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Part 8. Appeals

Chapter 17. Settlement Computations and Statutory Notices of Deficiency

Section 7. Penalties/Additions to Tax in Computations

8.17.7  Penalties/Additions to Tax in Computations

8.17.7.1  (11-02-2007)
Settlements with Penalties and Additions to Tax

  1. This subsection briefly discusses the various penalties and additions to tax that are included in settlement computations. These penalties and additions to the tax are generally considered by Appeals concurrently with the tax liability generating the penalty or addition to tax amounts.

  2. For detailed information on these penalties and additions to tax, see IRM 20.1, Penalty Handbook.

  3. The more common penalties and additions to the tax by Code section and kind of tax are summarized in the Penalty Reference Chart found in the exhibit. See Exhibit 8.17.7-2.

8.17.7.1.1  (11-02-2007)
When Tax Court Lacks Jurisdiction

  1. In general, the Tax Court of the United States has no jurisdiction over the addition to tax under IRC 6656 where the addition to tax relates to the failure to deposit employment taxes withheld. (However, see IRC 7436 and IRM 4.23.16 for information concerning IRC 7436 Notices of Determination).

    1. The Tax Court does have jurisdiction over the IRC 6656 addition to tax when the addition relates to a deficiency due to the failure to withhold and deposit taxes pursuant to IRC 1441 and IRC 1442.

  2. The Tax Court does not have jurisdiction over the additions to tax under IRC 6654 and IRC 6655 when a tax return has been filed.

  3. When the Tax Court does not have jurisdiction, the additions (penalties) can be assessed directly. This should be done prior to issuance of the notice of deficiency. Additions so assessed are not included in the notice of deficiency.

  4. In most cases, penalty provisions of the code sections in effect for the loss year generating the carryback govern penalties applicable to carryback years.

8.17.7.1.2  (11-02-2007)
Items Impacting the Penalty Computations

  1. In most cases, penalty provisions of the code sections in effect for the loss year generating the carryback govern penalties applicable to carryback years. Penalties are computed based upon the normal tax computations, which include net operating loss (NOL), capital loss and credit carryovers, but exclude NOL operating loss, capital loss and credit carrybacks.

  2. Pre-assessment credits are payments of tax such as withholding tax, estimated tax payments, etc., made prior to the due date of the return, but neither applied to a tax liability nor refunded to the taxpayer. These credits would include frozen refunds from a filed return and prepayment credits for an unfiled return.

  3. Under IRC 6664, the underpayment used to compute the IRC 6662 and IRC 6663 penalties is the deficiency decreased (or increased) by changes to pre-assessment credits. Pre-assessment credits do not include advance payments, cash bonds, or amounts applied from other tax liabilities subsequent to the due date of the return for which the penalty applies.

8.17.7.2  (11-02-2007)
Penalties Repealed for Returns Due (Without Regard to Extensions) After 12/31/89

  1. The following penalties were repealed for returns due (without regard to extensions) after 12/31/89. For detailed information on preparing a settlement computation with this penalty, refer to the historical IRM 8.17.2 found on the Publishing web site at http://publish.no.irs.gov.

    1. Negligence Penalty, IRC 6653(a);

    2. Fraud Penalty, IRC 6653(b);

    3. Valuation Overstatement, IRC 6659;

    4. Valuation Understatement (Estate and Gift), IRC 6660;

    5. Substantial Understatement, IRC 6661.

8.17.7.3  (11-02-2007)
Failure to File, IRC 6651(a)(1)

  1. If a return is not timely filed, IRC 6651(a)(1) provides for a penalty of 5% if the failure is for not more than one month, with an additional 5% for each month or fraction thereof during which the failure continues, but not in excess of 25%.

  2. Unlike the negligence and fraud penalties, the failure to file (FTF) penalty is computed on the net amount due. The net amount due is the tax liability required to be shown on the return reduced by payments of tax on or before the date prescribed for payment and by the amount of allowable credits against the tax, which may be claimed on the return.

    1. If valid extensions of time to file have been granted, the FTF penalty is not applicable until the expiration of the extension and then only from that date on. An extension may be considered invalid if tax is not properly estimated. In these instances, the FTF penalty is computed from the original due date.

    2. To arrive at the tax liability required to be shown on return, compute the revised tax liability of the case, excluding all net operating loss, capital loss and credit carrybacks.

    3. All withholding credits are considered timely paid regardless of the posting date shown on the IDRS transcript. Additional withholding credits allowable are considered timely paid and are allowed as credits when computing the delinquency penalty.

    4. The minimum failure to file penalty is the lesser of $100 or 100% of the tax liability required to be shown on the return, as determined in (b) above, if the return is not filed within 60 days of the due date (with extensions), for returns due after December 31, 1982. In order for the minimum penalty to apply, there must be a net tax due, e.g., withholding and other allowable credits as of the due date of the return do not exceed the revised tax liability or tax required to be shown on the return.

    5. The tax liability required to be shown on the return, as determined in (b) above, should not include earned income credit or additional child tax credit adjustments. However, the allowable earned income credit or additional child tax credits used to reduce this tax liability should be the revised credit amounts after any adjustments are made to earned income credit and additional child tax credit.

  3. Coordination with Fraud Penalty

    1. For returns the due date for which (determined without regard to extensions) is before January 1, 1987, the FTF penalty is not asserted on a tax return when the fraud penalty is asserted.

    2. For tax returns with a due date (without regard to extensions) after December 31, 1986 and before January 1, 1990, the FTF and fraud penalties may be asserted on the same delinquent return, but not on the same portion of the underpayment. Assert the FTF penalty only on the portion of the underpayment to which the fraud penalty does not apply.

    3. Effective for returns due after December 31, 1989 (determined without regard to extensions), the FTF and the fraud penalties may be asserted for the same tax year and against the same portion of the tax liability.

    4. If the failure to file is due to fraud, the fraudulent failure to file penalty under IRC 6651(f) may be asserted rather than the regular FTF penalty under IRC 6651(a)(1). See discussion of IRC 6651(f).

  4. In cases where the Failure to Pay penalty (FTP) under IRC 6651(a)(2) is also asserted, a special computation is necessary:

    1. When both the FTF and FTP penalties apply to an original assessment, the Campus will reduce the 5% per month FTF penalty to 4.5% per month for the months when both penalties apply. An example follows for computation of the penalties in connection with delinquent returns secured.

      Balance Due (Return due 4/15/92 filed 12/2/92) $500.00
      Failure to Pay Penalty - 1/2 of 1% for 8 mos. 20.00
         
      Failure to File Penalty, 5% per mo. for 5 mos. $125.00
      Less Failure to Pay Penalty for first 5 mos. 12.50
      Failure to File Penalty to be assessed by the Campus ($500.00 x 4.5% x 5 months) $112.50

    2. If the taxpayer has filed a return and an additional tax liability is determined: Compute the FTF penalty at the total rate of 5% per month allowable under IRC 6651(a)(1). The FTP penalty under IRC 6651(a)(2) cannot be asserted on a subsequently determined tax deficiency when the taxpayer has filed a return. However, the penalty may be assessed on the tax liability shown on the return when it was filed. If the FTP penalty was assessed by the Campus on the tax per return, then when computing the corrected total liability for 6651(a)(1), the FTF penalty must be reduced by the amount of the IRC 6651(a)(2) penalty assessed for any month or part of a month during which both penalties apply. See Exhibit 8.17.7-1.

    3. If the taxpayer has not filed a return and an additional tax liability is determined: For returns due before July 31, 1996, additional assessments will not be subject to the FTP penalty under IRC 6651(a)(2), and therefore, the full 5% FTF penalty will be applicable. For returns due after July 30, 1996, the enactment of IRC 6651(g) provides for the application of the IRC 6651(a)(2) failure to pay penalty for substitute returns prepared by the IRS. Therefore, in these substitute return (SFR) computations, the 5% per month FTF penalty will be reduced to 4.5% a month per month if the FTP penalty is also being asserted.

  5. When both the FTP penalty and the minimum FTF penalty apply (income tax returns only), the minimum FTF penalty is not reduced by the amount of the FTP penalty.

  6. The FTF penalty is generally computer generated by the Campus with respect to the liability shown on delinquent returns.

  7. PL 98-369, Deficit Reduction Act of 1984, provides that interest will be imposed on the FTF penalty as of the return due date extended or July 18, 1984 whichever is later. The Campus will normally compute interest. If the taxpayer wishes to make payment, then a computation will be made and included in the case file.

  8. Additional information on computing the FTF penalty can be found in IRM 20.1.2, Failure To File/Failure To Pay Penalties.

8.17.7.4  (11-02-2007)
Failure to Pay Penalty, IRC 6651(a)(2) and IRC 6651(a)(3)

  1. The Failure to Pay (FTP) penalties apply to the balance of tax due and shown on returns, and to balances due where notice and demand is given. In general, the applicable FTP penalty should be assessed at one-half of 1% of the unpaid tax for the first month the penalty applies and an additional one-half of 1% for each additional or fraction of the month the tax is unpaid, not to exceed 25% of the tax.

    1. IRC 6651(a)(2) — Computed from the date prescribed for payment of tax (determined with regard to any extension of time for payment.) Generally, the failure to pay penalty is computed from the original due date of the return to the date the tax is paid.

    2. IRC 6651(a)(3) — For notices issued prior to January 1, 1997, this is assessed when payment is not made within 10 days of notice and demand. For notices issued after December 31, 1996, this is assessed if payment is not made within 21 calendar (or ten (10) business days if the balance due amount equals or exceeds $100,000) of notice and demand.

  2. These additions under IRC 6651(a)(2) and IRC 6651(a)(3) will generally be assessed automatically by the Campus. Form 4364, Delinquency Computations, is sometimes attached to the face of the delinquent return to show the penalty computations.

  3. However, if the addition under IRC 6651(a)(2) relates to a "substitute return" (SFR) prepared by the Secretary under IRC 6020(b), the deficiency procedures have to be followed before an assessment can be made.

  4. If the taxpayer has filed a return:

    1. The IRC 6651(a)(2) failure to pay penalty cannot be asserted on a deficiency when the taxpayer filed a return. Therefore, the IRC 6651(a)(2) penalty should not be computed on the deficiency shown in the settlement computation when a return is filed by the taxpayer.

    2. If the Compliance report or statutory notice of deficiency has asserted IRC 6651(a)(2) and the taxpayer filed a return, consult with the Appeals Officer or Counsel attorney on whether the penalty should be sustained or eliminated.

    3. If the IRC 6651(a)(2) penalty is eliminated, then the IRC 6651(a)(1) penalty will need to be recomputed using a percentage of 5% per month instead of 4.5%.

  5. If the taxpayer has not filed a return:

    1. The FTP penalty does not apply in SFR proceedings in cases with a return due date before July 31, 1996.

    2. IRC 6651(g) applies the FTP penalty to a SFR if the return has a due date (without regard to extensions) after July 30, 1996.

  6. Notices of Levy: IRC 6651(d) increases the FTP penalty rate under IRC 6651(a)(2) or IRC 6651(a)(3) from one-half of one percent (.005) to one percent (.01) of the tax at the start of the month beginning after:

    • 10 days after the date of notice of intent to levy ( IRC 6331(d)), or

    • The day on which notice and demand for immediate payment is given in the case of jeopardy ( IRC 6631(a)).

    • These are the only two conditions (trigger dates) that allow for the FTP penalty rate increase to one percent. See IRM 20.1.2.6.1, Penalty Computation.

      Note:

      The 1% penalty rate applies to all subsequent assessments on that module. However, once a module is fully paid, a later assessment will begin to accrue at the one-half of one percent rate.

  7. Installment agreements:

    1. For months beginning after December 31, 1999, an individual's FTP penalty will be reduced to one quarter of one percent (.0025) for any month in which an installment payment agreement with IRS is in effect, provided the individual timely filed (taking extensions into account) the return relating to the liability that is subject to the installment agreement.

    2. This reduction does not apply if the 1% FTP penalty rate under IRC 6651(d) is in effect.

    3. See IRM 20.1.2.8, Reduced Penalty IRC 6651(h), for more detailed information.

8.17.7.4.1  (11-02-2007)
Nonfilers : Substitute for Return (SFR) and IRC 6651(g)

  1. IRC 6651(a)(2) authorizes the imposition of an addition to tax where, without reasonable cause, a taxpayer fails to pay the amount shown as tax on a return on or before the payment date. Prior to the enactment of IRC 6651(g), no comparable failure to pay penalty applied to taxpayers who did not file a return. A taxpayer with a substitute for return (SFR) prepared by the Service pursuant to IRC 6020(b) was not subject to an IRC 6651(a)(2) penalty because the SFR was not treated as a return for purposes of the failure to pay penalty.

  2. Recognizing the inequity of imposing the failure to pay penalty on filers but not on nonfilers, Congress enacted IRC 6651(g). IRC 6651(g) provides that for returns due (without regard to extension) after July 30, 1996, an IRC 6020(b) return will be treated as a return filed by the taxpayer for purposes of determining the IRC 6651(a)(2) penalty.

    Note:

    Pursuant to IRC 6020(b), the Service generally prepares a return when it determines that a taxpayer is liable for filing the tax return, but failed to do so after receiving notification from the Service.

  3. If a taxpayer does not file a return, then the IRS can assert the IRC 6651(a)(2) penalty on the deficiency if a valid return under IRC 6020(b) has been prepared, but only for returns due (without regard to extension) after July 30, 1996.

  4. A valid return must have been prepared under IRC 6020(b) in order to assert the IRC 6651(a)(2) penalty on a nonfiler. The requirements of a valid IRC 6020(b) return are discussed in Treas. Reg. section 301.6020-1T.

  5. The requirements of a valid IRC 6020(b) return would include the following documents for each nonfiled tax period:

    1. A properly completed and signed Form 13496, IRC 6020(b) Certification, dated on or after the date of documents (c) and (d), below.

    2. A transcript of the taxpayer's account reflecting the substitute for return TC 150 posting for each nonfiled tax period. (This requirement is only if Form 13496 (rev. 4-2005) is used. Updated Form 13496 (rev. 10-2005) no longer requires any transcript.)

    3. Form 4549 or Form 4549-A, Income Tax Examination Changes, signed by a duly authorized IRS employee.

    4. Form 886-A, Explanation of Items.

  6. Procedures for SFR Returns

    1. Verify that the taxpayer did not file a return, and that there is a SFR TC 150 posting on the transcript.

    2. Remember that the IRC 6651(a)(2) penalty does not apply in SFR proceedings in cases with a return due date before July 31, 1996. If Compliance asserted the IRC 6651(a)(2) penalty in error for a return due before July 31, 1996, consult with the Appeals Officer or Counsel Attorney.

    3. If the taxpayer was a nonfiler for a return due (without regard to extension) after July 30, 1996, check the administrative file to see if a IRC 6020(b) return has been certified via Form 13496. The Appeals Officer or Counsel Attorney should give the Tax Computation Specialist clear instructions with regard to the IRC 6651(a)(2) penalty in SFR cases. If there are no instructions concerning the IRC 6651(a)(2) penalty, then consult with the requestor.

    4. If the IRC 6020(b) return was not certified, then also consult with the Appeals Officer or Counsel Attorney. Where no Form 13496 package is included in the administrative file, the Appeals Officer or Counsel Attorney will need to review the file to determine whether there are documents that would meet the requirements of an IRC 6020(b) return, as outlined in Treas. Reg. section 301.6020-1T. (Also see CC Notice 2003-019, as modified by CC Notice 2004-009.)

      Note:

      For SFR's showing tax that does not follow deficiency procedures (e.g., employment and excise), examiners can complete the certification guidelines with Form 13496, or sign their names on the taxpayer's signature line on the hardcopy of the return followed by the words: "This return was prepared and signed under authority of IRC 6020(b)."

    5. If the taxpayer was a nonfiler for a return due after July 30, 1996 and it has been determined that a valid IRC 6020(b) return was filed and IRC 6651(a)(2) applies, compute the failure to pay penalty at .5% per month or portion of a month. The failure to file penalty under IRC 6651(a)(1) will be computed at 4.5% per month or portion of a month when both penalties apply. See IRM 20.1.2, Failure To File/Failure To Pay Penalties, for detailed information about computing the IRCs 6651(a)(1) and 6651(a)(2) penalties.

    6. If an IRC 6651(a)(2) penalty asserted in the Compliance report or statutory notice of deficiency is being eliminated by Appeals or Counsel, then the IRC 6651(a)(1) penalty will need to be recomputed using a percentage of 5% per month instead of 4.5%.

    7. If the IRC 6651(a)(2) penalty has not reached the maximum penalty of 25%, the IRC 6651(a)(2) penalty amount will be shown on Form 3610 and Form 5278, (or Form 4549, etc.) as an asterisk (*) with the explanation that the amount cannot be computed until the taxpayer pays the balance due. See format below:

        Additions to the Tax  
      IRC 6651(a)(1)   IRC 6651(a)(2)
      $200.00   *
           
      *The IRC 6651(a)(2) penalty cannot be computed at this time. A penalty of .5 percent will be imposed for each month from the due date of the return, up to a maximum of 25 percent, based on the amount of unpaid tax.

    8. If the IRC 6651(a)(2) penalty applies in a case at the maximum 25% penalty rate, the IRC 6651(a)(2) penalty should be computed and included on the settlement computation.

8.17.7.5  (11-02-2007)
Fraudulent Failure to File, IRC 6651(f)

  1. OBRA ‘89 enacted IRC 6651(f), increase in penalty for fraudulent failure to file, in order to impose a severe penalty for failure to file a return where that failure was done with the intent to evade tax. This penalty generally has an impact equal to the severity of the IRC 6663 civil fraud penalty, and applies to the failure to file returns the due date for which (without regard to extensions) is after December 31, 1989.

    1. However, for returns due (without regard to extensions) after December 31, 1989, it is the IRC 6663 fraud penalty that applies to a fraudulent filed return, not the IRC 6651(f) fraudulent failure to file penalty.

  2. The IRC 6651(f) penalty is computed in the same manner as a FTF penalty only the applicable percentage is different. The IRC 6651(f) penalty is 15% per month of the net amount due for each month the return is delinquent, up to a maximum of five months or 75%.

  3. The 75% fraud penalty imposed by IRC 6663 and the fraudulent failure to file penalty imposed by IRC 6651(f) may be asserted for the same tax year.

  4. Additional information on the fraudulent failure to file penalty can be found in IRM 20.1.2, Failure To File/Failure To Pay Penalties.

8.17.7.6  (11-02-2007)
Failure to Report Tips, IRC 6652(b)

  1. The IRC 6652(b) penalty is 50% of FICA tax on tip income that the employee failed to report to his or her employer. This penalty, though applicable to employment tax, is assessed and collected as a part of the taxpayer's income tax.

8.17.7.7  (11-02-2007)
Estimated Tax Penalties, IRC 6654 and IRC 6655

  1. IRC 6654 imposes a penalty if an individual underpays estimated tax. The rate is provided by IRC 6621. The period of underpayment runs from the due date of the installment to the lesser of the due date of the return or the date of payment and is based on the tax shown on the original return or, if no return is filed, on the tax as determined.

  2. For the purpose of asserting the penalty, tax is defined as income and self-employment tax less all credits allowed by Part IV, Subchapter A, Chapter 1, other than tax withheld from wages ( IRC 31). Tax withheld is allowed as a payment of estimated tax.

  3. IRC 6655 imposes a penalty if a corporation underpays estimated tax. The law has been changed substantially; therefore, it is best to consult the Code and Regulations if computation of this penalty is involved in a case.

  4. Although IRC 6654 and IRC 6655 penalties are generally computer generated by the Campus, Examination will sometimes assert or adjust these penalties. If an adjustment is made to the tax of an original return, after the return due date (including extensions) as a result of either an audit or the taxpayer filing an amended return, the penalty amount will generally not be adjusted.

    Note:

    An estimated tax penalty cannot be asserted on a deficiency when the taxpayer has filed a return.

  5. In "Substitute for Return" cases, any applicable penalty will always be asserted by Compliance and/or Appeals.

  6. For detailed information on all provisions covering estimated tax penalties, see IRM 20.1.3.

8.17.7.8  (11-02-2007)
Accuracy-Related Penalty, IRC 6662

  1. IRC 6662 imposes an accuracy related penalty at the rate of 20% on the portion of any underpayments attributable to any of the following, for returns due after 12/31/89 (without regard to extensions):

    1. Negligence or disregard of rules or regulations.

    2. Substantial understatement of income tax.

    3. Substantial valuation misstatement under Chapter 1 of the IRC.

    4. Substantial overstatement of pension liabilities.

    5. Substantial estate or gift tax valuation understatement.

  2. Under IRC 6662(h), this penalty is increased to 40% in the case of a gross valuation overstatement.

  3. The IRC 6662 penalty only applies to filed returns and does not apply to any portion of an underpayment that is subject to a fraud penalty.

  4. Net operating loss carrybacks, capital loss carrybacks and all credit carrybacks cannot be used to reduce the underpayment subject to the penalty.

  5. Interest will accrue on the penalty from the due date of the return, including extensions.

8.17.7.8.1  (11-02-2007)
Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions, IRC 6662A

  1. The American Jobs Creation Act of 2004 (P.L. 108-357) added IRC 6662A, an accuracy-related penalty specifically for reportable transaction understatements effective for taxable years ending after October 22, 2004.

  2. The amount of the penalty is 20 percent of the reportable transaction understatement.

  3. The amount of the penalty is increased to 30 percent for any portion of any reportable transaction understatement that does not meet the requirements of IRC 6664(d)(2)(A).

  4. This penalty only applies to an item that is attributable to a listed transaction or an item that is attributable to a reportable transaction (other than a listed transaction) with a significant Federal tax avoidance purpose.

  5. Coordination with other penalties:

    1. IRC 6662A does not apply to any portion of an understatement on which a penalty is imposed under IRC 6663.

    2. IRC 6662A does not apply to any portion of an understatement on which a gross valuation misstatement penalty under IRC 6662(h) is imposed.

8.17.7.9  (11-02-2007)
Fraud Penalty, IRC 6663

  1. IRC 6663 imposes a fraud penalty at the rate of 75% on the portion of any underpayment attributable to fraud for returns due after 12/31/89 (without regard to extensions). This penalty only applies to filed returns. Net operating loss carrybacks, capital loss carrybacks and all credit carrybacks are not used to reduce the underpayment subject to the penalty.

    Note:

    The accuracy-related penalty, IRC 6662, cannot apply to any portion of an underpayment on which the fraud penalty is imposed.

  2. IRC 6651(f) coversthe fraud penalty that applies to failure to file cases.

  3. On late filed returns the delinquency penalty under IRC 6651 and the fraud penalty under IRC 6663 can apply on the same return.

  4. Interest will accrue on the penalty from the due date of the return, including extensions.

Exhibit 8.17.7-1  (11-02-2007)
Computation of Failure to File Penalty After Tax Adjustment, with Previously Assessed Failure to Pay Penalty

Facts: The taxpayers filed their joint 1999 return on August 19, 2001. The tax liability on the return was $4,062.00. The taxpayer had withholding of $726.00, resulting in net tax due of $3,336.00. FTF and FTP penalties were assessed as shown below:
   
FTF: 3,336.00 x .045/month x 5 months = 750.60
FTP : 3,336.00 x .005/month x 17 months unpaid = 283.56
   
The return was examined and an additional tax deficiency of $1,500.00 was determined. The additional IRC 6651(a)(1) penalty would be $375.00, computed as shown below:
   
Correct tax liability (4,026.00 + 1,500.00) 5,562.00
Less : prepayment credits (726.00)
Net tax due 4,836.00
Penalty Rate 0.25
Penalty 1,209.00
Less FTP for the same number of months as FTF was assessed  
(3,336.00 x .005 x 5 = 83.40) 83.40
Failure to file - IRC 6651(a)(1) 1,125.60
Less previously assessed FTF penalty (750.60)
Additional failure to file penalty 375.00
======
If a penalty rate of .225 (.045 x 5) for IRC 6651(a)(1) was used, the following incorrect answer would result:  
Net tax due 4,836.00
Penalty Rate 0.225
Penalty Amount 1,088.10
Less previously assessed FTF penalty (750.60)
Incorrect amount of additional failure to file penalty 337.50
======

Exhibit 8.17.7-2  (11-02-2007)
Penalty Reference Chart

6651(a)(1) Failure to File
5% per month to 25% maximum. Based on correct tax liability less payments and credits allowable at due date of return. 		All years.
  If return not filed within 60 days: Minimum penalty is lesser of $100 or 100% of tax due on return. Returns due after 12/31/82.
  Interest accrues from later of return due date, extended DD or 7/18/84.  
6651(a)(2) Failure to Pay
0.5% per month not to exceed 25% in aggregate. 		All years.
  Based on actual amount shown on return. Due date for payment is without regard to extensions.  
  For returns due before 7/30/96, if the IRS files a substitute return (SFR) there is no FTP for tax shown on return.For returns due after 7/30/96, FTP applies for SFR returns.  
  IRC 6651(d): See IRC 6651(d) and IRM 20.1.2.6 for certain situations where penalty is increased to 1% for periods after 12/31/86.:  
  IRC 6651(h): See IRC 6651(h) and IRM 20.1.2.8 for certain situations where penalty is decreased to .25% for months beginning after 12/31/99.  
6651(a)(3) Failure to Pay Assessed Deficiency
0.5% per month not to exceed 25% in aggregate. 		All years.
  Based on remaining unpaid deficiency on or before 10 days from notice and demand issued before 1/1/97. 21 calendar days for notice and demand issued after 12/31/96 (10 business days if amount of notice and demand equals or exceeds $100,000).  
6651(f) Fraudulent Failure to File
15% per month up to maximum of 5 months, 75% maximum. 		Returns due after 12/31/89, without regard to extensions.
  Amount of tax required to be shown on return reduced by tax timely paid and by credits which may be claimed on the day prescribed for payment of tax. IRC 6662 and/or IRC 6663 can apply with IRC 6651(f) as long as a return is filed.  
  Carrybacks have no effect on penalty.  
6652(b) Failure to Report Tips
50% of FICA tax on unreported tip income. 		Returns due after 12/31/86, without regard to extensions (For returns due before 1/1/87, code section was IRC 6652(c)).
6653(a) Negligence
5% of underpayment on timely filed return – 5% of tax liability as determined on late filed return. 		Returns due before 1/1/82, without regard to extensions.
6653(a)(1) Negligence
5% of underpayment on timely filed returns – 5% of tax liability as determined on late filed return. 		Returns due after 12/31/81 and before 1/1/87, without regard to extensions.
6653(a)(2) Negligence
50% of the interest due on the portion of the underpayment attributable to negligence. 		Returns due after 12/31/81 and before 1/1/87, without regard to extensions.
6653(a)(1)(A) Negligence
5% of underpayment on timely filed return – 5% of tax liability as determined on late filed return. 		Returns due after 12/31/86 and before 1/1/89, without regard to extensions.
6653(a)(1)(B) Negligence
50% of interest due on underpayment due to negligence. 		Returns due after 12/31/86 and before 1/1/89, without regard to extensions.
6653(a)(1) Negligence
5% of underpayment of tax. Interest accrues on entire penalty. Underpayment is reduced by portion attributable to fraud. 		Returns due after 12/31/88 and before 1/1/90, without regard to extensions.
6653(b) Fraud
50% of underpayment. 		Returns due before 9/4/82, without regard to extensions.
6653(b)(1) Fraud
50% of underpayment. 		Returns due after 9/3/82 and before 1/1/87, without regard to extensions.
6653(b)(2) Fraud 50% of interest due on underpayment due to fraud. Returns due after 9/3/82 and before 1/1/87, without regard to extensions.
6653(b)(1)(A) Fraud
75% of amount attributable to fraud. 		Returns due after 12/31/86 and before 1/1/89, without regard to extensions.
6653(b)(1)(B) Fraud
50% of interest due on underpayment due to fraud. 		Returns due after 12/31/86 and before 1/1/89, without regard to extensions.
6653(b)(1) Fraud
75% of amount attributable to fraud. Interest accrues on entire penalty. 		Returns due after 12/31/88 and before 1/1/90, without regard to extensions.
6653(f) Replaces 6653(g) by the Technical Corrections Act. 9/24/82 – 12/31/89.
6653(g) Failure to include interest or dividends in gross income. 6/23/82 – 9/23/82.
6654 Failure to Pay Estimated Tax – Individual
(See IRM 20.1.3.) 		 
6655 Failure to Pay Estimated Tax – Corporation
(See IRM 20.1.3.) 		 
6656 Failure to Deposit
(See IRM 20.1.4.) 		 
6659 Valuation Overstatement
150% not more than 200% = 10% penalty.
200% not more than 250% = 20% penalty.
More than 250% = 30% penalty. 		Returns filed after 12/31/81 and due before 1/1/90 (without regard to extensions).
Repealed for returns filed after 12/31/89.
6660 Valuation Overstatement
Estate & gift tax.
Interest accrues from later of return due date, extended RDD or 7/18/84. 		Returns filed after 12/31/84 and due before 1/1/90 (without regard to extensions).
Repealed for returns filed after 12/31/89. Repealed for returns filed after 12/31/89.
6661 Substantial Understatement
25% of underpayment.
Cannot be applied to items covered by IRC 6659.
Carrybacks not considered in determining understatement. Interest accrues from later of return due date, extended RDD, or 7/18/84.
Does not apply in non-filer cases. 		Returns due after 12/31/82 and before 1/1/90, without regard to extensions.
Repealed for returns filed after 12/31/89.
6662 Accuracy-Related Penalty
20% of underpayment, applies to portion of understatement attributable to:
• Negligence
• Substantial understatement
• Valuation misstatement
• Overstatement of pension liabilities
• Estate/gift tax valuation understatement
Applies only if return has been filed.
Not applicable to fraud items. 		Returns due after 12/31/89, without regard to extensions.
6662A Accuracy-Related Penalty
20% of the reportable transaction understatement.
Increased to 30% for any portion of any reportable transaction understatement with respect to which the requirement of section 6664(d)(2)(A) is not met. 		Effective for taxable years ending after October 22, 2004.
6663 Fraud
75% of the underpayment attributable to fraud.

Applies only if return filed.

If no return filed, only IRC 6651(f) can apply. 		Returns due after 12/31/89, without regard to extensions.

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