- 4.10.12.1 FRP Overview
- 4.10.12.2 General Administrative Procedures
- 4.10.12.3 Initial Case Review
- 4.10.12.4 Case Processing
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This section provides Campus Examination employees guidelines for selecting, controlling, investigating and closing Frivolous Return Program (FRP) cases.
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Servicewide consolidation of the receipt and processing of all frivolous documents at the Ogden Compliance Services Campus was completed January 1, 2001.
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The IRS, through administration of Internal Revenue Code section 6702, will address non-compliance based on unfounded legal or constitutional arguments. This law provides for a $5000 penalty to be imposed upon any taxpayer who files a purported return failing to contain information from which the correctness of the reported tax liability can be determined or that clearly indicates that the tax liability shown must be substantially incorrect. The penalty is intended to address those situations where a taxpayer is furthering a frivolous argument or demonstrates a prima facie intent to delay or impede administration of the tax law.
Note:
Due to a recent change in the law, the IRC section 6702 penalty now also applies to persons who submit a "specified submission" (namely, a request for a collection due process hearing or an application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order) that is based on a position which the Secretary has identified as frivolous or reflects a desire to delay or impeded the administration of Federal tax laws.
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The FRP identifies those individuals and/or promoters filing or promoting frivolous returns, claims, and/or documents and attempts to educate them on their obligations to file and pay taxes. This program targets individual behaviors by responding to specific actions. Examination will be responsible for detecting, controlling, processing and examining frivolous filing activities.
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Examination will conduct orientations to functions involved in processing and/or examining returns or correspondence to emphasize recognition of frivolous documents and provide appropriate referral instructions.
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The FRP will take a proactive approach to addressing frivolous non-compliance by providing outreach education through TEC and other stakeholders on pertinent program data such as geographic trends of frivolous filings and common frivolous arguments. The program will participate in coordinating new systemic identification of frivolous filings wherever possible and make referrals to affected stakeholders such as the Office of Professional Responsibility, Criminal Investigation Division, Lead Development Center, and Communications and Government Liaison.
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Recognized frivolous arguments include but are not limited to:
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Wages/Receipts Not Income (NTR) - The individual argues that salaries and wages are not "income" within the meaning of the Sixteenth Amendment, which grants Congress the power to "Lay and collect taxes on income, from whatever source derived..." The individual could also argue that labor worth a certain amount is exchanged for money worth the same amount and therefore there is no income to be taxed.
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Eisner v. McComber- The individual reports wages but deducts them as "non-taxable compensation/remuneration" referencing Eisner v. McComber 2524.5.189(1980). The individual may alter line items showing non-taxable compensation or non-taxable receipts to back out some or all of their income, generally resulting in a zero tax liability.
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Zero Returns (ZERO) - The individual submits a return with zero money amounts on all or most of the line items on the form, e.g., an individual may enter zeros for income and deductions but enter an amount of tax withheld and request a refund of that amount. A statement may be attached claiming there is no section of the Internal Revenue Code that established an income tax liability. The statement may also contain arguments regarding the definition of income. There are several variations on this type of filing such as those bearing the words "nunc pro tunc" and "not liable." See also item 42 in this list.
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U.S. v. Long (Z-LONG) - The individual submits a return with zero money amounts. To explain the zeros inserted on the form, the individual references "U.S. v. Long" . See United States vs Long. 618 F2d74 (9th Cir 1980).
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Not a Citizen/Free Citizen/Not a Resident of Federal Zone - The individual argues That he or she is not a citizen of the United States and receive no income or benefits from sources within the United States. May file a Form 1040NR to receive a refund of withheld income tax or claim citizenship of a "State Republic" . Alternatively, the individual may claim that the United States does include all or part of the physical territory of the 50 States and instead consists of only places such as the District of Columbia, Guam, Puerto Rico, the Virgin Islands, the Northern Marianna Islands, and certain other "possessions, enclaves, and trust territories" .
Note:
The aforementioned does not apply to a foreign person who has paid withholding inadvertently and has filed a claim for a refund.
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Reparation Tax (REPTX) - The individual submits a return, an amended return, or correspondence referring to a reparation settlement based on the impact of slavery, or may refer to black taxes, reparations for African-Americans, or 40 acres and a mule. It may also include a Form 2439 with fictitious RIC such as Investment Taxes or Department of the Treasury.
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Form 2555 Deduction (F2555) - The individual submits a return showing income then deducts that same amount (or a large portion of that amount) by adding "Form 2555" to line 21. Form 2555, Foreign Earned Income, is usually attached showing the individual's address in the United States as the foreign address. The individual also shows his income on Form 2555 as "foreign earned income" even though his employer's address is also in the United States. Correspondence may be attached arguing the term "income" and stating that each of the several states are foreign countries.
Note:
Frivolous Forms 2555 should be worked in the FRP area at the receiving Campus rather than forwarded to PSC.
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Not a "Person" or "Individual (NTINDV)" - The individual argues he or she is not a "Person" or "Individual" within the meaning of the Internal Revenue Code and is therefore not subject to income taxes.
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Sixteenth Amendment (16AMEND) - The individual argues the Sixteenth Amendment was not properly ratified and therefore the federal government does not have the legal authority to collect an income tax without apportionment. Generally the argument focuses on matters such as inconsistencies in versions ratified by the various states.
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Fifth Amendment (5AMEND) - The individual makes an improper blanket assertion of the Fifth Amendment right against self-incrimination as a basis for not providing any financial information.
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Altered Jurat/UCC 1–207 (JURAT) - The individual submits a return that contains income and deductions but the jurat (generally defined as a certification on an affidavit declaring when, where, and before whom the document was signed) has been altered or stricken. May include reference to UCC 1–207 or a statement that the return was not signed under penalties of perjury. The alteration may be located elsewhere on the return with an arrow pointing to the jurat. There may be an explanation on the return or attachments reflecting the desire to negate the effect of the jurat by showing the taxpayer did not intend to file a return in good faith.
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Altered Form (ALTFORM) - The individual submits a return altering any or all line items with the intent of facilitating non-compliance with the tax laws.
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Unsigned Returns (UNSIGN) - The individual completes a return but fails to sign. A statement why the return is not signed may be attached or added to the return indicating, among other arguments, disagreement with the tax system.
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Wages Deducted in Cost of Goods Sold (F-SCHC) - The individual submits a return with a Schedule C attached claiming a deduction which is equal, or nearly equal, to the amount reported as wage income. The deduction is usually included in the cost of goods sold but could appear under a different deduction category.
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Valuation (FAIRMV) - The individual argues that income is not taxable because of the declining fair market value of the dollar, because the dollar is not backed by gold/silver, because the value of services is offset by the value of the labor (barter income), etc.
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In Lieu of (ILO) - The individual submits a document captioned, Statement in lieu of U.S. income tax Form 1040. Various other arguments may be used in the document.
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Disclaimer (DISCL) - The individual submits documentation which contains a disclaimer. The disclaimer states the individual, "disclaims the liability for the tax due" , making the liability on the return zero. This disclaimer may be a part of a return, on a return attachment, or in other documents.
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Protest Against Government Action/Inaction (WARTAX) - The individual argues that their refusal to file a return or pay tax is justified because they disagree with government policies or spending plans. The individual may claim deductions or credits because of an objection to having his or her taxes used to support various government activities.
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Taxes are Voluntary/Law Does Not Require (VOLUN) - The individual submits a return, amended return, or correspondence that argues income taxes are voluntary.
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Challenges to Authority/Title 26 or "law" in Other Documents (CONST) - The individual may argue that Title 26 of the United States Code is not law because it was never enacted as named. As a separate position, the individual may argue that other laws or documents prevent the IRS from assessing and collecting tax. This argument may reference the Bible, Bill of Rights, Declaration of Independence, Magna Carta, Northwest Ordinance, Declaration of Resolved, Federalist Papers, Mayflower Compact, Articles of Confederation of 1788, Declaration of Rights of 1765 and 1774, and others.
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Challenges to Authority/Due Process (VOFPOV) - The individual questions various administrative authorities such as delegation orders, summons authority, privacy act, etc. This argument may be based on contentions that Treasury Department Orders (TDOs) were not published in the Federal Register, that the Commissioner lacked authority to propose regulations, that TDOs, Regulations, Treasury Decisions, Forms, and other actions and activities do not comply with the Paperwork Reduction Act, Privacy Act, Administrative Procedures Act, and Federal Register Act. The individual may argue that they must be afforded a hearing or a trial before taxes can be assessed or before property can be seized.
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Internal Revenue Service is a Private Organization/Collects Tribute, Not Taxes (TRIBU) - The individual argues that the IRS is an entity named the Internal Revenue and Tax Service, Inc. which was incorporated in Delaware in 1933. The individual further argues that since the IRS deposits its revenues in the Federal Reserve Bank, it is a collection agency for the bank, which is in the business of making loans and conducting proprietary business, thereby removing the cloak of governmental immunity. Additionally, they argue the Department of Treasury is part of the United Nations and is clandestinely leading the tax-paying public into a "new world order" .
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Alleged Churches/First Amendment (ALDGCH) - The individual receives income from non-religious sources and may claim a vow of poverty. The individual submits a return where all, or substantially all, of the gross income is claimed as a deduction on Schedule A of the return.
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Amended Returns/Form 843 Claim for Refund and Request for Abatement (AMEND) - The individual files an amended return or a Form 843 to obtain a total refund of all taxes paid in prior years, based on a tax avoidance argument not supported by law.
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Untaxed (UNTAX) - The individual argues that he or she should be "untaxed" and attempts to drop out of the Social Security system. He or she will withdraw or rescind his or her SSN, claiming he or she is a sovereign citizen.
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Federal Reserve Notes Are Not Legal Tender (FEDRES) - The individual argues that their wages are not taxable because they were paid in federal reserve notes. He or she argues that notes are not valid currency or legal tender and, thus, those who possess them cannot be subject to a tax on them.
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Services Not Taxable/Thirteenth Amendment/Form of Servitude (13AMEND) - The individual argues that income results only from the sale of goods, and therefore, the value of services is not taxable. This includes indentured servitude arguments and barter offsets. The individual may also argue that the Thirteenth Amendment outlawed slavery. He or she may claim to be "natural unfranchised individuals and freemen" who are residents of states, and therefore nonresident aliens for the purpose of the Internal Revenue Code.
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Obscene, Vulgar, Harassing (OBSC) - The individual submits documents or other materials indicating that non-filing is due to dissatisfaction with tax policies or taxation in general. Often, this argument is expressed with obscene, vulgar, or crude language and characters in an extremely demeaning manner.
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Other — All others not specifically defined.
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Non-negotiable Chargeback (NNCB) - The individual attempts to sell his/her birthright back to the government for a large dollar amount and requests that a "Treasury Direct Account" be set up to hold the money.
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IRC 861 for Individual Employees (IMF861) - The individual files a return or claim stating that wages are not taxable based on 26 CFR section 1.861 and requesting a refund of all federal withholding.
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IRC 3121 (FICA) - The individual contends that IRC section 3121 exempts the Federal Insurance Contribution Act (FICA) portion of earnings from the definition of wages and therefore from gross income for federal tax purposes. The individual attempts to reduce taxable income by his/her portion of withheld social security tax.
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1041 - Lifetime Social Security Claims (LFTMEARN) - The individual claims a refund for all social security paid during their lifetime. Taxpayer requests a "lifetime earnings statement" from Social Security Administration in order to list the amount of withheld social security taxes as federal income tax or other payments.
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1041 - In Lieu of 1040 (1041ILO) - The individual deducts personal income as fiduciary fees or other deductions on Form 1041 resulting in a zero tax liability.
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IRC 1341 - Claim of Right (COR) - The individual claims "compensation for personal labor" is not taxed by Title 26, IRC section 134 1, and takes a deduction on Schedule A or removes the amount from gross income.
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Bosnian Refugees (BOSNREF) - The individual attempts to eliminate tax liability by filing Form 1040X, removing their tax on line 10 (Total Tax) and citing under Part II that they are entitled to refunds based upon their status as Bosnian refugees.
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Not Liable (NTLIABL) - The individual submits returns or claims with "Not Liable" printed on the return. The returns also reflect zero money amounts.
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IRC 861 Business - Employment Tax (BMF861) - This argument targets employers and advises them that wages are exempt from withholding. Based on 26 CFR section 1.861, promoters of this scheme advise employers to stop withholding and paying payroll taxes on their employee's wages. In addition, some employers file amended payroll tax returns and request refunds of previously paid payroll taxes.
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EIC with Disability Income (FRIVEIC) - The individual reports disability income as the sole source of income to claim earned income credit but does not attach a Form W-2 or Form 1099.
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Exempt Employees of World Bank Organization (XMTEMP) - The individual files a return with a statement attached which asserts, "World Bank Employee - Wages not Subject to Income and/or Non-Taxable Income - World Bank." The individual lists an adjustment equal to the amount of the wages and claims adjusted gross income is zero. May also cite IRC section 893 which provides a tax exemption to some employees of international organizations.
Note:
The World Bank qualifies as an international organization, therefore, if the individual worked for the World Bank as a citizen of another country, they may qualify for the exemption.
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American Indian Treaty (AMERIND) - The individual attempts to eliminate tax liability by filing forms 1040 removing their income on line 21 (Other Income) and citing, "less Native American Indian Treaty" or "Native American Indian Treaty." The returns usually include Form 1099 MISC or other income documents that include withholding which can result in a refund of withholding credit.
Note:
IRC section 7873 , various court cases and revenue rulings allow for tax free income earned either for fishing rights on treaty land, income from the land or on land held in trust for certain individual Native Americans. For more information, contact an IRS Indian Tribal Government Specialist.
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Nunc Pro Tunc (NUNC) -The individual attempts to eliminate tax liability by filing returns citing "Nunc Pro Tunc" somewhere on the return. The return usually consists of all zeros except withholding and generally a refund is claimed. No further justification for the zero return is given. "Nunc Pro Tunc" is Latin for "Now for Then" . These taxpayers appear to want the IRS to accept the frivolous return they have filed in place of what they filed previously.
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IRC 1001 (1001) - The individual attempts to eliminate tax liability by filing Forms 1040X removing all or part of income as an itemized deduction on Schedule A, "Other Miscellaneous Deductions" and citing,"IRC 1001: even exchange of property-Labor(property)-Employer's(property). NO GAIN REALIZED. Butcher's Union Co. v. Crescent City Co., 111 US 746 S. CT. Rptr.. pp. 660-661."
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Zero Wages on a Substitute Form: Taxpayer generally attaches either a substitute Form W-2, Form 1099, or Form 4852 that shows "$0" wages or no wage information. A statement may be included indicating the taxpayer is rebutting information submitted to the IRS by the payer. Entries are usually for Federal Income Tax Withheld, Social Security Tax Withheld, and/or Medicare Tax Withheld. An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and IRC 3121" ,or may include some reference to the company refusing to issue a corrected Form W-2 for fear of IRS retaliation.
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A cross reference, The Truth About Frivolous Tax Arguments, is available at www.irs.gov/taxpros/article/0..id=159853.00.html .
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The judicial system and the Internal Revenue Code provide alternative ways to test the income tax statutes without violating the law. Taxpayers may contest a notice of deficiency by filing a petition with the Tax Court without paying the tax. Taxpayers may also file a refund suit in the United States District Court or the United States Court of Federal Claims after paying the tax. However, if the IRS Appeals Office provides administrative review in connection with such litigation, it will not give a taxpayer an Appeals hearing on cases involving solely the failure or refusal to comply with tax law because of moral, religious, political, constitutional, conscientious or similar grounds. See IRM 8.1.1.3.3, No Appeals Conference or Concession on Certain Arguments, and IRM 20.1.6.1.3 , Appeal Rights, for additional information.
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It is not the policy of the IRS to respond to frivolous arguments on a point by point basis. These arguments almost always reflect personal opinions and frustrations with the tax system that the IRS is unable to address. The responsibility of the IRS is to administer the federal tax law as enacted by Congress. The Service responds to technical questions about individual accounts; however, it has no administrative authority to change tax laws. The Service's responsibility is to administer the tax laws as they exist and to ensure they are uniformly applied. The Frivolous Return Program provides for initial responses to each issue or argument presented; however, it provides for no responses to repeated inquiries on the same positions that have no basis in law. The program encourages individuals to seek competent tax counsel and advises of the potential consequences for frivolous arguments.
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Title 26 of the United States Code, reproduced separately as the Internal Revenue Code (Code), contains most of the Federal tax law. Under Title 26, the IRS is a part of the United States Department of the Treasury. Generally, section 7803 of the Code provides that there shall be in the Department of the Treasury a Commissioner of Internal Revenue, who shall be appointed by the President, by and with the advice and consent of the Senate. Section 7803 of the Code states that the Commissioner shall have such duties and powers as may be prescribed by the Secretary of the Treasury. IRC section 7804 of the Code states that the Secretary is authorized to employ such number of persons as the Secretary deems proper for the administration and enforcement of the Internal Revenue Laws. The IRS performs administrative and enforcement duties pursuant to the authorization of section IRC 7803 and IRC section 7804 and other portions of the Code.
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Sections 6001 and 6011 of the Code provide, in pertinent part, that every person liable for any tax imposed by the Code shall make a return. In addition, section 6012 of the Code provides that every individual whose gross income equals or exceeds certain amounts shall make a federal income tax return. "Shall" as used in sections 6001, 6011, and 6012, means "must" ; "must" means "to be required to." The persons required by the Code to file an income tax return is explained in the instructions for Form 1040 under the heading "Filing Requirements."
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The Sixteenth Amendment, making the income tax constitutional, was ratified in 1913. The Constitution, Article 1, Sections 7 through 9, and the Sixteenth Amendment give the Federal Government the right to levy and collect taxes. The Sixteenth Amendment authorized a tax on income, regardless of source, without apportionment. The courts have rejected claims that the Sixteenth Amendment was not properly ratified. The Amendment was ratified by 38 states altogether, and ratification was necessary by only 36. The U.S. Supreme Court has recognized the validity of the Sixteenth Amendment. Brushaber v. Union Pacific Railroad Co., 240 U.S. 1, 18-20 (1916); Bob Jones University v. United States, 461 U.S. 574, 615 (1983). Official notice of the resolution of ratification by the states to the Secretary and his subsequent certification by proclamation is conclusive upon the courts.
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The U.S. Supreme Court has held that the requirement that individuals file a federal income tax return does not violate the self-incrimination clause of the Fifth Amendment. United States v. Sullivan, 274 U.S. 259 (1927). Judicial precedents clearly establish that failure to comply with the filing and reporting requirements of the federal income tax laws will not be excused based upon blanket assertions of constitutional privilege against self-incrimination under the Fifth Amendment. United States v. Irwin, 561 F.2d 198 (10th Cir. 1977), cert. denied, 434 U.S. 1012 (1978); United States v. Neff, 615 F.2d 1235 (9th Cir. 1980), cert. denied, 447 U.S. 925 (1980).
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The statutory provisions of the Code that require the filing of income tax returns do not violate the Fourth Amendment prohibition against unreasonable searches and seizures by the Federal Government.
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Gross income, not "income" , is the starting point for determining an individual's federal income tax liability. The term "gross income" is defined in section 61 of the Code. The Code in Subtitle A, Chapter 1, Subchapter A — "Determination of Tax Liability" , provides whether an individual is liable for income tax. Section 1 imposes a tax on the taxable income of every individual. Chapter 1, Subchapter B — "Computation of Taxable Income" , provides whether an individual has taxable income. Section 63 defines taxable income, generally, as gross income minus the deductions allowed by Chapter 1. The argument that wages are not income has been rejected so frequently that the very raising of it justifies the imposition of sanctions. Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); "We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit" Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). This frivolous argument has been the subject of numerous court decisions, which held the position to be contrary to existing law.
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IRC section 6065 states, "Except as otherwise provided by the Secretary, any return, declaration, statement or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury." See also Cohen v. United States, 201 F.2d 386 (9th Cir)., cert. denied, 345 U.S. 951 (1953); Sen. Rep. No. 685, 81st Cong., 1st Sess., Part II 4 (1949) ("the purpose of the statute is to relieve the taxpayers of the burden of notarizing their returns" ).
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The courts have often imposed sanctions on taxpayers who raise these types of arguments in litigation. In Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir. 1986), the court stated, "Some people believe with great fervor preposterous things that just happen to coincide with their self-interest. [Certain individuals] have convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and so on. These beliefs all lead to the elimination of their obligation to pay taxes. The government may not prohibit the holding of these beliefs, but it may penalize people who act on them."
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The Government expects voluntary compliance with the federal tax law. This means that we expect taxpayers to comply with the law without being compelled to do so by action of a Government agent; it does not mean the taxpayer is free to disregard the law. If an individual is required by law to file a return or pay tax, it is mandatory that he or she do so. Failure to do so could cause the individual to be subject to civil and criminal penalties; including fines, and imprisonment. See, for example, Schiff v. Commissioner, T.C.Memo 1984–223, aff'd, 751 F.2d 116 (2 Cir. 1984).
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Frivolous documents often:
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contain arguments about the obligation to file or pay tax on the face of the tax return or on attachments to the tax return
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include altered forms or jurats containing frivolous arguments
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are attempts to impede or circumvent the administrative processing of the tax return.
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The criteria for considering a tax return frivolous is found in IRC section 6702. It states, "If"
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any individual files what purports to be a return of the tax imposed by subtitle A but which --(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or (B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
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the conduct referred to in paragraph (1) is due to --(A) a position which is frivolous, or (B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $5000.
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Frivolous returns may be valid or invalid. A valid return is one that meets the requirements to start the statute of limitations under IRC section 6501. Such returns are normally considered "processable" under IRC section 6611(s) (although there are some exceptions) if they meet the following four-point criteria from Beard v Commissioner, 82 T.C. 766 (1984):
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The return must contain sufficient data to calculate a tax liability, and
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must purport to be a return, and
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must include an honest and reasonable attempt to satisfy the requirements of the tax law, and
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must be signed under penalties of perjury. (Generally the jurat must be unaltered).
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A frivolous return that does not meet the four-point criteria listed above is considered invalid. Invalid, frivolous returns should not be processed.
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Frivolous documents take many forms. Frivolous arguments may be asserted on original returns, amended returns, claims, or documents purporting to be returns. Returns may claim frivolous deductions, credits or exclusions or may omit items of income. Individuals might refuse to pay or file based on a variety of frivolous or discredited legal or constitutional theories. Unusual attachments to the return also serve as indicators that the return is frivolous.
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When identifying frivolous documents, consider key indicators such as:
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Altered jurats, rewording or crossing off parts of the jurat, statements such as "signed under duress," and "all rights reserved" ,
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Irregular entities such as: name of taxpayer in all lower case letters, addresses such as "Territory of (state)" or address in all lower or upper case letters,
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Reducing or eliminating tax liability without valid justification, and
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Illegal credits, deductions, or exclusions.
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Identification of frivolous filings can be made in any Service office by any employee. They may be identified during original return processing, amended return or claim processing, during the course of a routine audit, or upon any contact with a taxpayer or their representative.
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Frivolous filings not related to an open case should be routed to the Ogden Compliance Campus Examination Frivolous Return Program (see Transshipping Frivolous Filings to FRP below). These filings include returns and amended returns or claims identified in CAS and Compliance in the campuses, field offices, and other Service offices.
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Detection of frivolous filings should be associated with an open case if one exists. The employee assigned the open case is responsible for replying to the document using Correspondex Letter 3175(C)/3176(C). Any reply associated with an open case should be documented in the case file and on IDRS via command code ACTON. If the document contains valid inquiries such as FOIA requests, transcripts requests, or requests that meet Taxpayer Advocate Service criteria, the document should be forwarded to the appropriate function.
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Coordination on responses to any frivolous filings by the field should be made with FRP to insure documentation is made on the FRP Master database. Contact the FRP Liaison in Ogden via: http://sbse.web.irs.gov/cs/Programs/FRP/FRP.htm.
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Frivolous returns or documents purporting to be returns identified by Submission Processing operations in the campuses will be forwarded to a central location for screening. See IRM 3.11, Campus Returns and Document Analysis, and IRM 3.12, Campus Error Resolution, for guidance on identifying and forwarding.
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Examination will coordinate annual training with Submission Processing on identifying new arguments and/or refresher for this program.
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When potential frivolous documents are identified in Submission Processing, screening will be conducted by designated Examination employees.
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Effective January, 2003, valid, frivolous returns requiring processing will be worked under a memorandum of understanding between W&I and SB/SE. The MOU provides for expedite handling of frivolous IMF returns referred by Ogden Compliance Services to Fresno Submission Processing. Frivolous Return Program will perform all Code and Edit activities prior to shipment to Fresno and insure returns are statute cleared. Frivolous Return Program will transship returns to Fresno approximately once a week via Form 3210. When processing is complete, Fresno will transship the returns back to Ogden on a weekly basis via Form 3210.
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Fresno will batch the returns separately from regular Forms 1040; however, no unique program code or 5th digit is necessary. The returns will be expedited through cycle and processed through the Integrated Submission/Remittance Processing System (ISRP). The returns are all edited with Action Code 440 which will place them in Rejects Suspense inventory after going through ISRP. Fresno Rejects personnel will then return them to Ogden FRP.
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Both Ogden and Fresno campuses will follow IRM 3.10.72 and any local procedures for using designated Private Delivery Service to transship. The sending site should write "FRP" in large letters on each package to make clear to the receiving site the contents of the package. Mail package for Fresno processing to: IRS, Attn: Batching M/S 31305, 5045 E. Butler, Fresno, CA 93888. Mail processed returns back to Ogden to: IRS, Attn: FRP M/S 4450, 1973 N. Rulon White Blvd., Ogden, UT 84404.
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When FRP identifies returns that are not frivolous, received from campus FRP Coordinators, they should provide feedback to the respective FRP Coordinator to educate them and prevent further occurrences.
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Notification should be provided to Submission Processing, through the local Planning & Analysis Staff, if FRP Coordinators are identifying numerous non-frivolous filings.
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Valid, frivolous returns on International forms or that have International impact will be routed to the appropriate Campus processing International forms.
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Any non-frivolous returns that require processing (such as misroutes) should be directed to Kansas City Submission Processing Campus as outlined in national transshipment procedures.
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An FRP Coordinator will be assigned at each campus Exam operation as a collateral duty. The coordinators will assist on inquiries related to frivolous documents for their respective campuses. They will liaison with Ogden FRP on pertinent information related to frivolous filings and review frivolous filings identified as follows:
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Review each document to determine if it meets FRP criteria.
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For Cincinnati and Ogden campuses, BMF returns require expedite handling and should be reviewed within two business days. BMF returns in which Exam is unable to determine if frivolous but which have a high degree of likelihood that they are frivolous should be immediately returned to Submission Processing for timely processing and refund issuance (these will not be X-coded) and then referred back to Exam FRP for potential audit. Code these returns with Action Code 331 (Cincinnati) or 440 (Ogden) and attach Form 4227, Intra Service Center Reject, with remarks, "Refer to Exam FRP for audit after processing."
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If the document is not frivolous, stamp the upper left corner, "FRP" and return it to processing.
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If the document is frivolous, determine if it was identified after having received a DLN. If the document does have a DLN, it must be cancelled before continuing FRP processing.
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Route to Ogden FRP for further processing (See Transshipping Frivolous Filings to FRP below).
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Charge time spent screening and transshipping documents to OFP code 91852.
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Documents deemed frivolous should be referred to Ogden Compliance Services using the following guidelines:
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No open case controls,
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Within five workdays of receipt,
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Via Transmittal Form 3210.
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Form 3210 should include SSN's for any returns or claims covered; however, correspondence does not require a listing of SSN's.
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Route to Ogden Compliance Services, Attn: FRP, M/S 4450, 1973 N Rulon White Blvd, Ogden, Utah, 84404.
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This section provides general information to develop and resolve FRP examination cases. Standard examination procedures expressed in IRM 4.19.10, Examination General Overview, through IRM 4.19.17, Non-Filer Program, apply to all cases and include:
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Initiating examinations
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Dealing with Powers of Attorney
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Preparation of audit forms
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Taxpayer replies and responses
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Handling undeliverable correspondence
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Workpaper guidelines
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Special handling situations
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No response and unagreed cases
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Statutory notices
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Close out procedures
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Statute control
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QMS monitoring
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Seven auditing standards
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Although employees are responsible for familiarizing themselves with and utilizing all IRS Internal Revenue Manuals, the following IRM's have particular importance with respect to FRP processes:
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IRM 3.11, SP Returns and Document Analysis
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IRM 3.12 , SC Error Resolution
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IRM 4.19.10,Examination General Overview
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IRM 4.19.11, Examination Classification of Work
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IRM 4.19.12, Centralized Files and Scheduling
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IRM 4.19.13,General Case Development and Resolution
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IRM 4.19.14 , EITC/Revenue Protection Strategy
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IRM 4.19.15 , Discretionary Programs
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IRM 4.19.16 , Claims
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IRM 4.19.17, Non-Filer Program
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IRM Part 8 , Appeals
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IRM Part 9 , Criminal Investigation
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IRM Part 20.1, Penalty handbook
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IRM Part 20.2, Interest
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IRM 21.3.3.3.2 , Potentially Dangerous Taxpayer (PDT), for use in identifying PDTs and subsequent handling procedures
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IRM 21.3.3.4.20, Pseudonyms
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IRM 21.3.3.4.24, Review of Outgoing Correspondence, for use by managers and leads in reviewing correct case actions
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IRM 21.5.3.4.16.8.1, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments
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IRM 21.7.2.4.17.6.12, Frivolous Employment Tax Claims
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The following web sites also contain information pertinent to FRP:
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http://sbse.web.irs.gov/cs/Programs/FRP/FRP.htm.
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Maintain current inventory information to insure taxpayers receive accurate and consistent treatment. Individuals not in compliance for two consecutive years filing and paying taxes will be monitored for subsequent compliance.
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Assign cases into FRP inventories within five business days of receipts using IDRS, RGS, and AIMS controls as appropriate. To initially control cases on specific IDRS accounts, determine the following using Document 6209 (sec. 13) and the IDRS Command Code Job Aid on SERP as needed:
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Status code - A, C, or M
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Control Category - AUDT
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Activity Code - IRP/SFR or FrivMail
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Unit or employee IDRS number
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Earliest IRS Received Date
Note:
Although frivolous correspondence is excluded from Action 61 criteria, every attempt should be made to respond within 30 days of the IRS received date if possible.
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Ensure IDRS controls are updated correctly and reflect an active status code. TXMOD activity codes include but are not limited to:
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Frivolous argument code abbreviation
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L3175 - Response to a frivolous correspondence filing. Notifies an individual that the filing submitted is frivolous and will not continue to be responded to
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L3176 - Response to a frivolous return or claim filing. Notifies an individual that the filing submitted is frivolous, subject to an IRC section 6702 penalty and requests a corrected, non-frivolous return or waiver of claim., allowing them the opportunity to correct their position.
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FRIVRESP - Response from an individual is frivolous. Correspondence information needs to be added to FRP Master database.
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NORESP - No Response.
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NOPOT - No potential.
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CEX - Campus exam.
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AOEX - Area Office exam.
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SIGNED2297 - Individual signs Forms 2297 and 3363.
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GOODRTN - IRS received "good" return.
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FRIVPN - Penalty assessment is on MFT 55.
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RTN/2/PROC - Return received is sent for processing.
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ASSOC2FRIV - Potential tax assessment is under tolerance. Return associated to civil penalty DLN.
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RTN/SFR - Substitute for Return. If a non-processable return has been received, it is located with the SFR audit file.
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L1862 - Initial contact letter on an SFR.
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L/CE22-1862 - Initial contact letter on an SFR based on a frivolous return.
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DAE/SFR - An automated SFR has been set up due to a compliance check of information from the FRP Master database.
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CLASSIFY - A return has been received that needs determination on issues.
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90DAYS - Case has been sent to the 90-day file.
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RTNTO90DAY - Case has rejected or purged from 90-day file and is returned to that file (with or without additional action).
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ESTAB(RTN or 1040X) - Indicates tax Technician is aware of a document in-house, and has ordered it.
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NEEDRTN/97X - Tax Technician is working case and has taken steps to secure TC97X document.
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BANKRUPTCY - Bankruptcy freeze on module and case is referred to coordinator.
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CLOSE2CI - Audit stopped due to CI activity and case forwarded (close control base).
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CLS2AREAXX - (Fill in Area #) Case sent to Field Office for audit (close control base).
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REPTAX - Reparations filings.
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NOTFRIV - Extract cases, that are not frivolous, with stopped refunds .
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AIMS controls include but are not limited to:
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Project code 310, Source Code 20 for Valid Returns.
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Project code 311, Source Code 24 for Non-filer Returns.
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Project code 312, Source Code 24 for SFRs from Frivolous Correspondence.
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PC 313, Source Code 24 for SFRs from Compliance check.
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PC 315, Reparations.
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PC 316, Form 2555.
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PC 317, In Lieu Of.
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PC 331, 861.
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PC 335, IRC 1341, Claim of Right.
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AIMS activity codes (Exam Classes) used will be determined using the following criteria for the tax year in question:
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266 - Form 1040SS/1040PR (U.S. Self Employment Tax - English/Spanish.
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270 - EITC present & TPI < $200,000 and Sch. C/F Total Gross Receipts (TGR) < $25,000 (or EITC with no Sch. C/F)
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271 - EITC present & TPI < $200,000 and Sch. C/F TGR >= $25,000.
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272 - TPI < $200,000 and No Sch. C, E, F, or Form 2106.
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273 - TPI < $200,000 and No Sch. C or F, but Sch. E or Form 2106 okay.
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274 - Non-farm Business with Sch. C/F TGR < $25,000 and TPI < $200,000.
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275 - Non-farm Business with Sch C/F TGR $25,000 < $100,000 and TPI < $200,000.
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276 - Non-farm Business with Sch. C/F TGR $100,000 < $200,000 and TPI < $200,000.
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277 - Non-farm Business with Sch. C/F TGR $200,000 or More and TPI < $200,000.
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278 - Farm Business Not Classified Elsewhere and TPI , $200,000.
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279 - No Sch. C or F present and TPI >= $200,000 and under $1,000,000.
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280 - Sch C or F present and TPI >= $200,000 and under $1,000,000.
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281 - TPI >= $1,000,000.
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Prepare case folders for each case initially controlled in FRP. These folders will include the following applicable documents, in order:
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Tax Examiner Worksheet (history sheet).
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Form 3198
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Form 12616, Case History Sheet
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Copies of letters mailed to taxpayer
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Any appropriate taxpayer correspondence in descending date order
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IDRS and IRPTR prints
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Form 13496 6020B Certification
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Any return/SFR and/or IMFOLT print
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Penalty approval form
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Complete Case History sheets, Form 12616, to document actions taken related to each case. Include date of action, action taken, and name and/or employee number of individual completing the action.
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Process inventory as follows:
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Screen all inventory to eliminate misroutes.
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Review for relevant case controls, T-signs, module freezes, and history items that may affect processing and coordinate as appropriate.
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Record new receipts per Point of Count on weekly inventory report.
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Control cases using the appropriate IDRS numbers .
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Update FRP Master data as appropriate.
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Conduct compliance checks.
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Insure the Tax Examiner Worksheet is thoroughly and accurately completed based on information discovered during the compliance check on both correspondence and returns.
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Destroy any frivolous correspondence that has no direct bearing on tax and/or penalty assessment.
Note:
If correspondence will be used to document civil or criminal fraud, do not destroy.
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Count all inventory under the program categories listed for the WP&C. Based upon daily updates of FRP Master, inventory reports will be generated weekly to reflect beginning inventory, new receipts, closures, adjustments, ending inventory, and revenue protection derived from non-AIMS case processing for each OFP code.
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Update TXMOD activity when action is taken on a case. Use common sense when entering an activity. Never use a personal name.
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If new preparers or promoters are identified, update FRP Master. Complete the electronic technical request form showing the name and description of scheme. Attach form to filing and forward to FRP Coordinator.
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Frivolous Return Program Master is a database used to track and monitor current inventory and includes historical data on accounts not in compliance for two consecutive years filing and paying. Frivolous Return Program Master is a composite of several tables linked together to allow FRP employees to accurately respond to taxpayers and assists in trending frivolous filings for outreach education to internal and external stakeholders. It also provides the means to identify new abusive tax avoidance promotions in order to make referrals for civil injunctive actions, criminal investigations, and follow-up monitoring on violations of existing court orders on abusive promoters and preparers. The tables include but are not limited to:
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Daily Reports - Employee time and action taken on cases
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Project Status Listing (PSL) - Current information on new program issues, abusive tax schemes, frivolous return preparers and promoters, court actions on FRP cases, and general topical data on FRP cases
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Friv Input Form, BMF Input Form - Tables used to update taxpayer compliance history, forms and letters sent to taxpayers, pre-audit compliance, frivolous arguments used by the taxpayer, etc.
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TAR Form - Used to elevate unique technical questions, data on new promotions, etc., for inclusion on PSL
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Interview Screen - Questions posed to taxpayers during telephone interviews to ascertain background on specific frivolous promotions and/or taxpayer frivolous arguments
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Weekly Reports - Inventory report data
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FRP Alerts - Sign-on message to inform employees of pertinent information
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Utilize the Daily form on FRP Master to ensure record is made of all pertinent actions taken on accounts. Consider existing information derived from FRP Master Project Status Listing prior to taking action on existing accounts such as whether:
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PSL reflects if a return preparer is currently enjoined from return preparation
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Copy should be made of new filings by a particular promoter/preparer for referral to LDC
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No action should be taken on new receipts for a particular type of filing or new receipts should be routed to a specific area or employee
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Frivolous Return Program Master reports should be created on a regular basis to proactively provide data to TEC, SB/SE Communications and Liaison, and ATAT on:
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emerging schemes
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abusive promoters and/or preparers,
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trends in geographic locations of frivolous filings or specific business affiliations,
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the need for outreach education on specific promotions
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any data pertinent to the overall compliance objectives of the Service
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Frivolous Return Program Master reports should also be used to fulfill requests made by internal and external stakeholders on program data but should be coordinated and approved through the Ogden FRP Senior Technical Coordinator and Examination Operations Manager for Service Center Support.
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Count each return, claim, or correspondence into inventory as new receipts by tax period if available under the appropriate OFP code.
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Count receipts as closures when they are completed for below tolerance, no action, assessment, routed out or destroyed.
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Count any additional tax periods resulting in deficiency procedures in as new receipts and close accordingly.
Note:
Copies of returns or claims not submitted as originals should be counted as correspondence.
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Penalty assessment cases will be counted in with initial soft notice response to taxpayer. If taxpayer was previously sent the soft notice response, count in when penalty is approved and Form 8278 is created. Count penalty cases as closures when penalty is assessed or case is completed as no assessment.
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Preparer/promoter investigation cases should be counted in when identified and out when referral is made to Lead Development Center.
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Preparer penalty assessment cases should be counted in when approval memo is prepared and out upon assessment.
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Revenue protection should be reflected on the inventory report for cases that will not eventually be processed on AIMS as follows:
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if a non-frivolous return is filed or a claim waived in response to FRP outreach education,
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if a frivolous return is deemed no potential for further processing,
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when a claim is disallowed.
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Outgoing correspondence must address all taxpayer issues, request additional information, if needed, and meet all Action 61 quality and timeliness guidelines per IRM 4.10.1.5.3.2, Written Communication.
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All letters used in FRP are selected and approved by SB/SE Headquarters, Compliance Policy.
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All taxpayer contact, made by Exam, requires appeals rights notification per IRM 4.10.1.6.3, Notification of Appeal Rights.
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Designated Exam employees will be assigned cases from FRP inventory on a timely basis to review the available data and determine if the cases will be selected for examination.
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Designated employees will timely review all program receipts to determine appropriate handling including referrals to SB/SE LDC. The nature of frivolous filings requires careful consideration of the inventory as a whole; therefore, screening should be conducted on documents prior to their assignment out to program employees. Whenever possible, review the entire population of new receipts in their entirety to identify:
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like characteristics
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similar handwriting
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geographic similarities
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similar printing fonts
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promoter names and/or websites
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promotion characteristics
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preparers
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informant items
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any information that would identify an Abusive Tax Avoidance Transaction(ATAT) promotion, promoter, or preparer.
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Filings should also be screened for International implications and subsequent coordination with International Exam. Valid, frivolous filings require processing at the appropriate Campus handling International returns. International filings include:
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Form 2555
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Form 1040NR
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Tax Treaties
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Foreign Income
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Foreign address including APO/FPO such as for military personnel
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Telephone filers when appropriate to determine preparer, promoter, what was paid, how the promotion was detected, etc.
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When new frivolous arguments are identified:
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Obtain Chief Counsel opinion that deems them frivolous.
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Identify appropriate argument code.
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Issue FRP Alert describing new argument to educate FRP employees.
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Apprise FRP Coordinators, CI, TEC, SB/SE LDC as appropriate.
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Issue SERP Alert/Hot Topic if impact on Service is significant.
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Update training materials and IRM.
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Notify Chief Counsel to update Service websites and/or create revenue rulings if appropriate.
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When new preparers or promoters are identified, enter the name and promotion on FRP Master.
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Coordinate civil investigations with SB/SE LDC as appropriate.
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Several programs have been created to systemically identify frivolous filings that have processed. The programs generate transcripts or output for manual review and potential FRP processing.
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Weekly Transcript Process: A frivolous return transcript is generated when returns/claims with specific criteria for frivolous filings are identified.
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Complete IDRS research to determine likelihood that posted return is frivolous.
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Review any return posted to the account to determine if it is frivolous in nature.
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If it is determined that the posted return is frivolous , initiate regular audit procedures.
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Complete compliance check and process accordingly.
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Ensure all necessary information is input to FRP Master and all necessary controls are established.
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If it is determined that the posted return is not frivolous and/or taxpayer is in compliance, close all control bases, refile return and destroy transcript.
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IDRS activity should read "Not Friv" upon closure.
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Insure any refunds are stopped whenever possible. If not possible, initiate erroneous refund procedures.
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If it is determined that the posted return is not frivolous but taxpayer is not in compliance, make referral to appropriate function.
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Count documents in and out upon receipt.
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Daily Extract Process: A computer extraction of return and adjustment information is provided on EONs when specific criteria for frivolous filings are identified.
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Upon identification of information, count into inventory.
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Complete IDRS research to determine likelihood that posted return is frivolous.
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Review any return/claim posted to the account to make final determination if it is frivolous in nature.
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If it is determined that the posted return is frivolous, initiate regular audit procedures.
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Complete compliance check and process accordingly.
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Ensure all necessary information is input to FRP Master and all necessary controls are established.
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If it is determined that the posted return/claim is not frivolous and/or taxpayer is in compliance, close all control bases and refile return if necessary.
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IDRS activity should read "Not Friv" upon closure.
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Insure any refunds are stopped whenever possible. If not possible, initiate erroneous refund procedures.
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If it is determined that the posted return is not frivolous but taxpayer is not in compliance, make referral to appropriate function.
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Count documents in and out upon receipt.
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Correspondence should be reviewed for legitimate issues or information that has impact on the tax or penalty assessment on the taxpayer's account and worked appropriately. It should also be reviewed for potential promoter/preparer investigation referrals.
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Correspondence that poses no legitimate tax or account questions and has no impact on the computation of tax and/or penalty assessments but is merely presenting an argument that has no basis in law or fact for the express purpose of expressing dissatisfaction with substance, form or administration of the tax laws is considered frivolous.
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See LEM 4.10.12, Frivolous Return Program, for additional information.
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Screen new correspondence to determine if frivolous.
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If frivolous, update FRP Master to reflect all issues.
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If not frivolous, do not create new FRP Master account; if account exists on FRP Master, update to reflect appropriate non-frivolous information.
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Address all issues raised to include:
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Freedom of Information Act (FOIA), Privacy Act, 5 U.S.C. section 552(a), IRC section 6103 / IRC section 6203, and Federal/State/Foreign Agency Requests - Input mail received date and argument code on FRP Master. Attach SUMRY print to front of mail and write, "Input to FRP Master" on upper right-hand corner of print. Write, "Considered in Exam" on document itself. Ensure FRP received date in on document but do not include initials, dates or other information on the FOIA request. Count out of inventory and route to FRP Disclosure Coordinator for coordination with Disclosure Office.
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CI Freezes and/or Criteria - See IRM 4.10.12.3.7,"Case Referrals to and from Other Programs" , for additional information.
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Collection Due Process (CDP) or Collection Appeals Request (CAP) - Input mail received date on FRP Master. Attach ENMOD print to front of mail, highlight BOD at top center of print and write "Input to FRPMaster" on upper right-hand corner of print. Write, "Considered in Exam" on document itself. Count out of inventory and route to Collections Miscellaneous Department.
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Response to Collections Notices (CP504, CP 15-CP518) - Input mail received date on FRP Master. Count mail out of inventory and write "Input to FRPMaster" in upper left-hand corner. Route in accordance with Mail Routing Guide.
Note:
Do not route anything that indicates receiving area has already seen the correspondence, e.g., Collections has taken their action concerning a response to CP 515, do not route back to Collections.
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Informant items - Route to ICE Coordinator.
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Unprocessed POA requests - Check CFINK to ensure pertinent changes have been input. If information has not been updated, fax form to POA unit. Input "CFINK Checked" in upper left corner. Destroy request.
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Bankruptcy Information - See General Exam IRM guidelines.
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KITA - Route to KITA Coordinator.
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Hardship/TAS Criteria - Insure FRP Master data is input and contact TAS.
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Existing controls outside FRP - Input required data to FRP Master and contact controlled employee to determine appropriate processing of case.
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Existing controls within FRP - Input required data to FRP Master and destroy frivolous correspondence - do not route unless correspondence has a direct impact on tax and/or penalty assessment.
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Address Changes - Updates to addresses can only be made in accordance with IRM 4.19.3.20.1.6, "Address Updates" ; however, alternate addresses may be entered to FRP Master using the Alt Address tab.
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Responses to Claims Disallowance - See IRM 4.10.12.4.6. Frivolous Amended Returns and Claims. Frivolous responses to claim disallowances should not be destroyed.
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Screen correspondence for pertinent case information utilizing IDRS command codes SUMRY/TXMOD/IMFOLI to determine open years, controls and freezes. Route to controlled area or freeze condition area as appropriate.
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For uncontrolled IMF correspondence without freeze conditions, if frivolous:
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Ensure FRP Master is updated to reflect Date Received, TE #, Program Code, Tax Period(s) - enter year(s) referred to in correspondence if available or n/a, Preparer/Promoter Name if available and Action Code - Select action code from drop down menu.
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Write on upper right corner of correspondence, "Input to FRP Master" .
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See IRM 4.10.12.4.5, Frivolous Correspondence for further guidance.
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For BMF correspondence only, with the exception of specialized processing provided in See IRM 4.10.12.4.8.6, Specialized BMF Processing, below, if frivolous work as follows::
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Conduct compliance check by researching IDRS command codes.
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Research BMFOLE to determine filing requirements
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Research BMFOLI to determine which tax periods have been satisfied.
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If a statement is included in the correspondence which includes IMF non-compliance, research NAMES for any cross-reference TINs and conduct compliance check on any non-filed years.
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Refer BMF frivolous correspondence to Case Building just as for frivolous BMF returns and provide IDRS prints of BMFOLI, ENMOD, TXMOD for each year, all correspondence received from the taxpayer and copies of all correspondence sent to the taxpayer.
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Ensure all actions taken are thoroughly documented on FRP Master and IDRS, including any reply from the area office.
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Forward the case to the appropriate Campus Case Building group. Ensure copies of all pertinent materials are enclosed.
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Count out of correspondence and insure control bases are updated appropriately.
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Any credits on the tax module in question will be addressed by field personnel in completion of their examination.
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Correspondence not deemed frivolous should be:
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routed to any assigned control,
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routed to Audit Recon if in response to a closed Exam case,
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routed in accordance with the Mail Routing Guide
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Non-frivolous correspondence should be counted out of inventory upon disposition.
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Returns and claims should be reviewed for potential promoter/preparer investigation referrals.
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Screen new returns and claims to determine if frivolous. If so, determine argument code and update FRP Master as appropriate. Initiate compliance check and process accordingly (See Frivolous Valid Returns, Non-Filers, and Amended Returns and Claims below).
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Review for legitimate issues or information that has impact on the tax or penalty assessment on the taxpayer's account and work appropriately.
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If taxpayer address appears to have been changed to that of a promoter/preparer, do not change IDRS address. Add promoter/preparer address to FRP Master as an alternate address.
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Under the guidelines for working RRA98 section 1203 allegations, frivolous filings received from Service employees should be reported promptly and directly to TIGTA.
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Frivolous filings received from Federal employees may be identified through FRP employee research, outside referrals such as CI, Customer Service, TAS, or field agent reports, computer database matching, etc.
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Frivolous Forms 8300 issued against an IRS official or employee should be provided to management for proper disposition.
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Correspondence alleging employee misconduct should be processed under the guidelines established for RRA98 section 1203.
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Receipts of section 1203 cases based upon frivolous arguments that have previously been referred under the guidelines established for RRA98 section 1203 to TIGTA and subsequently referred back to FRP through CCPAG (Commissioner's Complaint Processing and Analysis Group) should be processed pursuant to an agreement established with CCPAG. Although 1203 allegations of employee misconduct based on frivolous arguments do not meet the criteria established for referral to TIGTA, many are received and subsequently require review by the Service to ensure non-frivolous issues are addressed as well as any underlying issues.
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In response to a growing number of TIGTA referrals for these cases, CCPAG negotiated a customer service agreement with FRP to review cases meeting this criteria.
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CCPAG cases should be worked as follows:
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Perform case screening to verify allegations are based upon frivolous arguments. 1203 referrals from CCPAG should not be used to identify tax return filing compliance. FRP will ensure research is performed on the account to verify taxpayer notifications that their position is frivolous. If no previous notification has been sent, FRP will send the appropriate letter to the complainant to inform them their arguments have no basis in law
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Research IDRS to ensure tax-related issues are addressed and respond to the taxpayer on valid account inquiries.
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Refer to appropriate business office those cases requiring response to tax-related issues outside the scope of FRP processes.
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Update IDRS and FRP Master to reflect actions taken.
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On Form 2070 referrals, complete Form 2070, indicating in the remarks whether the case meets FRP criteria and stating the action taken by FRP. Forward completed forms 2070 to CCPAG via Form 3210.
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On Form 2070A referrals, no feedback response is required. Destroy the document.
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Refer any non-frivolous cases back to CCPAG via Form 3210.
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Report inventory of receipts and closures as provided via local established procedures.
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Provide a report of trends to the Office of Professional Responsibility.
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Process all Congressional cases within a 48-hour time frame and respond back to CCPAG by fax.
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Criminal Investigation- All correspondence and returns should be screened for referral to Criminal Investigation (CI) (See IRM 4.19.16.1.3 , -Z Freeze Cases and IRM 9, CI). Cases meeting the following criteria should be coordinated with CI using the "CI Tab" on FRP Master:
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TC914, 916, 918 or "Z" freeze indicating a criminal investigation
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Indications of criminal fraud
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Delinquencies involving known organized crime figures, public officials, or individuals receiving income from illegal sources
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When referring cases to CI, all casework actions will be suspended. Input the following information to the FRP Master CI tab:
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"Request for approval to work case"
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TXMOD/ENMOD/IMFOLT information on Agent ID, first two digits of 91X DLN and taxpayer name
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Route original correspondence to CI through FRP/CI Coordinator at mailstop 4390.
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The FRP/CI Coordinator will forward data from the CI tab to CI daily. An e-mail message will be sent to the referring technician when CI responds on the disposition of their case.
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If CI indicates not to proceed with Exam action, route entire case to FRP/CI Coordinator at mailstop 4390, close controls including AIMS with DC 33, and recharge documents to CI.
Note:
It is not necessary to monitor case for follow-up action. Statute control will be maintained by CI.
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Tax technicians should ensure that FRP Master instructions for cases are updated to reflect accurate instructions. If there are instructions such as, "Route to CI for Z freeze" but the freeze is no longer on the account, update by selecting the Update Record button.
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Collections — Cases including collection notices or references to paying/not paying should be coordinated with Collections.
Note:
Frivolous arguments citing "Collection Due Process" (CDP) should be reviewed with Collections for possible referral to Appeals. Refer to IRM 21.9.8.4, Collection Appeal Rights Procedures, for additional information.
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Taxpayer Advocate Service — All cases in the FRP meeting Taxpayer Advocate Service criteria will be referred appropriately. Refer to IRM 13.1, Taxpayer Advocate Case Procedures, for Taxpayer Advocate Program case criteria).
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Appeals — All individuals have the right to disagree with Service findings and request the Appeals Office review their cases. Appeals can settle most differences without expensive and time-consuming court trials. However, Appeals can not consider reasons for disagreeing with IRS findings if the reasons do not come within the scope of the tax laws (for example, if disagreement is based solely on moral, religious, political, constitutional, conscientious, or similar grounds (see Publication 1, Yours Rights as a Taxpayer, Publication 594, The IRS Collection Process, and IRM 8.1.1.2.3, No Appeals Conference or Concession on Certain Arguments). Refer to IRM 8, Appeals, for additional information.
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Internal Revenue Service Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree, provides guidance to taxpayers on how to prepare a formal request for appeal when they do not agree with Service findings. It also states that Appeals can not consider reasons for disagreeing if the reasons do not come within the scope of tax law (frivolous arguments).
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Internal Revenue Service Publication 5 provides that taxpayers may request a meeting or a telephone conference with the supervisor of the person who issued the findings in their case. These informal requests do not require a referral to the Appeals office for resolution; however, this provision does not extend to requests based upon frivolous arguments.
-
Requests for Appeal, based upon frivolous arguments, will not be given consideration and do not require a formal disallowance. Process as follows:
-
If the taxpayer contact is by telephone, explain the taxpayer's rights regarding account information and the process for receiving notification of examination actions as well as the potential repercussions for maintaining a frivolous tax position, e.g., 30/90 day letter with subsequent assessment of tax and application of IRC section 6702 penalty assessment for each frivolous tax return or specified frivolous submission.
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For Ogden Campus Exam employees working frivolous filings only: If the taxpayer contact is by frivolous correspondence, destroy correspondence.
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-
Requests for Appeal based upon non-frivolous arguments will be given consideration. Refer to IRM 4.4.5.4, Non-Docketed Cases, for guidance.
-
If the taxpayer contact is by telephone, advise taxpayer to submit written request.
-
Every effort should be made to work returns within the normal three year statute of limitations in assessment under IRC section 6501 . See IRM 25.6, Statute of Limitations, for additional information.
-
Original returns
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Valid frivolous return filings begin the assessment statute of limitations under IRC section 6501. See IRM 4.10.12.4.3 for the definition of a valid frivolous return.
-
Invalid frivolous return filings do not begin the assessment statute of limitations under IRC section 6501. See IRM 4.10.12.4.4 for the definition of an invalid frivolous return. Although these returns do not begin the statute, every attempt should be made to work the cases under the normal three year statute of limitations using the Conservative Statute, per the MOU in the Correspondence Examination Statute instructions. However, if an invalid return is not worked within the normal statute date, an SFR can still be initiated after the normal statute expiration date.
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-
Claims: Timely filed frivolous amended returns and claims have the same assessment statute considerations as valid returns.
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Penalties
-
As a general rule, the statute of limitations to assess IRC section 6702 penalty begins with a valid return filing; however, if an exception applies, e.g. taxpayer files an amended return on the last day eligible to file, contact Counsel for a determination.
-
If there has not been a valid return filed, there is no statute of limitations for assessing IRC section 6702 penalty.
-
-
Specific cases may fall under the extended statute of limitations provided in IRC section 6501(c)(1). To rely on this extended statute of limitations, the IRS must have proof that the taxpayer has filed a false or fraudulent return. The government must prove fraud or actions taken by the taxpayer show an intent to evade or defeat the tax. The IRS has the burden of proof on this issue. Determinations under this code section must be made on a case-by-case basis.
-
See IRM 25.1.6, Civil Fraud, and IRM 4.19.16.1.3, Criminal Investigations (CI) Referral Non-EITC 1040X, for processing cases with potential civil fraud.
-
Frivolous filings should be carefully reviewed to determine if appropriate to refer for potential civil fraud.
-
Route any cases meeting the established criteria for civil fraud referral through the FRP Senior Technical Advisor.
-
Cases not eliminated from FRP inventories during initial review should be timely processed according to their filing type. Research should be conducted to determine suitability for continued Exam processing based upon income verification and related account attributes.
-
Process cases as follows:
-
Ensure all taxpayer issues are addressed as appropriate.
-
Ensure any taxpayer responses are associated and considered prior to determining next action.
-
Research IDRS for relevant case controls, T-signs, freezes and histories that may affect processing the case. Coordinate as appropriate.
-
Ensure all related TIN's and prior/subsequent years filing history are researched for compliance and additional income such as K-1's, income from erroneous refunds, etc. Check AMDIS, INOLES, ENMOD, IMFOLI, IMFOLT, SUMRY, TXMOD, SUPOL, CFINK and IRPTR for all related entity, cross-reference filing history, and any related non-filed years. Review those IRP transcripts available online to determine source(s) of income. See also IRM 4.19.13.3, Researching Cases.
-
Review each document to determine if frivolous.
-
-
If filings appear potentially frivolous but do not fall under existing processing guidance, elevate through chain of command to HQ Exam Policy Program Analyst for appropriate action.
-
If frivolous, determine if the return is valid, invalid, processable, no potential or below tolerance/refund potential.
-
Ensure appropriate notification to taxpayer is sent on at least one frivolous filing.
Note:
Notification to taxpayers that filings are frivolous is not mandatory but is provided as a courtesy. Judgment should be used to provide additional notification if the particular case warrants. When the Service receives what it determines to be a frivolous filing under IRC section 6702, the Service issues Letter 3175/76(C) if appropriate. The 3175 informs taxpayers their correspondence is frivolous and the 3176 informs taxpayers that their return is frivolous and subject to a $5000 civil penalty under section 6702. The letter also gives the taxpayers the opportunity to submit non-frivolous returns within 30 days of the date of the letter to avoid assessment of the penalty. The issuance of this letter is not a statutory requirement and failure to issue the letter does not indicate the penalty should be abated.
-
Conduct complete compliance check including prior three years and/or subsequent years if applicable to determine if the case should be selected for campus or area office exam or worked as no potential/below tolerance/refund potential.
Note:
Systemic compliance checks may be conducted as deemed appropriate.
-
Input appropriate satisfying transaction code based upon compliance check. Note that multiple transaction codes may be necessary to leave an accurate audit trail.
Note:
All 59X transaction codes will satisfy the tax module return delinquency. Ensure appropriate follow-up action on the module is taken, e.g., SFR conducted after 599-17 or 590-77 input.
-
-
If not frivolous, process as appropriate ensuring all taxpayer issues are addressed.
-
See LEM 4.10.12 for additional information regarding working certain categories of cases.
-
Campus Exam Potential Cases: If compliance check reveals deficiency potential for Campus examination, select case for processing under appropriate program category. Control case on IDRS with the following:
-
Status code, for example, A, C, M (see Doc. 6209 sec. 13–8)
-
Control category, for example, AUDT, SFR- (see Doc. 6209 sec. 13–9)
-
Activity Code -CEX- Campus exam
-
Unit or employee number
-
IRS received date — should be earliest IRS received date
-
-
Area Office Examination Potential cases: If compliance check reveals case meets criteria for deficiency potential for area office examination, process as follows:
-
If return has questionable expense/credit items, refer to Campus Classifier for determination of case selection and referral to area office.
-
If classification and/or compliance check results in referral to area office exam, transship to area office PSP via Form 3210.
-
If case has open AIMS in campus - AMSOC to appropriate PBC, SBC, EGC and send to area office.
-
-
No Potential/Below Tolerance/Refund Potential.
-
Determine potential liability by income minus standard deduction minus appropriate personal exemptions for the appropriate tax year to arrive at taxable income. Refer to the tax tables for the delinquent year to determine tax.
Note:
Any case below tolerance may be worked if compliance will be enhanced.
-
After evaluating income information and filing history, cases will commonly fall under one of the following categories:
-
No Potential — IRP transcripts indicate individual did not have sufficient income to require filing.
-
Below Tolerance — IRP transcripts indicate individual had income but tax computation is below tolerance.
-
Service Center Examination Potential — IRP transcripts indicate individual has sufficient income to support a tax computation above tolerance.
-
Area Office Examination Potential — IRP transcripts indicate objective and verifiable evidence that a potential tax assessment exists; however, the Campus would be unable to support a tax assessment by IRP transcript alone. Examples of these types of cases would be high mortgage interest, self-employment indicators, and material discrepancy between return in question and prior returns without adequate explanation for the discrepancy. Prior years filing history may also reflect potential for assessment. Examples of these types of cases would be those that prior years were assessed by the area office or previous high income filer. Consider also for area office exam, cases in which the return reflects questionable expense or credit items.
-
-
Document all actions taken on case file, FRP Master and IDRS.
-
Consider for Campus examination cases above tolerance with the following taxable sources of income:
-
Medical payments — Compensation paid to doctors, dentists, and others in the medical profession. Subject to self-employment tax unless clear indication taxpayer is not in a medical profession
-
Wages, Tips and Other Compensation — Form W2 (Include wages paid during the year (prior to payroll deductions), non-cash payments (including fringe benefits), total tips reported, and certain employee business expense reimbursements. Sick pay is considered taxable wages unless it is clearly identified as employee paid sick leave. Wages may be fully or partially reported on tax return wage lines, as other income on Form 1040, on Schedule C or F, or as income on attachments. See current tax law for allocated tip income
-
Dividends, Interest, and Original Issue Discount — Ordinary dividend distributions, capital gain distributions, and nontaxable distributions (not included as income). (Consider OID only when reported by a financial institution)
-
Capital Gain Distributions — See current tax law for taxable portion
-
State or Local Income Tax Refunds (SITR) —If taxpayer itemized in prior year
-
Agricultural Subsidies (AGSUB) — Government payments to farmers or businesses to assist in a policy deemed advantageous to the public. Subject to self-employment tax
-
Patronage Dividends — Paid by cooperatives. Considered income unless attributable to family items, capital assets or depreciable assets used in taxpayers business. May be subject to self-employment tax
-
Rents/Royalties —Not usually subject to self-employment tax unless taxpayer is in business of rental property and has reported rental income on Schedule C or F. May be subject to self-employment tax
-
Pensions and Annuities — See current tax law for taxable portion
-
IRA Distributions -See current tax law for taxable portion
-
Lump-Sum Distributions — Income received within one tax year from an employer's qualified pension, stock bonus, or profit-sharing plan, including employee savings plans. The case minor may reflect both ordinary income (ORINC) and capital gains (CG)
-
Conduit Income —Taxpayer portion from a partnership, estate, trust, or small business corporation. Do not include negative amounts. May be subject to self-employment tax
-
Non-employee Compensation (NEC) — Fees, commissions, or any other compensation paid by a business to an individual that is not an employee. Subject to self-employment tax
-
Unemployment Compensation
-
Social Security/Railroad Benefits — See current tax law for taxable portion
-
Fishing Income —Income earned by fishing boat crew members. Subject to self-employment tax
-
Prizes and Awards — The fair market value of the prize or award
-
Gambling Income — Gross winnings from a gambling activity
-
Forgiveness of Federal Indebtedness (FOFI) — Considered income if a debt owed to the Federal government was declared uncollectable
-
Debt Out/Debt Satisfied/Fair Market Value (FMV) — Acquisition or abandonment of property that is security for a debt for which the payer is the lender. Do not include negative amounts
-
Taxable Grants — A grant determined to be taxable by the payer and is considered income to the taxpayer
-
Stocks/Bonds — Proceeds from security sales involving stocks, bonds, other debt obligations, commodities, or forward contracts
-
Rollover — Income withdrawn from one IRA account and transferred to another IRA account
-
Bartering — An exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through bartering is taxable
-
Crop Insurance — Amounts received by farmers for destruction or damage to crops. Subject to self-employment tax
-
Other Portfolio Income — Income derived in the ordinary course of the business and is not subject to the passive activity rules. May be only subject to capital gains tax
-
Forfeitures — An early withdrawal penalty is a forfeiture of interest income due to premature withdrawal of capital on a time savings account. Penalty can exceed amount of interest paid to the taxpayer for the year
-
IRA/SEP — See current tax law for taxable portion
-
Realized 89 (or other tax year) — Income received from the sale of an item
-
Real Estate (Real es sl) — The sale or exchange of one to four family real estate transactions
-
Golden Parachute Payment ( IRC 280G & IRC 4999 ) — Payments in the nature of compensation to a disqualified individual. Disqualified individual means an officer, shareholder, or independent contractor whose employment has been discontinued due to a change in ownership or control of the corporation. They are severance pay and should be reported as income
-
ORINC/ORD Income (Ordinary Income) — Income received within one tax year from an employer's qualified pension, stock bonus, or profit-sharing plan, including employee savings plans
-
Permanent Dividend Fund (State of Alaska) — Dividend income from the State of Alaska paid to eligible Alaska residents. Not subject to self-employment tax
-
Non-employee Comp (State of Alaska longevity bonus) — Paid to qualified Alaska residents at least 65 years of age and living in Alaska 20 years. Not subject to self-employment tax
-
Dependent Care (Depend Care) — Dependent care benefits paid by the taxpayer's employer
-
Amt of Contract — Taken from Form 8596, Contract with the Federal Government ( IRC 6050(m) )
-
Non-IRP Income Sources - Self-assessed income reported by taxpayer, erroneous refund income received as a result of a frivolous filing
-
-
Include self-employment and excise tax where applicable.
Note:
Any Select Code 38 HINF (High Income Non-filer) in which a frivolous return has been received will be forwarded to Ogden FRP and will be worked under Project Code 277 to identify the case as HINF. Ogden FRP will assume responsibility for the exam, addressing the frivolous return and either processing the case based on the initial audit report generated by Memphis or transferring the case to the appropriate area office. Any HINF case in which only frivolous correspondence is received will be forwarded to Memphis for completion of the initial audit.
-
Do not include duplicate or rollover items, bad payer information, or items where the payer name is garbled, missing, incorrect, or incomplete.
-
Consider for area office examination but do not include as taxable income:
-
Mortgage Interest (Form 1098) — Interest paid by the taxpayer to financial institutions for a loan obligation secured by real property. Information item to be considered for material discrepancy when compared to reported income
-
Form 5498 information — Information on fair market value of IRA account
-
CTR — Cash payments over $10,000 received in a trade or business. Can often be identified on the IRMF transcript by the Form 8300. Information item to be considered for material discrepancy when compared to reported income
-
Return reflects questionable expense or credit items
-
-
Reparations and other illegal credits are filed on original or amended returns and include references to reparations based on the impact of slavery, separate but equal laws, rebates of black taxes paid, reparation for a past injustice against a particular national origin or heritage, and the request for a refund of illegal credits. They are most often filed with Form 2439, Undistributed Long-Term Capital Gains, attached which is transcribed as a transaction code (TC) 766 for Form 2439 or Form 4136.
-
Reparations claims received after April 14, 2002, are subject to assertion of IRC section 6702 penalties consistent with all other frivolous filings.
-
If original or amended reparations or other illegal credits claims were processed and credit refunded, illegal credits must be reversed and erroneous refund procedures followed (See IRM 4.10.12.6, Erroneous Refunds).
Note:
For tax periods where the period of limitations on assessment (ASED) is expired, refer to See IRM 4.10.12.6.5,Recovering Refunds by Erroneous Refund Suit).
-
If original or amended reparations or other illegal credits claims were processed and credit was held, ensure illegal credit is reversed and math error notice issued.
-
On unprocessed returns, when fraudulent income or credits are claimed on the return, edit out the amounts claimed when processing.
-
All reparations filings, regardless of type or correspondence received, should be worked under program code 91851. Cases will be controlled on TXMOD to an assigned technician with the activity shown as "REPTAX"
-
Chief Counsel provides the validity determination on each type of frivolous filing.
-
Frivolous returns that have been determined to be valid filings by Counsel should be worked under this category.
-
Valid frivolous returns are subject to the frivolous return penalty and begin the statute of limitations under IRC section 6501.
-
Control case for assessment statute (ASED). ASED begins with receipt of valid returns requiring proper control and timely processing (see IRM 25.6, Statute of Limitations).
-
Send Letter 3176(C) (including Publication 3498) if not previously sent to inform taxpayer of frivolous position and request non-frivolous return and any non-filed years. Suspend case for 45 days.
-
If response is received with a processable, non-frivolous return, process through regular return procedures and:
-
Verify taxpayer filed a correct and accurate return.
-
Circle out the received date on non-frivolous return and edit in the received date of the original frivolous return received. This will begin the statute period.
-
Stamp non-frivolous returns with FRP in the upper left corner. Attach original frivolous return to the back of the non-frivolous return. Indicate "Do Not Detach" on top of the frivolous return.
-
Do not assess the frivolous return penalty.
-
Update inventory record with closure. Notate actions taken on history sheet, update FRP Master and ensure revenue protection is recorded.
-
Close case controls.
-
-
If 3176(C) previously sent, a frivolous response is received or no response is received after 45 day suspense period has expired:
-
ensure frivolous return penalty assessment is made immediately on the original frivolous return as well as any frivolous return received in response to the Letter 3176(C).
-
Update history sheet, IDRS, RGS, FRP Master Daily with actions taken.
-
If a frivolous return is received and it is processable, edit return and have processed.
Note:
Processable returns have no audit tolerance; the return is processed and an audit is completed. Only those instances in which the taxpayer has no tax liability will an audit not be completed. In this situation, asses the frivolous return penalty, send return to be processed, update histories, and close controls.
-
If compliance check reveals no potential or below tolerance, process through regular return procedures verifying that withholding is correct. If return includes W2, verify wages and withholding on return agree. If they do not agree, include information on Form 4227, Intra SC Reject or Routing Slip. If return does not include W2 but reflects withholding, indicate on Form 4227 to correct withholding. Stamp return with FRP in the upper left corner. Update inventory record with closure. Close case controls.
-
Ensure all documents are statute cleared prior to forwarding to Submission Processing.
-
Send return to Submission Processing for initial processing requirements using special handling instructions. Returns should be coded and edited to reflect specific guidance for Submission Processing systems. These codes allow returns to validate under various conditions after manual review. The codes are listed in the ADP Document 6209.
-
If compliance check reveals deficiency potential for Campus examination, initiate audit deficiency procedures (see below). If compliance check reveals deficiency potential for area office examination, route to appropriate area office.
-
Effective January, 2003, valid, frivolous returns requiring processing will be worked under a memorandum of understanding between W&I and SB/SE. The MOU provides for expedite handling of frivolous IMF returns referred by Ogden Compliance Service to Fresno Submission Processing. Ogden FRP will transship FRP returns to Fresno approximately weekly via Form 3210. When processing is complete, Fresno will transship the returns back to Ogden on a weekly basis via Form 3210. FRP will perform all Code & Edit activities prior to shipment to Fresno.
-
Fresno will batch the returns separately from regular forms 1040; however, no unique program code or 5th digit is necessary. The returns will be expedited through cycle and processed through the ISRP. The returns are all edited with action code 440 which will place them in Rejects suspense inventory after going through ISRP. Fresno Rejects personnel will then return them to Ogden FRP.
-
If compliance check reveals previous frivolous filings, ensure appropriate frivolous penalty assessments are made.
-
-
Special Handling Instructions for current year returns:
-
Insure received date is correct (earliest date) and in red on the return. Circle out any other dates.
-
Verify withholding is correct. Taxpayers may include amounts withheld for social security, medicare, and state tax. Indicate on Form 4227 to allow the correct withholding amount to ensure Error Resolution understanding.
-
Stamp return "FRP" on top left to ensure Processing employees identify.
-
Code as follows:
-
Computer Condition Code (CCC) "3" in red below the entity portion in the center of the return. This code freezes refunds.
-
Return Processing Code (RPC) "L" in the right-hand margin next to Total Income (Line 22 on Form 1040) for blank returns. This code indicates the return is blank or contains all zeros or insignificant entries other than entity information.
-
RPC "G" in right-hand margin next to Total Income if the return reflects withholding. This code forces the return to post and bypass certain error checks.
-
Action Code "440" in red on the center of the bottom line. This code causes the return to reject for further handling.
-
Complete Form 4227, Intra SC Reject or Routing Slip, and staple to return in the center left side. Complete Name-Unit: FRP & TE #, Date-Current, and check Reject Correction. On bottom left under Other Activity, note "Attention Rejects" . On the bottom right under Other, note the argument used, CCC-3, and 440.
-
-
Process prior year returns just as current year returns with the exception that they must have their tax year underlined in red and their line item numbers must be corrected to match current filing year returns.
-
Chief Counsel provides the validity determination on each type of frivolous filing.
-
Frivolous returns that have been determined to be invalid filings by Counsel should be worked under this category.
-
Invalid frivolous returns are subject to the frivolous return penalty but do not begin the statute of limitations under IRC section 6501.
-
Send Letter 3176(C) (including Publication 3498) if not previously sent to inform taxpayer of frivolous position and request non-frivolous return and any non-filed returns. Suspend case for 45 days. :
-
If response is received with a processable, non-frivolous return, process through regular return procedures and:
-
Verify taxpayer filed a correct and accurate return.
-
Circle out the received date on non-frivolous return and edit in the received date of the original frivolous return received. This will begin the statute period.
-
Stamp non-frivolous returns with FRP in the upper left corner. Attach original frivolous return to the back of the non-frivolous return. Indicate "Do Not Detach" on top of the frivolous return.
-
Do not assess the frivolous return penalty.
-
Update inventory record with closure. Notate actions taken on history sheet, update FRP Master and ensure revenue protection is recorded.
-
Close case controls.
-
-
If 3176(C) previously sent, a frivolous response is received or no response is received after 45 day suspense period has expired:
-
ensure frivolous return penalty assessment is made immediately on the original frivolous return as well as any frivolous return received in response to the Letter 3176(C).
-
Update history sheet, IDRS, RGS, FRP Master Daily with actions taken.
-
If a frivolous return is received and it is processable, edit return and have processed.
Note:
Processable returns have no audit tolerance; the return is processed and an audit is completed. Only those instances in which the taxpayer has no tax liability will an audit not be completed. In this situation, asses the frivolous return penalty, send return to be processed, update histories, and close controls.
-
If compliance check reveals no potential or below tolerance, file return under frivolous penalty assessment. Update inventory record with closure. Close case controls
-
If compliance check reveals deficiency potential for campus examination, initiate SFR procedures.
-
Establish the case on AIMS, Source Code 24, Frivolous Non-Filer, and Special Project Code as appropriate.
-
If compliance check reveals deficiency potential for area office examination, route to appropriate area office.
-
If compliance check reveals previous frivolous filings, ensure appropriate frivolous penalty assessments are made.
-
-
Correspondence indicating an unwillingness to file or pay taxes based on frivolous arguments should be worked under this category. Frivolous correspondence is not subject to the frivolous return penalty except as noted below.
Note:
Correspondence determined to purport to be "in lieu of" a tax return is subject to the section 6702 penalty but otherwise worked as correspondence.
-
When the Service receives frivolous correspondence, Letter 3175(C) is sent to inform taxpayers that their positions are frivolous and that further correspondence regarding the frivolous issues will not receive responses. This letter constitutes outreach education for frivolous filings and therefore subsequent frivolous returns or claims filings will not require additional notifications as to the consequences of frivolous filings.
Note:
Systemic issuance of Letter 3175(C) may be conducted as deemed appropriate.
-
Process frivolous correspondence as follows:
-
If compliance check reveals no potential or below tolerance, send Letter 3175(C) to inform taxpayer of frivolous position if not previously sent. Update inventory record with closure. Destroy correspondence.
-
If compliance check reveals deficiency potential for Campus or area office examination, send Letter 3175(C) if not previously sent to inform taxpayer of frivolous position and request non-filed tax year(s).
-
If response is received with a non-frivolous return(s), process through regular return procedures. Stamp "FRP" on upper left corner. Update inventory record with closure. Close case controls and destroy correspondence.
-
If no response or frivolous response is received after 45 day suspense period, ensure frivolous return penalty assessment is made on claims filed in response to the Letter 3175(C). Initiate Frivolous Non-filer SFR Procedures.
-
Cases meeting criteria for area office examination should be routed to appropriate area office.
-
-
Update FRP Master with action taken.
-
Forms 1040X, 843, and subsequent filings to original 1040's based on frivolous arguments should be worked under this category.
-
Frivolous amended returns and claims are subject to the frivolous return penalty.
-
Send Letter 3176(C) (including Publication 3498) if not previously sent to inform taxpayer of frivolous position and include Form 2297, Waiver of Statutory Notification of Claim Disallowance, and Form 3363, Acceptance of Proposed Disallowance of Claim for Refund or Credit, to allow rescission of frivolous claim. Request any non-filed tax returns. Suspend case for 45 days.
-
If response is received with both forms signed:
-
Attach frivolous filings and signed waiver and acceptance forms to DLN of TC150 of original non-frivolous return.
-
Input TC 290 $.00 with appropriate blocking series.
-
Do not assess the frivolous return penalty.
-
Update inventory record with closure.
-
Close case controls.
-
-
If Letter 3176(C) previously sent, a frivolous response is received or no response is received after 45 day suspense period:
-
assess the frivolous return penalty on the original frivolous claim as well as any frivolous claim received in response to the Letter 3176(C).
-
Non-frivolous claims to original FRP assessments, both tax and penalties, should be processed under regular claims procedures.
Note:
The frivolous return penalty is not subject to the Service's post-assessment penalty appeals program. The penalty must be paid in full, claim for refund filed, and suit brought in Federal District Court or the U.S. Court of Federal Claims following the general claim procedures of I IRC section 6511 and the general refund suit rules of IRC section 6532.
-
-
Returns and/or documents meeting the criteria for frivolous return penalties should be worked under this category. IRC section 6702 provides for an immediate assessment of a $5000 civil penalty against individuals who file frivolous documents. The penalty is not based on tax liability. There does not need to be an understatement of liability in order for the penalty to be imposed in addition to any other penalty.
-
Penalties should be assessed on each frivolous filing received for which the filer does not file a corrected return or waiver of claim within the prescribed time period. Joint filing status frivolous filings will result in separate penalty assessments on the primary and secondary taxpayers.
-
Assess multiple IRC section 6702 penalties when the taxpayer files additional frivolous claims for refund and has been afforded the opportunity to rescind the claim at least once but has not responded with a reversal of the claim.
-
Penalties should be assessed without regard to whether the claim is a copy or an original, whether the signature on the claim is a copy or an original or whether there has been an IRC section 6702 penalty previously assessed for the same tax period.
-
If unable to determine whether the filing is an additional claim for refund or a response to a Service request for a copy of a previous filing, do not assess the penalty.
-
See IRM 20.1.6 and IRM 20.1.10.9 , "Penalty Handbooks" , for additional information.
-
Frivolous returns/claims will have been screened and forwarded for further processing after one of three scenarios: soft letter has been sent to taxpayer with suspense period expired and no response, taxpayer responded to soft letter with frivolous argument, or soft letter was previously sent.
Note:
If the taxpayer responds with non-frivolous corrected return or waiver of claim, the case should be processed as such and not forwarded for penalty processing.
-
Count new receipts and closures for each tax year addressed.
-
Review case file to ensure taxpayer received notification at least once and, if altered jurat is an issue, that taxpayer was afforded the opportunity to properly sign the return even if notification has been previously sent for another frivolous filing.
-
Review any taxpayer replies to ensure that penalties are not assessed if any corrected, non-frivolous returns/waiver of claims were filed.
-
Review taxpayer account for pertinent freezes or controls.
-
Prepare Form 8278, Computation and Assessment of Miscellaneous Penalties, indicating:
-
Taxpayer name
-
TIN
-
Tax year(s) of penalty assessment
-
Tax Technician Number
-
Computation (amount) of penalty
-
IRC section of penalty ( IRC section 6702 ) and Penalty Reference Code (666)
-
Return received date or postmark date as appropriate
-
Team Manager approval signature and date ( IRC section 6751(b) )
-
-
Establish TXMOD control for MFT 55 using CC:ACTON. Establish entity if none exists.
Note:
For joint filing status frivolous returns, assess penalty on each taxpayer by creating TXMOD MFT55 on each SSN.
-
Submit case for approval on Form 8278.
-
Update FRP Master as: FRIV, 104X DTD XX XX XX.
-
Upon approval of Form 8278, input adjustment (Form 12775, ADJ54 Adjustment Format ) indicating:
-
Check box A or B (A indicates adjustment input before 6:00 P.M).
-
Tax Examiner Number/Input Date
-
TIN
-
MFT - 55
-
Period (YYMM)
-
Name - Ctrl
-
Seq Number (Indicates the number of the adjustment for that day input by that employee)
-
Blocking Series 52 (Blocking 53 if another penalty or an abatement)
-
Adjust with or without original (return)
-
IRS Rec Date - *
-
Category - AUDT
-
Activity - CVPN/Argument (Argument = 0LONG, 861, etc).
-
TC - 290
-
Amount - .00
-
Hold Cd - 0
-
CD - Pen Ref Code- Current code is penalty reference number (PRN) 666 per ADP Document 6209. This PRN generates a CP 15 with applicable penalty explanation paragraph.
-
Amount - 5000.00
-
Source Doc Attached - SD only if no TC150 is present on MFT 30
-
Remarks: "NSD Admin w/MFT30-1040X dated XXXX if no source document."
-
-
Penalty assessment documents will be kept with the case file until the tax (audit) case is completed or with the MFT 55 DLN associated with TC240 when there is no audit case to associate to. Use Form 10550, Employee Source Document Label, attached to gusset folder for MFT 55 files.
-
Input TXMOD history item to MFT 30 if available as "FRVPEN" .
-
Assemble penalty case file in the following order:
-
Form 12775
-
Original filing
-
Correspondence
-
Form 8278
-
Form 12616 History Sheet
-
-
Submit case for Quality Review.
-
Annotate Form 12616, Correspondence Examination History Sheet, with comments, action taken.
-
Stamp frivolous filing with "Frivolous Tax Penalty Assessed" in lower left margin of the front of the return.
-
Update FRP Master to reflect penalty assessment.
-
Count out of inventory.
-
Responses to IRC 6702 penalty assessments commonly fall into one of three categories and should be processed accordingly. The categories are Requests for Management Intervention, Requests for Appeals, and Claims.
-
Requests for Management Intervention - Management intervention may be granted in the form of telephone calls; however, requests for face-to-face meetings when the taxpayer position is based upon a frivolous argument should not be granted.
-
Contact taxpayer and attempt to resolve issue by explaining their rights regarding account information and the process for receiving notification of examination actions as well as the potential repercussions for maintaining a frivolous tax position, e.g., 30/90 day letter with subsequent assessment of tax and application of IRC section 6702 penalty assessment for each frivolous tax return/claim.
-
If contact results in abatement of penalty or requires additional development of case, coordinate with team manager.
-
If contact results in sustaining original assessment, explain taxpayer rights per penalty notice, i.e., 1) the taxpayer must pay the entire penalty; 2) then file a claim for a refund on Form 843 within 3 years from the time a return associated with the penalty was filed or 2 years from the date the penalty was paid, whichever period expires later. If the taxpayer's claim is pending for six months or more and the IRS has not issued a notice of claim disallowance with regard to the claim, the taxpayer may file suit in a United States District Court or the United States Court of Federal Claims to contest the assertion of the penalty at any time. Once the IRS issues a notice of claim disallowance, however, the taxpayer must file suit in a United States District Court or the United States Court of Federal Claims within 2 years of the date the IRS mails the notice of disallowance denying the refund claim. See IRC sections 6511, IRC 6703, and IRC 7422.
-
-
Request for Appeals - Requests for Appeals consideration should be reviewed as follows:
Note:
There are no administrative appeals provisions for requests based on frivolous positions. See IRM 8.1.1.3.3, No Appeals Conference or Concession on Certain Arguments, and IRM 20.1.6.1.4, Appeal Rights.
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Requests for appeals that meet abatement criteria should be processed by FRP. See claims abatement below.
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Non-frivolous requests for appeals consideration will be granted. See IRM 4.4.5.4, Non-Docketed Cases, for guidance.
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Frivolous requests for appeals will not be granted. See Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don't Agree, which states that Appeals cannot consider your reasons for not agreeing if they don't come within the scope of the tax laws (for example, if you disagree solely on moral, religious, political, constitutional, conscientious, or similar grounds).
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If appeals request does not contain any non-frivolous basis for appeal, destroy correspondence.
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Claims (See IRM 20.1.1.3, Relief from Penalties, and IRM 20.1.10.9.4, Penalty Relief) - Review case for specific processing requirements. Refer to IRM 21.5.3 , General Claims Procedures, and IRM 4.19.16, Claims, for additional processing information. Claims are usually filed on Form 843, Claim for Refund and Request for Abatement, but may be made in an informal inquiry. Claims should be worked in the following order:
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Claims for abatement: Review claim case for administrative errors (See IRM 20.1.1.3.3, Service Error, and IRM 20.1.1.3.4.2, Taxpayer Entitled to Relief, for additional information). Note that cases meeting criteria for administrative abatement are not required to be paid first. Consider penalty abatement in cases where an incorrect account was assessed, taxpayer proves they were not responsible for the penalized action, or taxpayer filed a timely, non-frivolous, corrected return or waiver of claim. Coordinate all abatements with team manager. NMF penalty abatement should be worked per memo of understanding with Philadelphia NMF function.
Note:
For abatements on account before Penalty Reference Number (PRN) 666 became the sole reference number, abate with the PRN that was originally used to assess the penalty. Use a "-" (minus) sign with the PRN. This will systemically create a TC 241.
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Claims based upon frivolous arguments: Should not be considered or responded to if taxpayer previously received notification of frivolous position. They are subject to an additional section 6702 penalty.
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Claims with penalty not paid: If claim does not meet abatement criteria, is not based upon a frivolous position, and the penalty has not been paid, issue Letter 854(C) or 916(C) citing no consideration until penalty is paid.
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Claims with penalty paid: If claim does not meet abatement criteria, is not based upon a frivolous position, and the penalty has been paid, issue claim denial (See IRM 4.19.16.1.4.1, Claims Contact Procedures, for processing guidance). Dispose of processable but disallowed claims with "No Consideration," "Disallowance," or "Partial Disallowance" letters, depending on the facts and circumstances of each case. Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for processing guidance.
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Annotate Form 12616 with case action comments and dates.