TC 271: Manual Abatement of the Failure to Pay Penalty

What the code actually does

TC 271 removes a failure-to-pay penalty by hand. IRS Document 6209, Section 8A defines it as the “manual abatement of previously ‘net assessed’ FTP Penalty (TC 270/276) in whole or in part,” and adds the condition that drives everything else on this page: it “restricts penalty computation for the module unless input with Reason Code 62.” IRM 20.1.2.2.5 lists it the same way, as “TC 270/271—manual assessment/abatement of the penalty for failure to pay.”

Two details in that definition are load-bearing. “In whole or in part” means a TC 271 is not proof a client is clear — a partial abatement produces the same code as a full one, and the dollar figure beside it is the only thing that says which happened. And “net assessed” means it reaches the penalty as currently standing on the module, which is why the abatement figure often will not match any single earlier assessment line.

The pair rule: who abated, not who assessed

This is the most commonly inverted fact about the 27X family, and it generalises to two other pairs in this library. The parenthetical in Doc 6209 is doing real work: TC 271 abates “TC 270/276” — both the manually assessed penalty and the computer-generated one. Its systemic counterpart, TC 277, abates only the computer-generated TC 276. So the two abatement codes are not divided by which assessment they undo, and they are certainly not divided by amount. They are divided by who performed the abatement.

That matters for a specific and very common reason: a granted First-Time Abate or reasonable-cause request is a human determination, so it posts as a TC 271 — even when the penalty being removed was assessed automatically by the computer as a TC 276. A practitioner watching for a systemic code to confirm that a relief request was granted will not find one. The identical structure holds for the late-filing penalty, where TC 161 is the manual abatement reaching both TC 160 and TC 166, and for the deposit penalty, where TC 181 reaches both TC 180 and TC 186. In all three families the lower number is the human, and the human can reach everything.

Reason Code 062 changes what happens next

IRM 20.1.2.2.4.1 sets out a distinction with no visible trace on a plain transcript and a large effect on the account. “When penalties for failure to pay are abated for reasonable cause using TC 271 with RC 062, Master File will not restrict future computer computations of the penalty (provided it was not previously restricted). The computer continues to compute the penalty for failure to pay, but will waive the amount associated with RC 062.” Against that: “a TC 271 input without RC 062 restricts subsequent computation of the penalty.”

The same subsection attaches conditions to the good version. RC 062 is to be used “only if the underlying tax has been paid in full,” and the abatement must “always abate the entire penalty related to the tax in question, including accruals.” It also explains when the restricting version is the right one: a TC 271 without RC 062, or a zero-amount TC 270, is appropriate where the taxpayer qualifies for reasonable cause but the tax has not been paid, there is no reasonable expectation it will be paid soon, and the circumstances preventing payment are expected to persist. In other words the restricting form is a tool for stopping accrual on a client who genuinely cannot pay — which makes it the better outcome in some cases and the worse one in others, and not something to argue for generically.

The IRM also warns that relief can be undone: if the penalty “was abated for reasonable cause, and a subsequent review of the account shows the taxpayer willfully continued in the failure to pay, then the penalty may be reasserted in full, computed from the original penalty start date.” A TC 271 is not final in the way clients assume.

What TC 271 gets confused with

TC 271 gets confused with TC 277 on the widely repeated but incorrect theory that one means a partial abatement and the other a full one, or that one reflects the penalty having been added manually and the other automatically. Neither is right. Both codes can be partial — Doc 6209 says “in whole or in part” for each — and the real difference is that a person input the 271 while the system generated the 277. That single fact is what tells a practitioner whether a determination was made on the client’s case at all.

It is also conflated with TC 272, because a practitioner who has just learned that a TC 271 can restrict the module reasonably assumes the fix is another abatement. It is not: TC 272 carries no money and does one job, removing the computation restriction. A module left restricted by a TC 271 input without RC 062 needs a 272, and no amount of further abatement will substitute for it.

The practitioner’s actual next step

Read the dollar amount, not just the code. “In whole or in part” means a TC 271 alone does not establish that the penalty is gone, and a remaining balance keeps accruing interest.

Determine whether RC 062 was used, because that decides whether the module is still computing the penalty — and if it was omitted on a paid-in-full account, that is a correctable defect rather than a judgment call.

Where the tax is unpaid and will stay unpaid, consider that the restricting form of the abatement may be the better result, and say so explicitly in the request instead of leaving the reason code to chance.

Do not expect a granted request to appear as a systemic code. Relief posts as a TC 271 whether the original penalty was manual or computer-generated — run the eligibility test with the Penalty Abatement Analyzer and then look for the manual code.

Warn the client that continued nonpayment can support reassertion of a reasonable-cause abatement from the original start date, which makes the payment plan part of the relief strategy rather than a separate matter.