TC 350: Negligence Penalty

What the code actually does

IRS Document 6209 defines TC 350 simply as "Negligence Penalty," valid across a wide range of document codes, with the remark: "Assesses all types of negligence penalties." It is a debit — it adds the penalty amount to the module (the IRS's record for one tax period within the account) balance — and it can apply on both individual and business accounts.

The statute behind it is IRC §6662(b)(1), one of several distinct triggers for the broader accuracy-related penalty. IRM 20.1.5, Return Related Penalties, addresses negligence under section 20.1.5.8, "IRC 6662(b)(1) and IRC 6662(c), Negligence or Disregard of Rules or Regulations," with its own subsection, 20.1.5.8.1, devoted to negligence specifically.

Negligence is a specific legal standard, not a catch-all

IRC §6662(c) defines negligence to include "any failure to make a reasonable attempt to comply with" the tax laws, and disregard to include "any careless, reckless, or intentional disregard" of rules or regulations. That is a factual, case-specific standard — it asks whether the taxpayer's conduct in preparing the return was reasonable, not simply whether the return turned out to be wrong.

This distinguishes TC 350 from the other accuracy-related penalty components IRC §6662 authorizes, each with its own separate test: substantial understatement of tax under §6662(b)(2), and substantial or gross valuation misstatement under §6662(b)(3). The IRS chooses which theory to assert based on the facts, and the theory it picks determines what defenses are actually available.

What this means for the account

A TC 350 on the transcript means the IRS determined the taxpayer's underpayment resulted from negligence or disregard of the rules, not from an innocent, reasonable position that simply turned out to be wrong. The penalty is generally 20% of the portion of the underpayment attributable to the negligence, computed under IRC §6662(a).

Reasonable cause is the primary defense to any accuracy-related penalty, including negligence — but the defense itself lives in a different statute than the one that creates the penalty. IRC §6664(c) states that "no penalty shall be imposed under section 6662... with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion." A taxpayer who meets that standard is not liable for the penalty even if the position was ultimately wrong. The determination is fact-specific rather than a checklist: the taxpayer's own effort to assess the correct tax liability carries the most weight, and factors like the taxpayer's experience, knowledge, and education bear on whether an honest misunderstanding was reasonable. Reliance on a preparer's advice does not automatically establish reasonable cause either — it only counts if that reliance was itself reasonable under the circumstances, not simply invoked as a shield. Whether the defense applies depends heavily on the specific facts behind the return, which is why the underlying examination file, not just the transcript code, is where the real analysis has to happen.

What TC 350 gets confused with

TC 350 is easy to conflate with civil fraud penalties, but the two rest on entirely different legal standards and carry very different consequences. TC 320, the civil fraud penalty, requires the IRS to prove fraudulent intent by clear and convincing evidence and carries a 75% penalty rate — a materially higher bar and a materially higher cost than negligence's 20% rate under a reasonableness standard.

It is also not the same as the other IRC §6662 components. A return can trigger a substantial-understatement penalty without any negligence finding at all, since that trigger is purely mathematical (the understatement exceeds a statutory threshold) rather than conduct-based. Seeing "accuracy-related penalty" language generically does not tell you which specific §6662 subsection actually applies — the transaction code does.

The practitioner's actual next step

Request the examination workpapers or penalty approval documentation to see the specific factual basis the IRS cited for the negligence determination.

Evaluate a reasonable-cause defense before conceding the penalty — good-faith reliance on a preparer, a genuine ambiguity in the law, or reasonable reliance on erroneous information can all support abatement.

Confirm the penalty rate applied matches the 20% negligence rate rather than the higher civil fraud rate, since the two are sometimes discussed loosely as interchangeable.

Pull the complete account history with the IRS Transcript Decoder to see whether TC 351 has already partially abated the assessment before advising on next steps.