frivolous penalties

A civil penalty of $5,000 will be imposed upon any person (including an individual, a trust, estate, partnership, association, company or corporation) who files a purported tax return (income or otherwise) if (1) the purported return fails to contain sufficient information from which the substantial correctness of the amount of tax liability can be judged or contains information that on its face indicates that the amount of tax shown is substantially incorrect and (2) such conduct arises from a frivolous position or from a desire to delay or impede administration of the tax laws. This penalty is imposed in addition to any other penalties imposed on the taxpayer ( Code Sec. 6702, as amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432)). The Secretary of the Treasury can reduce the penalties in order to promote compliance with, and administration of, the federal tax laws. If a person withdraws a submission within 30 days after receiving notice that it is a specified frivolous submission, the penalty will not be imposed.



A $5,000 civil penalty may also be imposed on any person who files a "specified frivolous submission." The Secretary will prescribe and periodically revise a list of frivolous positions, but the list will not include any position for which the taxpayer has a reasonable basis. A "specified frivolous submission" is a specified submission that either (1) is based on a position that the Secretary has identified as frivolous in his prescribed frivolous positions list; or (2) reflects a desire to delay or impede the administration of federal tax laws. A "specified submission" is:



(1) a request for a hearing after the IRS files a notice of lien under Code Sec. 6320 or the taxpayer receives a pre-levy collection due process hearing notice under Code Sec. 6330; and



(2) an application relating to (a) an agreement for payment of tax liability in installments under Code Sec. 6159, (b) an offer-in-compromise under Code Sec. 7122, or (c) a taxpayer assistance orders under Code Sec. 7811.



Also, up to $25,000 may be assessed by the Tax Court against a taxpayer who institutes or maintains proceedings primarily for delay or on frivolous grounds or who unreasonably fails to pursue available administrative remedies. Other courts may require a taxpayer to pay a penalty of up to $10,000 if the taxpayer's action against the IRS for unauthorized collection activities appears to be a frivolous or groundless proceeding ( Code Sec. 6673). [2007FED ¶39,785 ]. The Tax Court has held that a penalty for instituting proceedings primarily for delay is properly assessed against the tax matters person of an S corporation, rather than against the entity or its other shareholders.