TC 238: Systemic Daily Delinquency Penalty

What the code actually does

TC 238 assesses the Daily Delinquency Penalty automatically. IRS Document 6209, Section 8A records it as a generated transaction: the "computer generated assessment of $20 Daily Delinquency Penalty to a maximum of $10,000 from return."

The underlying penalty is at IRC §6652(c), and IRM 20.1.8.3.2.1 explains its reach: it falls on exempt organisations required to file annual returns "for a failure to file on the date and manner prescribed, for a failure to include any of the information required to be shown, or for a failure to show the correct information."

That last limb matters and is routinely missed. An organisation that filed on time can still be charged, because an incomplete or incorrect return is a failure for this purpose. The penalty is not only about lateness.

The dollar figures are frozen at 2015

Document 6209’s "$20" and "$10,000" are accurate quotations of the statute and misleading as current amounts, and the IRM says so directly. IRM 20.1.8.3.2.1 states: "the penalty amounts listed are base amounts and are applicable to returns required to be filed in calendar year 2015 and prior calendar years... The penalty amounts listed are adjusted annually for inflation."

The manual then points to where the real numbers live — Exhibit 20.1.8-5, which lists a revenue procedure for every calendar year from 2016 onward. IRM 20.1.1’s penalty transaction code exhibit gives the adjusted shape as "generally, $25 times the number of days the failure to file or the failure to include required information continues after the due date, not to exceed the lesser of $12,500 or 5% of the gross receipts per return."

There is a second trap in how the adjustment is applied. The IRM is explicit that "the penalty amounts are applicable for the year the return is required to be filed regardless of the year filed." A 2019 return filed in 2026 is charged at the 2019 rate, not the current one — so a practitioner has to work from the year the return was due, not the year the client got round to it.

The larger-organisation tier moves the same way. Where gross receipts exceed $1,000,000, the base figures are $100 per day and a $50,000 cap, and those are equally subject to annual adjustment.

The cap is often the smaller number

The maximum is stated as the lesser of a dollar figure or five percent of the organisation’s gross receipts for the year, and for most small exempt organisations the percentage is what binds. A body with modest receipts reaches its ceiling well before the dollar cap, which puts a real limit on exposure that clients rarely realise exists.

It also means the penalty is genuinely unrelated to tax. An organisation with no liability at all can be charged the full amount, because the base is days and receipts rather than money owed. Telling a client "you owed nothing, so there is nothing to worry about" is wrong here in a way it would not be for most penalties.

Where the failure runs for three consecutive years the stakes change entirely, since automatic revocation of exempt status follows — a consequence far larger than the penalty and one worth checking for before focusing on the money.

What TC 238 gets confused with

It gets confused with TC 234, the manual assessment of the same penalty. Both charge the Daily Delinquency Penalty; one came from the system and one from a person, and only the latter reflects anyone having looked at the organisation’s circumstances.

Its abatements are the more confusing part, because the two do not have equal reach. TC 239 is the systemic abatement and reverses this code only; TC 235 is the manual abatement and Doc 6209 gives it a wider reach — it "abates previously assessed TC 234/238 penalty in whole or in part." So a granted reasonable-cause request posts as the manual abatement whichever code assessed the penalty, and the appearance of the systemic one is not evidence that relief was granted.

Finally, it gets confused with the manager-level penalty. A separate, smaller tier under IRC 6652(c)(1)(B) attaches personally to an individual after a written demand goes unmet; it runs against the person rather than the organisation and does not post here at all. Assessing whether the organisation has a relief path is what the Penalty Abatement Analyzer is for.

The practitioner’s actual next step

Never quote Document 6209’s figures as current — find the revenue procedure for the year the return was due.

Use the year the return was required to be filed, not the year it was filed, to pick the rate.

Check gross receipts against both the tier threshold and the five-percent cap, since the percentage usually binds first.

Establish whether the failure was lateness or incompleteness, because the penalty reaches both and the defence differs.

Check for three consecutive years of failure before anything else, since automatic revocation dwarfs the penalty.