TC 286: Systemic Dishonored Payment Penalty

What the code actually does

TC 286 is generated, not input. IRS Document 6209, Section 8A describes it as the “systemically generated bad check penalty assessment initiated by the posting of any of the following TC reversals: 611, 621, 641, 651, 661, 671, 681, 691, or 721.” IRM 20.1.10.7.2 says the same and calls it the “systemic (computer generated) assessment of a bad checks penalty,” as against the manually computed TC 280.

The mechanism is worth holding onto because it explains everything else. The penalty is not triggered by a determination that a payment bounced. It is triggered by the posting of a code that means a payment was reversed. Those are usually the same thing — and sometimes they are not.

The argument the IRM concedes in advance

This is the most winnable position in this cluster, and it comes from the IRM rather than from advocacy. IRM 20.1.10.7.2 instructs employees: “do not use dishonored payment transaction codes on the debit side of a credit transfer or for partial reversals.” It then addresses what to do when that instruction was not followed: “abate any TC 286 penalty that generated because of the improper use of a dishonored payment transaction code. Use TC 281 with penalty reason code 045.”

The IRM even supplies the worked example. An encoding error posts a $100 payment as a $1,000 TC 610; the bank honours the $100 actually intended; an employee improperly uses a TC 611 to reverse the $900 difference; the original payment splits, and “TC 286 for $25 is posted following the TC 611.” Nothing bounced. The taxpayer paid what they meant to pay, and a keying error at the IRS produced a penalty. Because the correct outcome is written into the manual with its own penalty reason code, a request in this posture is asking for a documented correction rather than for discretion — and it does not depend on the taxpayer producing anything from their bank.

When there is no notice, and no need to write in

A second path is easy to miss because it inverts the usual burden. IRM 20.1.10.7.3 provides that a bad check penalty “can be abated for certain cases where the taxpayer has not received an official penalty notice, or for the instance where the taxpayer may or may not have requested the abatement,” and that “a penalty may be abated without any written communication when it can be determined that the penalty should not have been assessed in the first place,” citing IRC 6404(a)(3). It cautions that “the account must be thoroughly researched to make this determination.”

The examples it gives are ordinary modern failure modes: errors from a misunderstanding of website instructions, a data entry error on an online form, duplicate transactions where only one was honoured, and an unsuccessful Direct Pay payment. Those describe a large share of real TC 286 assessments. The practitioner’s move is to identify which pattern fits and say so, because the IRM authorises abatement on research alone in exactly these cases — while noting that a bank letter is still required where the reason actually is a bank error.

What TC 286 gets confused with

TC 286 gets confused with the payment reversal that triggered it. The reversal codes — TC 611, 671 and the rest — record that money left the account; TC 286 is the separate penalty charged because it did. A client reading a transcript often sees one event. Distinguishing them matters because the reversal may be correct while the penalty is not, which is precisely the partial-reversal case above.

It is also treated as interchangeable with TC 280 on the theory that a bad check penalty is a bad check penalty. The rate is indeed the same three-tier structure — 2 percent at $1,250 or more, a flat $25 from $25 to $1,249.99, and the payment amount from $5 to $24.99 — but the assessments arise differently, and only the systemic one can fire without anyone having looked. That makes the improper-code argument available on a TC 286 in a way it is not on a manual assessment. Note too that neither is reachable by First-Time Abate: the IRM says the waiver “does not apply.”

The practitioner’s actual next step

Identify the reversal code that generated the penalty and check whether it was used for a full reversal of a genuinely dishonored payment, or for a partial reversal or the debit side of a credit transfer.

Where it was used improperly, cite the IRM’s own abatement instruction and ask for TC 281 with penalty reason code 045 — this is error correction, not a relief request.

Where the failure was a Direct Pay attempt, a duplicate transaction, or a data entry error on an online form, note that the IRM permits abatement on research without written communication from the taxpayer.

Verify the amount against the three tiers, since a flat $25 charge on a small payment is correct and a 2 percent computation below $1,250 is not.

Address the resulting late-payment exposure separately, because the reversed payment left tax unpaid and that penalty runs on its own terms — the Penalty Abatement Analyzer tests the waiver that is available there but not here.