Tax Court Holds IRS Chief Counsel Attorneys May Make Initial Penalty Determination

In general, section 6751 requires that a supervisor give written approval before penalties can be asserted against a taxpayer. In Koh v. Commissioner, T.C. Memo. 2020-77, authored by the US Tax Court’s (Tax Court) most recent addition—Judge Travis Greaves—the Tax Court affirmed that an attorney from Internal Revenue Service (IRS) Chief Counsel may be authorized to assert such penalties in an answer to a Tax Court petition.

In Koh, the IRS sent the taxpayer a notice of deficiency that included a determination related to penalties under section 6662(j). The taxpayer filed a petition with the Tax Court contesting the IRS’s determination. In its answer, the IRS Chief Counsel attorney asserted that the taxpayer was liable for accuracy-related penalties under section 6662(b)(1) or (2), in the alternative to the section 6662(j) penalties assessed in the original deficiency notice.

The taxpayer sought partial judgment on the pleadings on the grounds that IRS Chief Counsel attorneys are not authorized to assert penalties in the answer. Under section 6751(b)(1), a penalty may not be assessed unless the “the initial determination of such assessment” was “personally approved (in writing) by the immediate supervisor of the individual making such determination.”

The Tax Court reasoned that as the IRS’s representative, the Chief Counsel attorney (or a delegate) may assert additional penalties in an answer to a Tax Court petition. Moreover, the Tax Court ruled that Chief Counsel attorneys had authority to assert penalties in an answer in Roth v. Commissioner, T.C. Memo. 2017-248, aff’d, 922 F.3d 1126 (10th Cir. 2019). That opinion was based on numerous cases holding that the IRS may assert penalties in an answer. However, Roth pre-dated the Tax Court’s opinion in Clay v. Commissioner, 152 T.C. 223 (2019), which cited US Court of Appeals for the Second Circuit authority for the proposition that “written approval is required no later than the issuance of the notice of deficiency rather than the assessment of the tax.”

Practice Point: Taxpayers continue to face risk from penalties being asserted for the first time in an answer in a Tax Court Proceeding. We believe that there is a strong likelihood that Koh will be appealed to the US Court of Appeals for the Third Circuit. We will continue to follow new developments related to penalties and the supervisory approval requirement.

Andrew R. RobersonAndrew R. Roberson
Andrew (Andy) R. Roberson focuses his practice on tax controversy and litigation matters. He represents clients before the Internal Revenue Service (IRS) Examination Division and Appeals Office and has been involved in more than 50 matters at all levels of the federal court system, including the US Tax Court, several US courts of appeal and the Supreme Court. Andy has experience settling tax disputes through alternative dispute resolution procedures, including Fast Track Settlement and Post-Appeals Mediation, and in representing clients in Compliance Assurance Process (CAP) audits. He also represents individuals in Global High Wealth Industry Group audits and in connection with offshore disclosure programs. Read Andy Roberson's full bio.


Kevin SpencerKevin Spencer
Kevin Spencer focuses his practice on tax controversy issues. Kevin represents clients in complicated tax disputes in court and before the Internal Revenue Service (IRS) at the IRS Appeals and Examination divisions. In addition to his tax controversy practice, Kevin has broad experience advising clients on various tax issues, including tax accounting, employment and reasonable compensation, civil and criminal tax penalties, IRS procedures, reportable transactions and tax shelters, renewable energy, state and local tax, and private client matters. After earning his Master of Tax degree, Kevin had the privilege to clerk for the Honorable Robert P. Ruwe on the US Tax Court. Read Kevin Spencer's full bio.


Brian MooreBrian Moore
Brian Moore focuses his practice on US and international tax matters. Read Brian Moore's full bio.

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