TC 691: Dishonored Designated Payment of Penalty

What the code actually does

IRS Document 6209, Section 8A defines TC 691 as reversing "dishonored payment submitted as a designated payment of penalty," reducing the TC 690 transaction "in whole or in part." As with every dishonored-payment reversal in this batch, "if not accompanied by a secondary TC 280, a TC 286 is systemically generated."

The mechanism mirrors TC 681's relationship to TC 680 exactly, applied to a penalty designation instead of an interest one.

The designation the client intended is now moot

The entire point of a designated payment is to control which liability gets paid first. When the payment bounces, that control disappears along with the money — the penalty the client meant to satisfy is simply unpaid again, exactly as if the designation had never been made in the first place.

This is worth stating plainly to a client who believed a specific penalty was resolved: a TC 691 reversal means it is not, regardless of how much time passed between the original TC 690 posting and the bank returning the check. A client who received written confirmation the penalty was paid, and then months later sees fresh collection activity on the same liability, is not the victim of a system error — the payment they thought closed the matter never actually cleared.

The consequence lands on the penalty itself

Because the reversed payment was targeted at a specific penalty, that penalty's own accrual — where the penalty type continues to accrue after assessment, as several in this library do — resumes running from where it left off, not from the original TC 690 date. Confirm the current penalty balance and any continuing accrual directly rather than assuming the designated amount is still credited anywhere on the account, since the reversal leaves no residual credit behind on any module.

IRM 21.5.7.3.2 directs the same account-wide transaction research used throughout this batch — CC (Command Code) TXMOD, CC IMFOL/BMFOL — to confirm exactly which penalty and which prior transaction the TC 691 actually reversed before recalculating what remains due on the account.

What TC 691 gets confused with

It gets confused with TC 692, the correction of a TC 690 posted in error by the IRS, which carries no automatic bad-check penalty consequence the way an actual dishonored-check TC 691 does.

It gets confused with a penalty abatement. TC 691 says nothing about whether the underlying penalty is valid or should be reduced — it only reflects that the payment meant to satisfy it never actually cleared.

It gets confused with the interest-designation reversal on TC 681. The two are structurally identical but apply to different designated-payment types and different underlying liabilities.

The practitioner's actual next step

Confirm the current balance of the specific penalty the TC 690 was meant to satisfy — do not assume it remains partially or fully paid.

Address the resulting TC 286 bad-check penalty under IRC §6657 as a separate issue from the original penalty.

Advise the client that any reasonable-cause or abatement argument for the original penalty is unaffected by the payment bouncing — those are independent questions.

Arrange a replacement payment method before resubmitting a designated payment, to avoid a second dishonor and a second penalty.