TC 280: Manually Assessed Dishonored Payment Penalty

What the code actually does

TC 280 records the penalty under IRC 6657 for a payment the Treasury could not collect. IRS Document 6209, Section 8A describes it in five words — “manually computed bad check penalty assessment” — and IRM 20.1.10.7.2 names it as one of exactly two ways the charge arrives: “TC 280 – Manual computation and assessment of a bad checks penalty,” as against the systemic TC 286. The same subsection notes the penalty is “generally... assessed by the Campus accounting branch,” which is a useful thing to know when deciding who to contact.

Despite the traditional name, this is no longer a paper-check penalty. IRM 20.1.10.7.1 records that the Homebuyer Assistance and Improvement Act of 2010 amended IRC 6657 to cover any “instrument in payment, by any commercially acceptable means, of any amount,” so a failed electronic payment is squarely within it.

The rate has three tiers, not one

Most summaries give this penalty as “2 percent of the payment,” which is right only for larger amounts and produces the wrong answer for the great majority of real cases. IRM 20.1.10.7.1 sets out the structure for transactions dated after July 1, 2010 in three bands: for payments of $1,250 or more, the penalty is 2 percent of the amount; for payments from $25 through $1,249.99, it is a flat $25; and for payments from $5 through $24.99, it is the amount of the payment itself.

Two consequences follow. A bounced payment of $200 draws a $25 penalty — 12.5 percent, not 2 — and a bounced payment below $5 draws nothing. And because the bands are fixed dollar figures rather than inflation-adjusted ones, the flat $25 tier now captures a very wide range of ordinary payments. Checking the amount of the dishonored payment against the bands is therefore the first arithmetic step, and it is the one that most often reveals a wrong assessment: a penalty computed at 2 percent of a payment under $1,250 is simply miscalculated.

First-Time Abate does not reach it

This is the constraint that reshapes the whole relief strategy, and it catches practitioners who have internalised the three-penalty First-Time Abate list. IRM 20.1.10.7.3 states it without qualification: “the first time abate (FTA) administrative waiver does not apply.” A clean three-year compliance history buys nothing here.

What is available instead is narrower and more documentary. The same subsection says the taxpayer “may request relief if the penalty was charged in error, or if it was reasonable to expect that the financial institution would honor the payment” — and then imposes an evidentiary rule that decides most cases: “documentation that shows that it was reasonable to expect that the payment would be honored must be in writing. Oral testimony to that effect will not be accepted.” It adds that “a bank letter is required if the reason is a bank error.” So the client’s account of what happened, however credible, is not evidence. The request either arrives with a bank letter or an equivalent document or it does not, and a practitioner who calls this in without one is generally wasting the contact.

What TC 280 gets confused with

TC 280 gets confused with TC 286, the systemic version of the same penalty. The distinction is not the amount and not the rate — both are computed on the same three-tier structure — but authorship, and it has a real consequence. A TC 286 is generated automatically by the posting of a dishonored payment reversal code, which means it can be assessed in circumstances nobody examined; a TC 280 was computed by a person at a Campus accounting branch. Where the assessment appears wrong, that difference determines whether the argument is that a rule fired incorrectly or that someone made an error.

It is also read as a penalty for late payment, which it is not. The dishonored-payment penalty charges the failure of the instrument, and it stands alongside — not instead of — the failure-to-pay penalty under TC 270 or its systemic counterpart, which continues to run on the tax that consequently went unpaid. A client whose payment bounced can therefore be looking at two separate penalties from one event, each with its own relief analysis, and one of them does qualify for First-Time Abate while this one does not.

The practitioner’s actual next step

Check the penalty against the three-tier structure before anything else, because an assessment computed at 2 percent of a payment under $1,250 is wrong on its face.

Do not build the request on First-Time Abate. The IRM excludes it explicitly, and citing it signals the relief provision was not checked.

Get the documentation before making contact — a bank letter for a bank error, or a written record for any claim that the payment was reasonably expected to clear. Oral explanation is expressly not accepted.

Separate this penalty from the late-payment penalty the same bounced payment caused, and run the relief analysis on that one independently with the Penalty Abatement Analyzer, where the administrative waiver is available.

Confirm which dishonored payment the penalty attaches to using the IRS Transcript Decoder, since a partially reversed payment can generate a penalty the IRM itself says should be abated.