A separate penalty of $5,000 under IRC § 6702 is imposed when a taxpayer submits a specified frivolous submission. It is in addition to all other penalties.
A specified submission refers to the following:
- a request for hearing under IRC, Section 6320, or Section 6330 (relating to collection due process)
- an application under IRC, Section 6159 (installment agreement), Section 7122 (offer-in-compromise), or Section 7811 (taxpayer assistance order).
A specified submission is considered frivolous if any of its portions are:
- based on a position that the Secretary has identified as frivolous
- reflects a willingness to delay or obstruct the administration of federal tax laws.
Opportunity to Withdraw Submission
Before the penalty is imposed, the IRS will notify the taxpayer by letter, allowing them thirty days to correct or withdraw their request for a hearing. Once the request is withdrawn, the IRS will not impose the penalty.
IRC 6702 Penalty Abatement
See Form 14402 to apply for IRC Section 6702(d) Frivolous Tax Submission Penalty Reduction.
Contesting the Section 6702 Penalty
Under current law, judicial review is not available unless the penalty has been paid and the taxpayer’s subsequent refund claim is denied, or the IRS has failed to act on the claim within six months of submission. If the claim for refund is denied, the taxpayer may appeal the decision to the US District Court or Court of Federal Claims.
Before 1990, judicial review of the frivolous return penalty was available before collecting the full amount of the penalty in limited circumstances. However, prepayment judicial review of the frivolous return penalty was only available if the following conditions were met:
- at least 15 percent (15%) of the penalty must be paid, and a claim for refund should be filed within thirty (30) days after notice and demand of penalty
- a refund suit must be brought in the appropriate federal district court within thirty days after the earlier of denial date of the claim for refund or six months after the filing of the claim
The Tax Court has limited jurisdiction to review frivolous return penalties. The normal deficiency procedures do not apply to frivolous return penalties; hence, the Tax Court does not have jurisdiction to review them. However, the Tax Court may review them if the taxpayer timely files an appeal from a collection due process hearing. Since a 2006 amendment to IRC Section 6330 provided the Tax Court with jurisdiction to hear all collection appeals due process determinations, the Tax Court can review frivolous return penalties.