Editor’s note: This op-ed for Bus & Motorcoach News is written by UMA Member Tracy Fickett, CPA, owner of BUSBooks, a specialty accounting firm dedicated to the motorcoach industry.
What Is Letter 3176C?
Letter 3176C is the IRS’s official notice that your tax return or other tax-related submission contains arguments or positions the IRS considers frivolous. A frivolous position has no basis in law or has been repeatedly rejected by the courts, such as claiming that wages are not taxable income or that the federal income tax is unconstitutional.
The letter is not an assessment of a penalty, but a warning. It gives you a chance to correct your return or withdraw your submission before the IRS imposes a $5,000 penalty under Internal Revenue Code (IRC) § 6702.
Why did I get this letter?
You may receive Letter 3176C if you file a tax return or make a submission (such as a request for a hearing or an offer in compromise) that includes one or more arguments the IRS has officially listed as frivolous. Unfortunately, for motorcoach companies, this may include the fuel tax credit.
What does the letter say?
Letter 3176C will:
- Identify the specific frivolous position(s) in your submission.
- Reference the legal authority for the $5,000 penalty.
- Explain that you have 30 days to correct your return or withdraw your submission.
- Warn that if you do not respond, or if you respond with another frivolous argument, the penalty will be assessed.
What should you do if you receive Letter 3176C?
- Carefully read the letter and the IRS’s explanation of what it considers frivolous in your submission.
- Take timely action. You have 30 days from the date of the letter to file a corrected, non-frivolous return or to withdraw your submission. We have found that the IRS has been granting 30-day extensions upon request.
- Correct or withdraw your submission. If you do this within the deadline, the penalty will not be assessed.
- Do not respond with more frivolous arguments. If you do, the IRS will assess the penalty.
What happens if you ignore the letter?
If you do not respond, or if your response is still frivolous, the IRS will assess a $5,000 penalty for each frivolous return or submission. This penalty is in addition to any other penalties or interest that may apply. The IRS must obtain written managerial approval before assessing the penalty.
What is the IRS telling us we need to do to support the fuel tax credit claim?
The IRS is requesting documentation to substantiate the claim. Below is a list of items we have been provided.
- The reason the claim is valid.
- A list of all vehicles for which the credit is claimed.
- Schedules or work papers supporting the calculation.
- Copies of invoices and/or receipts for fuel purchased upon which the claim was based.
This documentation may be mailed or faxed to the IRS department requesting the information.
The IRS will evaluate the documentation to determine if it substantiates the claim.
UMA Member Tracy Fickett, CPA, operates BUSBooks, a specialty accounting firm dedicated to the motorcoach industry. If you have a question, you can reach Fickett at tracy@busbooks.co.
