Submit a Frivolous Tax Return or Document to the IRS?

We all do things that we regret. It is part of being human. This article addresses one of these things. Specifically, it addresses what you need to do if you filed a frivolous tax return or another document with the IRS and the IRS is attempting to impose a penalty on you for doing so.

The Frivolous Return Penalty

The frivolous return penalty is found in Section 6702 of the tax code. It is a $5,000 tax penalty. It applies if:

  1. You file a document that purports to be an income tax return.
  2. The purported return lacks the information needed to judge the substantial correctness of the self-assessment or contains information indicating the self-assessment is incorrect,

and the position on the document is frivolous or demonstrates a desire to delay or impede the administration of Federal tax law.

It also applies if you submit other documents to the IRS. These other documents include Forms 12153 (for a collection due process hearing), 9465 (for an installment agreement), 656 (for an offer in compromise), and 911 (for a taxpayer assistance order). These are the forms you would submit if you are trying to resolve IRS tax debts.

Resolving Frivolous Return Penalties

Most tax penalties can be removed if you had reasonable cause and acted in good faith. This standard is usually met by showing that you exercised ordinary care and business judgment. Unfortunately, this defense is not available for the frivolous return penalty.

The amount of the frivolous return penalty can be reduced, however. The IRS has the power to reduce the penalty if it determines that such reduction would promote compliance with and administration of the Federal tax laws.

Reducing the Amount of the Frivolous Return Penalty

The IRS issued Rev. Proc. 2012-43, 2012-49 I.R.B. 643, to describe the circumstances under which you may be eligible for a one-time reduction of any unpaid portion of the penalty. The revenue procedure applies to any person who has not fully paid the $5,000 penalty and who seeks a reduction of such penalty by requesting that the penalty is reduced.

You can request this reduction of the frivolous return penalty by:

  1. making a written request for a reduction on Form 14402 (“IRC 6702(d) Frivolous Tax Submissions Penalty Reduction”), remitting a payment of $500 in either of the two ways stated in Rev. Proc. 2012-43,
  2. making the request before the United States files suit against the person for collection of the penalty, and being in full compliance with all Federal tax filing and payment requirements.

There are a number of other requirements that apply, including disqualifying events, time limitations, etc. These requirements are set out in Rev. Proc. 2012-43.

We can help you with this. We help clients get penalties removed. We would like to hear from you if the IRS has assessed a frivolous return penalty against you.