Mental Incompetence No Basis to Cut Frivolous Return Penalty

The IRS received a tax return from a taxpayer - who is a Social Security disability and disability pension recipient - requesting a refund and abatement claiming constitutional violations by the IRS and exempt status as a "Private Government Entity."  The IRS assessed a $5,000 frivolous return penalty under tax code Section 6702 based on the taxpayer's Form 843, Claim for Refund and Request for Abatement.  A U.S. district court subsequently ruled the taxpayer incompetent to stand trial, although details leading to that ruling were redacted from the CCA.

The IRS does not have discretion to abate a frivolous return penalty due to a taxpayer's mental incompetence, according to a chief counsel advice memorandum.  The taxpayer's intent isn't an element that factors into the frivolous return penalty, the Internal Revenue Service Office of Chief Counsel said in CCA 201623010. The CCA was released June 3.

"Our office has located no reported case, regulation or written policy of the Service authorizing or requiring the abatement of the section 6702 frivolous return penalty when it is shown that the taxpayer is mentally incompetent," the Office of Chief Counsel said.  It said that while courts have refused to sustain Section 6663 civil fraud penalties in cases where a taxpayer's mental condition negated fraudulent intent, the taxpayer's intent isn't an element in requirements for the frivolous return penalty under Section 6702.