TC 276: Systemic Failure to Pay Penalty

What the code actually does

TC 276 is the failure-to-pay penalty, assessed automatically. IRM 20.1.2.2.5 records it in the chapter’s own list of systemic transactions: "TC 276/277—systemic assessment/abatement of the penalty for failure to pay."

IRS Document 6209, Section 8A describes the trigger as a "computer-generated FTP Penalty assessed if return liability and/or Examination/DP Adjustment is not paid on or before date prescribed for payment." Note that it reaches both kinds of liability: the tax a taxpayer reported and did not pay, and tax added later by an adjustment or an examination.

It is three penalties wearing one code

IRM 20.1.1’s penalty transaction code exhibit sets out three separate statutory bases under the same code family, and they run on different clocks.

The first is failure to pay tax shown on a return, under IRC §6651(a)(2): "the penalty rate is 1/1 of 1% (.005) per month, for each month or part of a month, from the due date of the return to the date the tax is paid or the maximum of 25% of the unpaid tax is reached." That clock starts at the original due date.

The second is failure to pay tax required to be shown, under IRC 6651(a)(3) — the same half-percent rate, but running "from 21 calendar days (10 business days for amounts of $100,000 or more) of the date of notice and demand until the tax is paid." That clock starts only after the Service asks. A client assessed additional tax two years after filing does not face this penalty from the original due date.

The third is not a separate penalty but an escalation, and it is the one worth watching. IRC 6651(d) "increases the FTP penalty from 1/1 of 1% (.005) to 1% (.01) per month, the earlier of the day on which notice and demand for immediate payment is given or 10 days after the IRS has issued the notice of intent to levy."

The rate doubles at the levy notice

The escalation is the practical reason to care about this code’s dates rather than just its amount. Once a notice of intent to levy has been issued, the penalty runs at twice the rate — and the trigger is the notice, not the levy. Nothing has to be seized for the client’s cost of delay to double.

That makes the levy notice a deadline in a financial sense as well as a procedural one. A client weighing whether to borrow to pay is facing a materially different calculation before and after it, and the LT11 or Letter 1058 levy notice is the document that marks the change.

The twenty-five percent ceiling still applies, which is worth saying to a client who fears indefinite growth: this penalty stops, even though the interest underneath it does not.

The rate also moves in the client’s favour in one situation worth knowing: while an instalment agreement is in effect on an individual return filed on time, the rate is halved rather than doubled. So the same liability can carry three different monthly rates over its life depending entirely on what the client did and what the Service sent, which is why a penalty figure quoted without dates cannot be checked.

What TC 276 gets confused with

It gets confused with TC 270, the manual assessment of the same penalty. The distinction is origin, and it matters for what has already been considered: a manual assessment came from someone working the case, while this one came from the system on a schedule with nobody weighing the client’s circumstances.

Its abatements are confused with each other in the same way the failure-to-file family’s are, and the asymmetry is the same. TC 271 is the manual abatement and reaches both the manual assessment and this systemic one; TC 277 is the systemic abatement and reaches only this one. So a granted relief request posts as the manual code even when the penalty removed was assessed automatically.

And it gets confused with the failure-to-file penalty, which is a different penalty at a much higher rate for a different failure. Filing late and paying late are separate defaults; where both apply in the same month the filing penalty is reduced by this one rather than the two running at full rate together. Sorting out which penalties are actually on a module, and which relief path reaches each, is what the Penalty Abatement Analyzer is built to do.

The practitioner’s actual next step

Establish which of the three statutory bases applies, because the start date differs by years between them.

Find out whether a notice of intent to levy has issued, since the rate doubles from it.

Check how close the penalty is to its twenty-five percent ceiling before advising on urgency.

Treat the systemic origin as evidence that no relief request has been considered, not that one was refused.

Expect a successful request to post as the manual abatement rather than as the systemic one.