRM 20.1.9.8.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for this penalty. Per IRC 6038C(c) , to show reasonable cause exists, the reporting corporation must make an affirmative showing of all the facts alleged as reasonable cause for the failure in a written statement containing a declaration that it was made under the penalties of perjury. See IRC 6038A(d)(3) and 26 CFR 1.6038A-4(b) , as well as IRM 20.1.1.3.2 , Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c) ).

Reasonable cause will be applied liberally when a small corporation had no knowledge of the IRC 6038C requirements, has limited presence in (and contact with) the U.S., promptly and fully complies with all requests to file Form 5472, and promptly and fully complies with all requests to furnish books and records relevant to the reportable transaction. A "small corporation" is defined as a corporation whose gross receipts for a taxable year are $20,000,000 or less. See 26 CFR 1.6038A-4(b)(2)(ii) for additional information.

The FTA penalty relief provisions generally do not apply to event-based filing requirements. However, see the exception in IRM 20.1.9.5.5(3), Reasonable Cause, for the potential applicability of FTA relief to certain Form 5472 systemically assessed penalties with PRN 711.

IRC 6038D and the regulations thereunder prescribe when a Form 8938 filing is required:

The due date is the date of the filer’s U.S. income tax or information return, including extensions. If no U.S. income tax or information return is required to be filed, Form 8938 is not required, even if the value of the specified foreign financial assets is more than the appropriate reporting threshold.

See IRM 20.1.9.22.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for this penalty. IRC 6038D(g) provides that no penalty shall apply if the individual shows that the failure is due to reasonable cause and not due to willful neglect. See IRC 6038D(g) and 26 CFR 1.6038D-8, as well as IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c)).

An individual will not have reasonable cause merely because a foreign jurisdiction would impose a civil or criminal penalty on any person for disclosing the required information, per IRC 6038D(g).

IRC 6039F requires a U.S. person who receives gifts or bequests during the taxable year from a foreign individual, foreign estate, foreign corporation, or foreign partnership, that in the aggregate exceed the current threshold amounts, to disclose information about the amounts received. The reporting threshold:

Form 3520 is filed once a year for all reportable amounts received within the year with respect to each U.S. person. It is generally due on the due date of the filer’s income tax return, including extension, and is filed with the Ogden Service Center separately from the U.S. person’s income tax return.

See IRM 20.1.9.10.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for this penalty. IRC 6039F(c)(2) provides that no penalty shall apply if shown the failure is due to reasonable cause and not due to willful neglect. See IRC 6039F(c)(2) , as well as IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c) ).

IRC 6048 requires reporting for a U.S. person who has certain transactions or is treated as an owner of a foreign trust.

Form 3520 is filed once a year for all reportable amounts received within the year with respect to each U.S. person. It is generally due on the due date of the filer’s income tax return, including extension, and is filed with the Ogden Service Center separately from the U.S. person’s income tax return.

See IRM 20.1.9.13.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for this penalty. IRC 6677(d) provides that no penalty shall apply if shown that the failure is due to reasonable cause and not due to willful neglect. See IRC 6677(d) , as well as IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c)).

Reasonable cause does not include when a foreign jurisdiction would impose a civil or criminal penalty on any filer for disclosing the required information per IRC 6677(d).

A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under IRC 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under IRC 671 through IRC 679 is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.

See IRM 20.1.9.14.1, Reporting and Filing Requirements, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available for this penalty. IRC 6677(d) provides that no penalty shall apply if shown that the failure is due to reasonable cause and not due to willful neglect. See IRC 6677(d) , as well as IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c)).

Reasonable cause does not include when a foreign jurisdiction would impose a civil or criminal penalty on any filer for disclosing the required information, per IRC 6677(d).

Required information that is reported includes for a U.S. person with an interest in:

See IRM 20.1.9.15.1, Reporting and Filing Requirement, for detailed procedures on reporting and filing requirements.

Reasonable cause relief is available per IRC 6679(a)(1). IRC 6679 does not define reasonable cause. For reasonable cause considerations, see IRM 20.1.1.3.2, Reasonable Cause, and regulations (e.g., 26 CFR 301.6651-1(c) ).

26 CFR 301.6679-1(a)(3) states, in part, that if the taxpayer exercises ordinary business care and prudence and is nevertheless unable to furnish any item of information required under IRC 6046, IRC 6046A and the regulations thereunder, such failure shall be considered due to reasonable cause.