This activity supports IRS strategy to protect revenue and stop fraud and abuse through frivolous return filing. This program provides for assessment of penalties to encourage compliance.

IRC 6702 was put into law to address the filing of purported returns which do not allow the IRS to judge the correctness of the self-assessment made by the taxpayer. The purported returns are filed based on a frivolous position and/or reflect a desire to delay or impede the administration of the tax law.

Notice 2010-33 provides a list of frivolous arguments the penalty was put into place to address. These positions are patently frivolous, and the Courts have ruled numerous times in favor of the IRS on these issues.

The penalty applies when the information on the face of the return shows a patently frivolous position.

Refer to the following:

The Wage and Investment (WI) Return Integrity Verification Operations (RIVO) is responsible for the Frivolous Return Program (FRP) due to the October 2014 Small Business/Self Employed (SB/SE) realignment.

A FRP Coordinator assigned at each campus will assist with a review of potentially frivolous documents referred by employees within their campus and will consult with the FRP on new developments or concerns related to frivolous filings. Program receipts will be reviewed for frivolous criteria and either selected or cleared as follows:

The Commissioner is charged with ensuring that IRS employees are familiar with and act in accordance with the taxpayer rights as accorded by the Code. See IRC 7803(a)(3), which refers to taxpayer rights afforded by other provisions of the IRC. Under these Code provisions, in general, taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS. They are to be spoken to in a way that is easily understood and any correspondence from the IRS must be clear and understandable. They have the right to speak with a supervisor whenever quality service is not received. For additional information, refer to IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection; and the Taxpayer Bill of Rights at www.irs.gov/taxpayer-bill-of-rights; and Pub 1, Your Rights as a Taxpayer. Review Pub 5170, Taxpayer Bill of Rights at https://irssource.web.irs.gov/Lists/General%20News/DispItemForm.aspx?ID=126

Outreach training is available in Integrated Talent Management (ITM) for functions that need information and/or guidance to identify and refer frivolous conditions.

RIVO provides FRP outreach education for applicable external stakeholders and coordinates systemic identification of frivolous filings and guidance to make referrals to FRP, as applicable, with affected stakeholders.

Each frontline manager ensures timely completion of the work performed in that unit, addresses issues that come up and notifies the Department Manager of ongoing problems.

Local problems are resolved at the local level. Problems of a more serious nature that cannot be resolved at the first line are reported to the Planning and Analysis (P&A) Staff. If the work problem or stoppage is determined to be something that will affect policy or cross functional processing, P&A will report the issue to the Headquarters analyst for resolution assistance.

The Frivolous Return Program (FRP) is responsible for:

The acronyms below are utilized in the Frivolous Return Program:

The related resources listed below are to be utilized for account research and issue resolution. These related resources are accessed through the IRS Intranet-Servicewide Electronic Research Program (SERP) site.

IDRS restricted access accounts are accounts where a user must request special permissions to access the account through IDRS. Follow IRM 21.2.1.3.2, Authorized IDRS Access.

Frivolous returns or documents purporting to be returns identified by Submission Processing employees will be forwarded to a central location for screening. See IRM 3.11, Returns and Document Analysis, and IRM 3.12, Error Resolution, for guidance on identifying and forwarding.

All returns or documents purporting to be returns received by FRP are screened to determine if the statute for limitation period must be set. Identified returns must be expedited to ensure precautions are taken to prevent barred assessments. See IRM 25.6.1.6.14, Criteria for Establishing a Statute of Limitations Period. Frivolous returns that require processing must be edited following IRM 25.25.10.8.7, Editing Return Instructions.

Frivolous returns can be valid or invalid. A valid return meets the requirements to start the limitations period for assessment under IRC 6501. Frivolous returns are normally considered "valid or processable" , under IRC 6611(g)(2) (although there are some exceptions) if they meet the following four-point criteria from Beard v Commissioner, 82 T.C. 766, 777(1984), aff’d per curiam, 793 F.2d 139 (6th Cir. 1986):

A frivolous processable return meets the four-point criteria below:

Do not process a frivolous return that does not meet the above four criteria. Processable returns must comply with the Beard Standard. Invalid unprocessable returns lack sufficient data and cannot be input to the computer. See IRM 25.6.1.6.16, Processable – Unprocessable Returns, for additional information.

Valid returns that require processing are a priority and must be routed to Submission Processing as soon as possible to prevent barred assessments. Ensure all editing is complete and precautions are taken to prevent erroneous refunds.

The Ogden campus will follow IRM 3.10.72, Receiving, Extracting, and Sorting, and any local procedures for using designated Private Delivery Service to transship.

If a Campus FRP Coordinator refers a submission to FRP that is not frivolous, designated employees must provide feedback to the respective FRP Coordinator to explain the reasoning of the determination.

Valid, frivolous returns on international forms or that have international impact will be routed to the appropriate Campus for processing international forms.

Any non-frivolous IMF returns that require processing (such as misroutes) will be directed to Kansas City Submission Processing Campus as outlined in national transshipment procedures.

FRP Cleared returns will be tracked using Category Code "FRP3" for inventory reporting purposes.

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Process priority receipts using the table below:

Correspondence indicating unwillingness to file or pay taxes based on frivolous arguments will be worked under this category. Frivolous correspondence is not subject to the frivolous return penalty except as noted below.

Research IDRS for case controls, freezes and histories that can affect processing the frivolous correspondence. (e.g., TC 971 Action Code (AC) 281 on CC ENMOD indicates a Fraud case is in development or a disaster freeze (O) is present that can require suspended account activity. Coordinate as appropriate.)

All program receipts in manual screening will be controlled within five days of receipts including frivolous correspondence. If you identify an existing control base for the receipt in question, update category and/or action codes to indicate the current status or treatment if warranted.

Process frivolous correspondence that will not be destroyed using the table below. All frivolous correspondence must be input to FRP Master by automation spreadsheet or manual input. Update correspondence using the appropriate closing action code and input time charged to 91853. Ensure to input all promoter information in the promoter section.

Use the following category code criteria for frivolous correspondence screening unless otherwise noted:

Unless additional official guidance is provided, all other (not listed in the table above) frivolous correspondence will be destroyed and will require input to FRP Master or spreadsheet, under correspondence using action code 91853. Ensure to input all promoter information in the promoter section.

When the IRS receives frivolous correspondence, Letter 3175C, "Frivolous Correspondence Response" is sent to inform taxpayers that their positions are frivolous and that further correspondence regarding frivolous issues will not receive responses. This letter constitutes outreach education for frivolous filers.

All program correspondence in manual screening must be controlled within five days of receipt. Research non frivolous correspondence on IDRS for additional case considerations including account indicators, freezes, and histories that may affect treatment determinations (e.g., an open control in another area). If you identify an existing control base for the receipt in question, update category and/or action codes to indicate the current status or treatment if warranted.

Open IDRS control to IDRS number "1486x00000" (where x represents the team to be assigned the inventory), using standardized category code and activity code following local procedures. Include IRS received date of the correspondence. Use the following category code criteria for general correspondence screening unless otherwise noted:

Route any non-frivolous forms that have been detached from frivolous correspondence as appropriate (i.e., Form 2848, FOIA, Form 911, etc.)

Process Non-Frivolous correspondence using the table below:

Clerks prepare bundles of correspondence from the cart using the following criteria:

Update the Correspondence Automation Spreadsheet on SharePoint and notate tick sheet with batched count for Misroutes, Not Friv, Classified Waste, PSL, and Destroy. Email/Print the Correspondence Tick Sheet and forward to Manager.

When updating the spreadsheet, clerks should include a unique identifier of clerks Initials and Batch Count.

Store completed work bundles on the designated automation area. Ensure Batch Sheets match Automation Run dates.

Undeliverable FRP letters or notices for existing FRP Master records are worked per the table below.

If no issues were identified in prior subsection, process PS 70 inventory as follows:

If frivolous return criteria are detected, take the following actions:

If frivolous criteria is not identified, disposition the return as follows:

Designated employees will timely review all program receipts to determine appropriate handling including referrals to the SB/SE Lead Development Center (LDC). The nature of frivolous filings requires careful consideration of the inventory as a whole; therefore, screening will be conducted on documents prior to their assignment out to program employees. Review the entire population of new receipts to identify:

Filings will also be screened for International implications and subsequent coordination with International Exam. Processable frivolous International filings require processing at the appropriate Campus handling International returns. International filings include:

When new frivolous arguments are identified:

When new preparers or promoters are identified, enter the name and promotion on FRP Master Project Status Listing (PSL).

Coordinate civil investigations with SBSE Lead Develop Center (LDC). See IRM 4.32, Abusive Transactions, for additional information.

See IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties and IRM 20.1.10.12, IRC 6702 -Frivolous Tax Submissions, for additional information.

Refer cases to technician for Handling of Returns and Claims.

Screen returns/claims to determine if FRP criteria has been met. Ensure FRP Technical Coordinator determinations are input to FRP Master on notated frivolous return/claims. Refer to IRM 25.25.10.2, Identification of Frivolous Submissions for criteria.

When submissions are received that contain potentially new frivolous position(s): coordinate with FRP Technical Coordinator and HQ Analyst to obtain Chief Counsel opinion that determines whether they are frivolous.

Research IDRS for case controls, freezes and histories that may affect processing the frivolous return/claim.

On IMF inventory, input a TC 810 using jurisdiction code "4" on any year with an open RSED, unless a -E freeze specific to FRP is posted.

Review the module and address any held credits prior to closing the case. If applicable, input a TC 811 with jurisdiction code "4" with ‘Freeze-Release-Amt’ for ".00" to remove the -E freeze. and input a TC 571 to release -R freeze

Review tax module for Erroneous Refunds, Offsets, and transfers. Update FRP Master Error Filing Tab and coordinate any recovery actions needed.

Review sorted returns/claims based on the categories below:

Route Non-Frivolous with no FRP actions per the Mail Routing Guide.

Review the Argument selected by the FRP Technical Coordinator; if research finds the argument to be incorrect follow procedures in IRM 25.25.10.8.3.1, Technical Assistance Request (TAR).

Research account for the specific tax period to ensure all receipts are considered in the determination.

All returns/claims not routed must be controlled within five days of receipt. Review the existing control base for the receipt in question, and if applicable update category code to FRP1 and make necessary changes to action codes to indicate the current status or treatment. Treat according to the table below:

Ensure any returns input to the FRP Master have the most current known address and that the CC ENMOD address matches.

Frivolous filings received from IRS employees may be identified through FRP employee research, outside referrals such as CI, Customer Service, TAS, Field Agent reports, computer database matching, etc.

Under the guidelines for working RRA 98 Section 1203 allegations, frivolous filings received from IRS employees will be reported promptly and directly to TIGTA, with clear annotation that the audit needs to be referred to their local PSP per IRM 4.1.1.6.7, Employee Audits. When referring to TIGTA, annotate that the IRC 6702 penalty will need to be addressed at the conclusion of the field audit, if the employee maintains their frivolous position. Take no actions until the field office provides the request for penalty assessment.

Any frivolous return meeting these criteria must be processed, regardless of its validity before referral. Refer to IRM 25.25.10.8.7, Editing Return Instructions for processing. Once processing is completed, original returns will be forwarded to TIGTA. Forward a copy of the return to Field Function for Audit.

C-Filings (generally considered confused filings) are broken down into the four categories listed below.

C-filings that meet the criteria listed in a, b, or c will follow normal frivolous return procedures on at least one frivolous return filing per tax period. Any subsequent C-filing will be scanned into FRP Master, but the IRC 6702 Penalty will not be proposed at this time.

Ensure all FRP activities are updated/closed (i.e., FRP Master, AIMS, IDRS etc.)

The following subsection contains procedures for screening Identity Theft (IDT) on IMF Returns.

IDT is a crime that occurs when someone uses another individual's personal information such as name, Social Security Number (SSN), or other identifying information, to commit fraud or deception.

Cases that have frivolous account indicators are referred to the FRP for any tax period that may have had the Frivolous Return Penalty Assessed. These civil penalty assessments can only be abated by the Frivolous Return Program and prior to abatement, case specific account research must be completed to support the determination that the IDT claim is valid.

Referrals are generally received as one of the following:

IDVA referrals to FRP that need to be addressed by multiple functions will be coordinated with RIVPM P&A to streamline case resolution. These referrals will be forwarded to FRP using the following process:

Review IDRS to consider all account information that impacts case resolution. Check the tax module for prior indication that the taxpayer is a victim of ID Theft. If the taxpayer states they are a victim of Id theft or if they state they did not file the tax return, then check CC ENMOD for any prior or current ID theft indicators and follow the procedures in IRM 25.23.2, Identity Protection & Victim Assistance - General Case Processing, for any account corrections. If there are no prior or current ID theft indicators on CC ENMOD, advise the taxpayer to send a completed Form 14039, Identity Theft Affidavit and input a TC 971 AC 522 PNDCLM on CC ENMOD per IRM 25.23.2-10, IMF Only TC 971 AC 522 Tax-Related Identity Theft, Case Status (Initial Claim/Suspicion).

Review the table below for guidance as it relates to IDT statuses found while performing research. Referrals that do not meet FRP criteria will be worked as a misroute.

Current year IMF returns requiring processing will be edited as follows:

The Form 1040X or other informal claim constitutes the taxpayer’s (TP's) original filing:

The clerk(s) assigned to Letter 3176C Purge will review the purge listing and divide the work for assignment according to local procedures.

Update IDRS CC and FRP Master to the designated team following normal update and assign procedures. The Action Text input will be "Assign3176" .

See IRM 25.1.6, Civil Fraud and IRM 4.19.16.2.3, Criminal Investigations (CI) Referral Non-EITC 1040X for processing cases with potential civil fraud.

Frivolous filings will 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 RICS HQ FRP Analyst.

All cases involving IDT will receive priority treatment. IRM 25.23.2, Identity Protection and Victim Assistance - General Case Processing provides service wide guidance on IMF IDT issues. Unless specific guidance is outlined within this subsection, refer to IRM 25.23.2.4.4, Initial Allegation or Suspicion of Tax-Related Identity Theft - IMF Identity Theft Indicators, for guidance on addressing IDT claims.

Refer to IRM 4.19.13.28, Campus Exam Identity Theft, for functional guidance to address IDT issues for any return being worked as an audit within FRP.

Account corrections to address all tax and penalty assessments that are related to a frivolous filer determination will be handled within FRP once the IDT claim is determined to be valid.

If the IDT is confirmed, complete all closing actions to correct the account and protect it from future IDT.

If the taxpayer does not prove IDT or provides information appearing to be fraudulent, i.e., indications of the same signature on the IDT form and the tax return submitted, issue Letter 105C, Claim Disallowed, disallowing the claim and indicate it was a false claim. Continue processing the frivolous filing in a normal manner. Reverse any ID Theft indicator input for the tax year, follow procedures in IRM 25.23.2.6.4, Manually Reversing TC 971 AC 506, to reverse the indicator.

Maintain current inventory information on FRP Master to ensure taxpayers receive accurate and consistent treatment. Individuals not in compliance for two consecutive years (filing and paying taxes) will be monitored for subsequent compliance.

Input TC 599-17 within 15 business days of FRP received date on non-processable frivolous returns. Input of the TC 599-17 indicates a return has been secured and prevents issuance of collection notices requesting a return be filed for the delinquent tax module.

Input a TC 810, using jurisdiction code "4" on any year with an open RSED, if a FRP freeze condition is not posted. TC 810 will post as a -E freeze on IMF Modules and a Q- freeze on BMF Modules.

When a return does not meet FRP criteria, FRP Clear the filing. Update the Category Code to "FRP3" for inventory reporting purposes and perform all clean up actions to prevent further misroutes.

Review the module and address any held credits prior to closing the case. If applicable, input a TC 811 with ‘Freeze-Release-Amt’ for ".00" to remove the -E freeze.

Cases will be researched to establish compliance with filing requirements based on income verification and appropriate return expenses and credits on filed processed returns to identify any potential frivolous returns that were processed in error. Ensure all related TINs and prior/subsequent years filing history are researched for compliance, as well as additional sources of income such as K-1s, income reported on related business TIN’s, income from erroneous refunds, etc.

Compliance check is an analysis of all tax periods where IRP is currently available to identify any potential frivolous returns that were processed in error. Non-filed tax years are addressed through an automated process. Review Posted Return column on CC IMFOLI on primary and secondary TIN to determine which years will require additional research.

Reparations claims are subject to assertion of IRC 6702 penalties consistent with all other frivolous filings.

When working a return or claim containing a fraudulent Form 1099-OID or 1099-MISC, DO NOT use either the income or the withholding as entered on the document for purposes of determining deficiency. In the event the false Form 1099(s) were processed and show on IRP, ignore it completely.

Never update an address to a Federal office address. Do not update a name line to any Treasury executive or managerial official. In the event that the address or name line has been updated with either of these scenarios, take corrective action to reflect the taxpayer's correct information.

Routine research will be performed when working the claims. CC TXMOD/ CC IMFOL should be used to determine if the filing is an original return, if there is a record of an original filing, and if there are any freeze codes present that may affect processing of the claim. Account research will be performed to ensure the taxpayer has not filed any additional frivolous returns. If there is an indication of Criminal Investigation (CI) involvement, route the cases to the FRP CI POC to coordinate with CI liaison via ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for further action. If there is an open examination route the case to the team lead for further action.

To determine processing of the claim, refer to IRM 25.25.10.10.2, Processing Amended Returns and Claims.

Returns and/or documentations will be reviewed for potential fraud penalty assertions. This subsection pertains to frivolous filing promotions approved to be worked as fraud penalty cases within FRP. Approval to work frivolous filing promotions as fraud penalty cases within the FRP must be secured by HQ before initiation.

HQ will coordinate with FRP Technical Coordinator, local Campus Fraud Coordinator (CFC) and Area Counsel in the development of Form 886A language for specific promotions before fraud cases are assigned for development within FRP.

Determine validity of filings and, if appropriate, correct accounts of processed returns. See IRM 25.25.10.12.1.1, Backing off Accounts.

Determine whether the filing was received from a community property state. If so, coordinate with campus CFC for appropriate split.

Prepare and send applicable pre-notification letters. Letter 3164 and any other letters or attachments as specified for the particular promotion.

Input/Update AMS notes per IRM 21.2.2.4.5, Account Management Services (AMS), use "Frivolous Return Program General" when choosing an issue. Document AMS with suitable information (i.e., X-reference SSN, compliance history and statute date.) Initiate audit procedures as appropriate for specific promotion using AM424 to establish AIMS.

Prepare and forward Form 12175, Third Party Contact Report, to campus coordinator.

Prepare third party contact letter, if applicable to specific promotion. Suspend case for 45 days.

If no response received from third party contact, initiate follow up communication telephonically if possible, by mail if not. Suspend case for 15 days.

Upon confirmation of income or expiration of second suspense period, prepare Forms 13549 and Form 11660, updating AMS notes per IRM 21.2.2.4.5, Account Management Services (AMS), use "Frivolous Return Program General" when choosing an issue. Forward case to FFC/CFC for approval.

Upon approval for fraud development, update AIMS to project code 0076 and status 17 using applicable tracking codes.

Prepare Form 4700 Examination Work papers, updating as appropriate.

Prepare report to include assertion of applicable fraud penalties (i.e., IRC 6651(f) or IRC 6663 as appropriate), Form 886A (developed for specific promotion), Letter 1862 and Form 4549. (Include any other applicable penalties in alternate position as well.) Consider all applicable income. Suspend case for 30-day review by CFC and FTA.

Once 30 day suspense period has expired, prepare 90-day Packet (Form 4549 with abbreviated Form 886A language pulled from FRP Master). Report will require hand-typing.

Once Fraud Technical Advisor (FTA) approval has been given, forward case file to Area Counsel for review, updating work papers accordingly.

Once Counsel has approved fraud penalty case, forward to appropriate function for 90 day suspense period. Once suspense period has expired, close case accordingly.

If the compliance check reveals case meets criteria for deficiency potential for area office examination, process as follows:

Every effort will be made to work returns within the normal three year statute of limitations for assessment under IRC 6501. See IRM 25.6, Statute of Limitations for additional information.

Statute of limitation on original returns will be determined as follows:

Specific cases may fall under the extended statute of limitations provided in IRC 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 that actions taken by the taxpayer show 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 by Counsel.

Statute of limitations on penalty assessments will be determined as follows:

Form 4442 Referrals and case controls are to be worked per the following table:

Refer return to clerical team per the following criteria:

Save the .pdf using the following naming convention: TIN, Name Control, Tax Period, and ARG code.

Send an email, with the .pdf attached, to "*W&I EEF IVO T609" with subject line "4442 REFERRAL" and include Argument Code and the IDRS control number in the body of the email.

Forms 1040X, Forms 843 that purport to be returns and subsequent filings to original Form 1040s will be worked per IRM 21.5.3.4, General Claims Procedures or IRM 21.5.3.4.5, Math and Master File Verification of Claims and Amended Returns, as applicable.

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Frivolous Form 2439 claims will be worked following IRM 25.25.10.12.1.3, Form 2439.

Non-frivolous amended returns received after original FRP assessments will be treated as Audit Reconsideration.

Frivolous returns/claims will have been screened and forwarded for penalty processing after one of the following scenarios:

Create a new issue on FRP Master and select applicable action code, for each penalty being assessed from the list available on FRP Master.

Research account for the specific tax period to ensure that all receipts are considered in the determination.

Review any taxpayer replies to ensure that penalties are not assessed if any corrected, non-frivolous returns were filed in a timely manner.

Review taxpayer account for pertinent freezes or controls and work accordingly.

Prepare Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, indicating:

Update activity on the CC TXMOD control to "2APPROV" .

Submit case for written approval on Form 8278, "Assessment and Abatement of Miscellaneous Civil Penalties" .

Upon verifying that written managerial approval for penalty assessment on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, was completed, establish a CC TXMOD control on MFT 55 using CC ACTON with the activity "8278APPRVD" . Scan the approved Form 8278 into FRP Master and attach to applicable penalty issues when selecting the appropriate closing code.

Input the adjustment using the IAT CC REQ54 Tool. Use the following:

Input/Update AMS notes per IRM 21.2.2.4.5, Account Management Services (AMS), use "Frivolous Return Program General" when choosing an issue, with comments, action taken.

Stamp frivolous filing with "Frivolous Tax Penalty Assessed" in lower left margin of the front of the return.

Notate return with "Considered in FRP" in lower left margin of the front of the return.

Update activity on the MFT 30 CC TXMOD control to "FRVPNMFT55" to show the penalty has been assessed.

Select appropriate closing action code on FRP Master, include penalty assessment amounts.

If there is audit potential, refer to IRM 25.25.10.12.2, Audits.

If no audit actions on paper cases, assemble the penalty case file in the following order:

Responses to IRC 6702 penalty assessments commonly fall into one of three categories:

Refer to the table below for instructions on handling requests for abatement. (Form 843).

Requests for Appeals will be reviewed as follows:

Categories:

There are two methods for performing on-line adjustments of accounts on frivolous filings: One is for accounts on which the refund is held. The other is for accounts on which the refund was issued in error.

Accounts on which the refund is held: When a refund is held and the filing is not subject to deficiency procedures, simply reverse the erroneous information with the correct transaction codes (i. e., TC 807, TC 767, TC 291, etc.) by using CC REQ54 to input an adjustment to reverse the erroneous information reported on the tax return.
Input the following fields:

Accounts on which the refund is issued: Input an assessment of tax for the amount of the overstated withholding. The input results in a legal assessment that allows the IRS to correct the overstated withholding using the provisions of I. R. C. Section 6201 (a)(3). The assessment should not include any amount of income tax withholding withheld from the taxpayer’s wages/earnings.
Using CC REQ54:

If a manual assessment has already posted (IDRS shows an adjustment starting with TC 370) or is pending (a closing action on FRP Master showing 2859/3552 is present), take the following actions:
If the TC 290 is equal to the TC 807:

Categories:

Penalty abatements fall into four separate categories:

If the overstated withholding was credited to another tax year or to an outstanding federal agency debt, child support debt, state income tax debt or unemployment compensation debt (TOP Offsets), the credit should be reversed by an entry that will post to the Summary Record of Assessment.

If the offset did not result in a refund, use CC REQ54 to reverse the applicable amount of income, withholding, credits and exemptions:
- Input TC 290 for .00 if TC 150 amount is .00
- Input TC 291 for the exact amount of the TC 150 with a minus following the amount
- In the Activity field of CC ADJ54, input: "W/H-REVERSAL"
- Blocking series 00 (or 05 as appropriate)
- Source Code 0
- Reason Code 099
- Hold Code 4
- Priority Code 1 (If open TC 420 and L freeze)
- Input applicable reference codes as shown below with a minus following the amount
- In the remarks field of CC ADJ54, input: "frivolous return processed, account backed off"

Since the IRS has not issued a refund, the verifiable amount of withholding credit will go on the Statutory Notice of Deficiency.

A person must meet all of the requirements of Rev. Proc. 2012-43 to receive a reduction of unpaid IRC 6702 penalty liabilities. Deny any request for reduction that does not comply with all the requirements of Rev. Proc. 2012-43. See IRM 20.1.10.12.3, IRC 6702(d) Reduction of Frivolous Submission IRC 6702 Penalties for additional information.

Form 14402 needs to be controlled within three days of receipt. The receive date is the date the request is received by FRP.

The following table is a guide for eligibility requirements:

The following table contains events that disqualify the taxpayer from receiving a reduction of the IRC 6702 penalty liabilities.

A person must make a written request for reduction on Form 14402, IRC 6702(d) Frivolous Tax Submission Penalty Reduction.

If the taxpayer meets the eligibility requirements discussed in IRM 25.25.10.13.1, Eligibility Requirements for Reduction under IRC 6702(d). The IRC 6702 penalty liabilities will be reduced to $500. The taxpayer must pay the reduced liability by either:

Unless the taxpayer is making payments pursuant to a full payment installment agreement the taxpayer must submit at least $250 with the request for reduction, even if that person has already paid a portion of the penalty. A person who chooses to pay the $250 or more but less than $500 will remain liable for the balance of the reduced penalties.

If a taxpayer submits a payment with a request for IRC 6702 penalty reduction, the partial payment will be applied to the taxpayer's assessed IRC 6702 penalty liabilities whether or not the IRS grants the reduction request.

Issue Letter 4942, Acceptance of Penalty Reduction Request to the taxpayer.

If a taxpayer is paying the reduced IRC 6702 penalty as part of a full pay installment agreement and the taxpayer meets all other requirements, forward the information for Collection CCP to manually monitor the installment agreement and provide Letter 4942, Acceptance of Penalty Reduction Request to the taxpayer.

FRP will determine the new estimated Reduction Completion Date (RCD) based upon the reduced penalty.

When the taxpayer has an approved installment agreement FRP will provide Collection CCP with a copy of CC IADIS. The CC IADIS installment agreement amount includes the tax balance, accruals and the total amount of the penalty.

FRP will determine the new estimated Reduction Completion Date (RCD) based upon the reduced penalty.

If the taxpayer meets the requirements detailed above, reduce any unpaid IRC 6702 penalty liabilities to $500.

Update CC TXMOD control on MFT 55 using CC ACTON with the following activities: "6702(d)" , "APPROVED" , "ABATEPEN" , "4942LTR" .

Use the IAT CC REQ54 Tool to abate the IRC 6702 penalties on each MFT 55 module included on Form 14402 with the exception of any remaining portion of the $500 liability.

Issue Letter 4942, Acceptance of Penalty Reduction.

Do not refund to the taxpayer any amount of the penalty paid, either by refund offset or voluntary payment prior to the date IRS received the request for reduction on Form 14402, IRC 6702(d) Frivolous Tax Submissions Penalty Reduction.

If the taxpayer does not meet the qualifications, deny the request using Letter 4941, Rejection of Penalty Reduction Request. Indicate on Letter 4941 the reason(s) the taxpayer's request for reduction was denied.

Letter 4941, Rejection of Penalty Reduction Request gives the taxpayer an opportunity to meet eligibility requirements. Denial of a reduction request does not preclude a taxpayer from submitting another request. With each request the taxpayer must pay at least $250 or have entered into a full payment installment agreement.

Update IDRS history and FRP master database with the date of the rejection so the technician can determine the amount of the penalty.

Once it has been determined that a case will be forwarded for Statutory Notice of Deficiency (SNOD) issuance, the tax technician will research all necessary IDRS command codes to verify and secure the taxpayer’s last known address and any POA information.

Review the report to ensure all issues are included and correct tax/penalty computation amounts are indicated including any funds received resulting from a refund issued on a frivolous filing. Fraudulently claimed excessive credits received by the taxpayer constitute an increase of wealth over which the taxpayer exercised control; hence, it is income under IRC 61.

An original statutory notice must be provided to both spouses on married filing joint filings, including their separate POAs, if applicable. See IRM 4.8.9.12.1, Separate Notices to Joint Filers and IRM 4.8.9.9.1, Taxpayer Name for additional information.

Process as follows:

All Examination case file folders will be assembled in the following order:

When applicable, Form 895, Notice of Statute Expiration, will be placed on the top of all other documents.

Remove extraneous material such as routing slips, excess prints, etc.

Indicate closing action code and time on outside of case folder.

Ensure FRP Master Daily is updated appropriately for FRP cases.

90-day notices should never be destroyed. If the 90-day notice is no longer valid, attach a note to indicate "Void, Do Not Assess" . If the 90-day notice is valid, but the report has been revised, attach a note to the 90-day notice to indicate "Do Not Assess."

See Exhibit 4.4.1-2, Case Assembly.

On a monthly basis, Designated employees will pull reports in AIMS Centralized Information System (ACIS) for PC 1505 defaults and unagreed case closures.

Frivolous Fuel Tax Credit includes the following criteria:

Frivolous Return Selections will be added to treatment stream in accordance with IRM 25.25.10.8, Screening Returns and Claims. Issue 3176C Letter with Rescind Paragraphs if the tax and penalty assessments were previously addressed in an Audit and no additional account corrections are required.

It is critical that the following actions be taken during the appropriate cycle. The command code must be input by the time frames outlined in IRM 21.4.1.5.10, Refund Intercept CC NOREF with Definer “P”. Refer to IRM 2.4.37.2, Refund Delay Notice, for additional guidance.

CC: NOREF/NOREFEP posts with all 5s in the DLN (blocking series, etc.). This input creates a P freeze and a TC 841 posts on the module. It does not post for up to four weeks after the input of the CC NOREF. TC 841 with all 9s in the DLN (blocking series, etc.) indicates the check was re-deposited.

Input NOREF as follows:

Refer to IRM 21.3.8.3.5.1, IRM Refund Intercepts; IRM 3.17.20, Refund Intercept Program.

There are options available to stop an erroneous refund. Payments can be intercepted at a financial institution (Bank Indemnification process for direct deposit), Bureau of Fiscal Services (BFS), post office (Recall of Mail for a paper check) or through intervention from Revenue Officer (RO) (Coordination with Collection for RO Assignment). If FRP has issued a Bank Indemnification letter to a bank that has failed to comply in the past, FRP should not wait to contact a RO. The RO should be told the letter was issued, but during past interactions with the Bank, they have failed to comply.

Once check is intercepted and returned to FRP, take the following actions:

When recovering refunds issued from a valid, frivolous return by statutory notice of deficiency, audit to determine deficiency which takes into account the rebate to the taxpayer.

Issue statutory notice of deficiency.

Include amount of refund as income to the taxpayer in the year of receipt of the money. If necessary, initiate tax audit for the year of the receipt of the erroneous refund. Input TC 971 AC 460 at the time the assessment is made.

If taxpayer submits a subsequent claim after filing a previous claim, a frivolous return penalty should be assessed for each claim filed, including those referencing the same tax year.

The IRS may ask the Department of Justice to bring legal action against the taxpayer to recover the erroneous refund issued from a valid, frivolous return or as directed by FRP management. See IRM 25.3.2, Litigations and Judgments, Suits by the United States, and IRM 21.4.5.15, Collection Methods for Category D Erroneous Refunds. An erroneous refund suit must be filed within two years of when the refund was made or five years if the taxpayer induced the issuance of the erroneous refund through fraud or misrepresentation of a material fact.

When an erroneous refund suit to recover refunds is initiated, the case will be worked under Program Code 91859. Obtain the following information and forward it to the FRP Technical Coordinator: Secure and certify a copy of refund check by submitting a Pacer research request to the refund inquiry unit. Refer to IRM 21.4.2.4.15.2, Request for Administrative Photocopy.

Input TC 844 via CC REQ77 to indicate an erroneous refund has been issued using date of erroneous refund in transaction date field.

Input TC 520 via REQ77 with closing code 70 and ULC code 87 indicating refund litigation.

FRP Technical Coordinator will prepare a referral memo and forward documents to Associate Area Counsel, authorizing the suit approved by Operations Manager.

Make no adjustments to module to reverse credit that caused the refund.

For BMF correspondence only:

Screen new BMF returns and claims to determine if frivolous within two business days of FRP received date.

Screen returns and claims per IRM 25.25.10.8, Screening Returns and Claims, and IRM 25.25.10.8.3, Handling of Returns and Claims.

Review frivolous receipts for:

Ensure all actions taken on each case are thoroughly documented on FRP Master and that all control bases are updated appropriately, including any cross-reference TINs.

Conduct compliance check by researching IDRS command codes as follows:

The satisfaction of all filing requirements does not necessarily indicate a non-frivolous filing. Other criteria will be considered such as potential for stop-filer and appearance that business is an ongoing entity.

Potentially frivolous filings or those that do not fall under existing processing guidance will be worked as follows:

Suspend case until determination is made by RICS HQ.

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Criteria used to establish area office referral are:

If filing does not meet criteria for area office referral, but has been determined to be frivolous, work as follows:

All BMF filings selected for examination will be routed via Form 3210 to the appropriate Classification group for processing.

When routing, ensure all pertinent materials are included that support the filing is frivolous such as: Counsel Opinions, Issue Management Team guidance, etc.

Returns will be processed, if possible. Form 4227, "Intra–SC Reject or Routing Slip" , will be used to advise Rejects of appropriate return processing including: freezing refund with CCC "X" and returning filing to FRP. Action Code 331 will be used to cause the return to reject.

Filings selected for examination will be processed as follows:

When returns are returned from Rejects, input into FRP Master.

If filings are not selected for examination as frivolous or any other Exam criteria, the taxpayer’s return will be accepted as filed.

If return was processed, close all FRP controls and release all FRP freezes, then return to files.

If return was not processed, return to Receipt and Control for regular processing. Stamp upper left corner of return, "FRP CLEARED" , include last 5 digits of IDRS number.

If the taxpayer received a Letter 3176C. Send an apology letter to advise the taxpayer’s return was reviewed for (fill-in) and the item is not frivolous.

Returns claiming no wages paid and requesting a refund of Federal Tax Deposits (FTD) or credits previously paid are worked as follows:

Returns not deemed frivolous will be routed to appropriate area for processing.

Returns that are determined not to be frivolous but have examination potential. See IRM 25.25.10.9.8, Area Office Procedures.

Returns selected for FRP processing will be worked as follows:

If taxpayer responds or suspense period expires:

Forms 1041, "U.S. Income Tax Return for Estates and Trusts" , based on frivolous arguments will be worked under this category as claims. Input the document to FRP Master, regardless of whether the filing is an original or a subsequent filing on MFT 05.

Any Form 1041 that is filed with an SSN, (no legitimate EIN available) must be edited to a Form 1040 and processed as an IMF form. Any Form 1041 with a legitimate EIN must be processed under that EIN and worked as BMF.

Frivolous BMF filings (excluding Forms 1041 with Argument Code 33, 34 or 46) will be loaded and scanned into FRP Master ensuring the EIN and XREF SSN is included. Ensure the appropriate form number is selected ( e.g., 941, 1120, 1041, etc.). One of the following scenarios will apply:

When asserting the IRC 6702 penalty on BMF, a corresponding action code on FRP Master will be input as "ASSESSPEN52/FRVBMF" or "ASSESSPEN53/FRVBMF" .

Accounts with returns processed must either be corrected with an online adjustment, a FRP audit or examined by a field office. If examination is warranted, complete and attach a checksheet indicating what research was conducted. Route case for specialized BMF Classification processing to M/S 4450 Attn: FRP BMF classifier.

C-Filings will be worked the same as IMF, following guidance found in IRM 25.25.10.8.5, C-Filings. No C-filings will be forwarded to field offices for audit.

The Lead Development Center (LDC) authorizes civil investigations on abusive promotions for referral to investigating offices.

All frivolous filings will be considered for potential civil investigation when promotions, promoters, or preparers are associated with them. Initial screening of returns, claims, and correspondence may determine the need to consider further development of case referrals for civil investigations. When a filing is associated with a reasonable number of continuous frivolous filings that are potentially attributable to a specific promotion, promoter, or preparer, FRP shall forward Referral Memo to LDC for determination of further processing.

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On rare occasions, generally when there is not a signed return preparer, but finite promoter filing characteristics can be determined, it may be necessary to secure EFDS research. Requests for EFDS queries will be made through RICS research analyst staff assigned to FRP.

When promoter/preparer identity is obtained without TIN, attempt to secure TIN via IDRS. If unable to secure TIN, provide comments in Referral Memo.

When positive identification of a promoter/preparer is made, provide documentation if possible that indicates extent of activity and whether it is ongoing. This may include but is not limited to:

Research IDRS/RPVUE to determine if additional returns were submitted but not referred to FRP or otherwise not identified. If returns are identified that need to be ordered from CC RPVUE research, order them.

If it appears that the preparers or promoters of frivolous arguments require income tax audits of their individual filings, refer the case the Area Office PSP. Order promoter/preparer’s personal returns to determine if they have participated in the scheme.

When a reasonable number of continuous filings from one promoter/preparer are identified, prepare a three-section brown case file folder with label containing promoter/preparer identification; to be maintained by the Campus until the case is closed and include:

Forward, by e-mail the referral memo and participant list to LDC.

All other information listed above will be kept to support an investigation as warranted.

Suspend case file until response is received from LDC.

Enter promotion/promoter/preparer information to FRP Master database Project Status Listing to ensure accurate identification of all similar filings and ensure periodic updates as actions are taken.

LDC will consider all the factors involved in each case and determine if promoter/preparer will be investigated for injunctive action including a streamlined investigation conducted by FRP or returned to FRP to have penalties assessed only.

LDC will forward all approved Civil Investigation Recommendation Memos related to frivolous filings to FRP and the appropriate IMT technical advisor for review.

Ensure all related frivolous filer promoters/preparers (Including Anti-tax/Constitutional) are reflected on Project Status Listing.

If determination is made that FRP will conduct the IRC 6700 investigation, the LDC will forward the case file to FRP via E-mail. Criteria used includes but is not limited to: promoter/preparer activity sufficiently developed to allow for streamlined referral, i.e., at least three filings signed by preparer or additional filings not signed by preparer but with identical characteristics, attachments or information from taxpayer indicating preparer involvement with return.

If case is not selected for FRP streamlined IRC 6700 investigation, assistance will be provided to appropriate area office conducting investigation.

FRP preparer promoter investigations are more efficient and cost effective. These investigations result in shutting down abusive tax avoidance promotions before they proliferate. FRP will conduct all case research, document preparation and Department of Justice (DOJ) referral processes.

Cases will be processed as follows:

Counsel will forward results of injunctive action including any rejected cases with appropriate penalty instructions.

Cases that do not result in civil investigations under section 6700 or 6701 will be considered for IRC 6694/6695 investigations if associated with a tax return preparer(s). To apply sanctions on non-compliant preparers, Penalty Policy Statement P-20-1 directs assertion of preparer penalties only after due deliberation on all facts and circumstances.

Individuals who knowingly aid and abet in the understatement of the tax liability for another person may be subject to certain penalties. See IRM 20.1.6, Preparer and Promoter Penalties and IRM 20.1.6.12, Office of Professional Responsibility, for information on practitioners who file delinquent and/or frivolous returns.

For purposes of imposing a penalty under IRC 6694 or IRC 6695, a tax return preparer is any person who prepares for compensation, or who employs one or more persons to prepare for compensation (other than for the person) all or a substantial portion of any return or any claim for refund of tax. The preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of such return or claim for refund.

IRC 6701(b), imposes a $1,000 penalty against any person for aiding or assisting in the understatement of tax or overstatement of credit. If the return, affidavit, claim, or other document involved relates to a corporation, the penalty is $10,000. Consider IRC 6701(b) as a potential alternative to the IRC 6694 penalty.

All preparer penalty cases prepared by FRP will be coordinated with Associate Area Counsel to determine if the case will be considered for civil injunction, penalty assessment, or no action.

Cases referred for IRC 6694 penalties are usually those with frivolous filings that are limited in number and in which the preparer has stopped preparing returns.

Input IDRS control to preparer TIN current CC TXMOD history, "Prep Inv" to ensure proper routing of subsequent correspondence or filings. Case file will contain:

Cases referred for IRC 6695 penalties are not as common but will be considered when appropriate. Associate Area Counsel will provide guidance on the determination of when IRC 6695 will be applied.

If case is approved for IRC 6694 penalty assessment, forward to RICS Director for approval on Form 8278 and follow IRM 25.25.10.18.7, Proposing Preparer Penalties When There is no Injunction Referral but There is an Approved Investigation.

Prepare Letter 1125, "Preparer Penalty 30-Day Letter" , indicating:

Prepare Form 5816, "Report of Tax Return Preparer Penalty Case" , indicating:

Prepare Form 5838, "Waiver of Restrictions on Assessment and Collection of Tax Return Preparer Penalty" , indicating:

Prepare Form 6459, "Return Preparer’s Checksheet" , checking all applicable boxes and including team manager’s approval.

Mail Letter 1125, "Preparer Penalty 30-Day Letter" , Forms 5816, "Report of Tax Return Preparer Penalty Case" , Form 5838, "Waiver of Restrictions on Assessment and Collection of Tax Return Preparer Penalty" , Letter 3164, "Third Party Notification" , (if not previously sent) and Notice 609, "Privacy Act Notice and Paperwork Reduction Act Notice" , to preparer and suspend case for 45 days.

Annotate CC ENMOD with "LTR1125" to indicate letter has been sent.

Requests for conference:

Requests for Appeals Consideration - IRM 8.1.1.3.1, No Appeals Conference or Concession on Certain Arguments. There are no administrative appeals provisions for requests based on frivolous positions.

Requests for appeals that meet abatement criteria will be processed by FRP.

Claims - See IRM 20.1.1.3, Criteria for Relief from Penalties and IRM 20.1.10.9.3, Penalty Relief. Review case for specific processing requirements per 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" , or Form 6118, "Claim for Income Tax Return Preparers" , but may be made in an informal inquiry. Claims may be for abatement or refund and will be worked as follows:

Complete Form 8278, "Computation and Assessment of Miscellaneous Penalties " See IRM 20.1.9.2.2, Penalty Assessment - Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

If assessing under IRC 6694(a), input TC 290.00 with Penalty Reference Number (PRN) 645 for the amount of the penalties. Under IRC 6694(a), the penalty is $250 per return for returns prepared on or before May 25, 2007 and the greater of $1,000 or 50 percent of the income derived or to be derived by the tax return preparer for returns/claims prepared on or after May 26, 2007. For returns prepared for taxable years ending after 12/18/2015, the penalty was increased to 75 percent. For penalties assessed under IRC 6694(b), use PRN 650. For returns/claims prepared on or before May 25, 2007, the penalty is $1,000 per return/claim and for those prepared after May 26, 2007, the penalty is the greater of $5,000 of the income derived or to be derived by the tax return preparer.

If assessing under IRC 6695 input TC 290 .00 with PRN 626 for total amount of penalties. The amount of penalty equals $50 per return/claim under IRC 6695 (a)-(e), $500 per return/claim under IRC 6695(f), and $500 per return/claim under IRC 6695(g).

If assessing under IRC 6701 input TC 290 .00 with PRN 631 (IRC 6701) $1,000 per return/claim unless the return/claim is a corporation. Corporation return/claim is $10,000.

Establish civil penalty name line, if necessary, per IRM 20.1.6.2.4, Civil Penalty Name Line.

File case under TC 240 Document Locator Number (DLN) associated with Form 5147, "IDRS Transaction Record" .

Close IDRS control.

Ensure Electronic Filing Coordinator is notified of all penalties asserted on return preparers per IRM 20.1.6.11.1, Standards for Tax Preparer.

Closing Actions and monitoring follow-ups will be completed by:

The Frivolous Return Program coordinates with Area Counsel to obtain legal and/or significant advice on:

All potential frivolous arguments must be coordinated with Counsel prior to processing under FRP guidelines. Requests for Counsel opinion will be coordinated with the Technical Coordinator to prevent duplicate requests. Requests will outline the specific frivolous argument involved and must have examples provided to assist Counsel in rendering opinions and must have Headquarters authorization.

As new frivolous arguments are identified, the FRP will coordinate with Chief Counsel to update, "The Truth about Frivolous Arguments" https://www.irs.gov/privacy-disclosure/the-truth-about-frivolous-tax-arguments-introduction and the "List of Frivolous Arguments" required by IRC 6702(c).

All new Chief Counsel opinions will be reviewed for potential coordination on SERP/CAS alerts, updating existing training materials for employee identification and processing, coordination with TEC/CI and/or any affected processing areas.

The FRP coordinates with Criminal Investigation in Headquarters for both Refund and Financial Crimes to:

Information referrals to and from Criminal Investigation will be coordinated with the FRP CI Liaison. Requests can be routed to: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

SERP electronic alerts will be issued whenever new frivolous arguments are identified or when existing arguments resurface in significant numbers. The alert process will be used to apprise all employees to watch for filings in order to prevent processing and erroneous refunds.

All alerts will be approved and published by the HQ analyst.

Forward information for alerts to the LDC and include all pertinent information related to the nature of the filing.

Outreach education for internal stakeholders on frivolous arguments is critical and will be given priority. This training will be provided annually to Submission Processing and also made available for all IRS offices. This endeavor is imperative to stop the proliferation of egregious promotions, ensure timely and accurate tax assessments, avoid erroneous refunds and provide fair and consistent treatment to all taxpayers.

RICS will coordinate with HQ CAS and W&I Learning and Education to schedule training and provide instructors during annual pipeline processing Continuing Professional Education (CPE).

RICS will provide updated training materials and IRM information to CAS HQ analysts.

Coordination will be undertaken for all affected areas and will encompass IMF and BMF original returns, amended returns and claims processing.

Training materials and supplemental support will be available on the FRP Web page listed below.

The Campus FRP Coordinator contact information is now available at FRP Campus Contacts.

All updates to the web page must be approved by RICS HQ.

Updates from Ogden FRP will be routed through the FRP Technical Coordinator.

The FRP Technical Coordinator will sanitize any updates prior to referral to RICS HQ.

RICS HQ will secure any necessary Disclosure clearance and route to: Webmaster assigned to SE:S:CCS:CRC:EP.