TC 272: Failure to Pay Penalty Restriction Deletion

What the code actually does

TC 272 is a state change, not a transaction with an amount. IRS Document 6209, Section 8A (the IRS’s reference guide to its data-processing codes) describes it in one line: it “removes restriction on computation of FTP Penalty on previously posted TC 270 or 271. Causes recomputation and allows normal computation of Failure to Pay Penalty.” IRM 20.1.2.2.5 lists it as “TC 272—removal of computation restriction of the penalty for failure to pay,” directly beside its late-filing twin, “TC 162—removal of computation restriction of the penalty for failure to file.”

The reason it exists is that the codes it cleans up are self-restricting. Posting a manual TC 270 restricts penalty computation on the module (the record for one tax type and period), and a TC 271 input without Reason Code 062 does the same. Once either has happened, the failure-to-pay penalty on that account stops updating on its own, and nothing short of a TC 272 will start it again.

When it is the right request

IRM 20.1.2.2.4.1 gives the operative instruction: “input TC 272 with a zero amount to remove the manual restriction on the FTP penalty when a module has been restricted in error.” Apart from the 2014-only Notice 2015-09 relief (IRM 20.1.2.2.4.3), the IRM names three uses: a module restricted in error; a taxpayer who fails to pay as agreed after a restricting abatement (IRM 20.1.2.2.4.1); and a quick or prompt assessment whose TC 270 should not leave the module restricted (IRM 20.1.2.3.8.10). A practitioner can ask for the first. The IRS starts the second against the client. The IRM’s general posture supports pressing on the first where it fits — IRM 20.1.2.2.5 states that because the systems usually compute these penalties correctly, “it is important that taxpayer accounts are not unnecessarily restricted from systemic penalty computation.” A restriction that was a side effect of an abatement rather than a decision about the account is the clearest candidate.

The most frequent version of that in practice is an omitted reason code. Where a client paid the tax in full and won a reasonable-cause abatement, the IRM directs that the abatement be input as a TC 271 with RC 062 precisely so the module keeps computing. If the IRS left RC 062 off, the account is now restricted for no substantive reason. The IRM’s fix for a module restricted in error is a zero-amount TC 272, but a TC 272 can bring the abated penalty back (see below), so ask for it together with a re-input of the abatement as a TC 271 with RC 062.

Why it can raise the balance

This is the part to check before requesting anything, because a restriction is not always working against the client. Doc 6209 says a TC 272 “causes recomputation” and “allows normal computation” of the penalty. On a module where the tax remains unpaid, the failure-to-pay penalty has been frozen for however long the restriction has been in place, and normal computation means the system catches up.

That is exactly the situation IRM 20.1.2.2.4.1 contemplates when it describes the restricting form of an abatement as appropriate where the taxpayer qualifies for relief but the underlying tax has not been paid, there is no reasonable expectation of payment soon, and the circumstances are expected to persist. For that client the restriction is the relief — it is what stopped the penalty from growing. Lifting it because the account “looks wrong” would convert a deliberate protective posture into a live accrual. So the first question is never whether the module is restricted; it is whether the restriction was an error or a decision.

What people mistake TC 272 for

People confuse TC 272 with TC 271, because both appear on the same module in the same family and both are described loosely as fixing the penalty. They are not alternatives. TC 271 abates a dollar amount and may itself impose the restriction; TC 272 abates nothing and only removes one. A client whose penalty is too high needs a 271; a client whose account stopped computing because of an input error needs a 272; a client who paid the tax in full and whose abatement went in without RC 062 needs the TC 272 together with a re-input of the abatement as a TC 271 with RC 062 (the IRM allows RC 062 only once the tax is paid in full, except on a First-Time Abate), because a bare TC 272 can bring the abated penalty back.

People also assume it cannot touch the abatement it follows. It can. A TC 272 makes the computer recompute the whole failure-to-pay penalty, and the IRM uses it to reassess a penalty that a TC 271 without RC 062 abated (IRM 20.1.2.2.4.1; IRM 20.1.2.2.4.3). Before you ask for a TC 272 after an abatement input without RC 062, ask the IRS to pair it with a re-input of the abatement as TC 271 with RC 062 where the tax is paid in full, or to confirm in writing how it will keep the abated amount off the module.

What to do next

Confirm the module is actually restricted before anything else, and identify which entry did it — a manual assessment or an abatement missing its reason code.

Decide whether the restriction is helping the client. Where the tax will not be paid, a frozen penalty is a benefit and a TC 272 would end it.

Where the restriction was an input defect on a paid-in-full account, frame the request as error correction under the IRM’s own instruction rather than as a request for relief, and ask for the zero-amount TC 272 together with a re-input of the abatement as a TC 271 with RC 062.

Model the catch-up accrual before requesting the deletion on any account with an unpaid balance, so the client is not surprised by a larger number after a change made on their behalf.

Verify the state actually changed afterwards with the IRS Transcript Decoder, and re-check the failure-to-file side of the module separately, since a parallel restriction there needs a TC 162 rather than this code.

On a 2025 or later tax-year return or a 2026 or later quarterly return of a form listed in IRM Procedural Update SBSE-20-0626-0643, check for Automatic Exemption from Penalty (AEP) before you request any change to the penalty: an unreversed TC 971 action code 996 on the return’s own module shows that the IRS already granted AEP or a prior First-Time Abate there, and the IRS grants AEP when, among other conditions, an unreversed action code 995 sits on each of the prior three years’ modules (12 consecutive quarters for quarterly returns) and the taxpayer filed the return within three years of its original due date, but not when an unreversed 996 sits on any of those modules.