U.S. Tax Court: IRS supervisory approval for penalty assessment

IRS supervisory approval for penalty assessment

The U.S. Tax Court today denied the taxpayers’ motion for summary judgment concerning whether an IRS penalty assessment complied with the approval provisions as set forth under section 6751(b)(1).


The case is: Thompson v. Commissioner, 155 T.C. No. 5 (August 31, 2020). Read the Tax Court’s opinion [PDF 67 KB]

The IRS revenue agent sent letters to the taxpayers offering to settle their tax liabilities with respect to an “abusive transaction.” The terms of the settlement offers required the taxpayers to agree to pay section 6662 accuracy-related penalties at a reduced rate on any underpayment of tax that might later be calculated as to the transaction. The taxpayers did not accept these offers.

The revenue agent later determined income tax deficiencies for 2003 through 2007 plus penalties under sections 6662(h) and 6662A at the statutory rates. The revenue agent obtained written approval from his acting immediate supervisor for assertion of these penalties before the IRS sent a notice of deficiency to the taxpayers.

The taxpayers filed a petition with the Tax Court and then filed a motion for summary judgment claiming that the IRS had failed to comply with the rules under section 6751(b)(1)—that no penalty is to be assessed “… unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.”

The Tax Court today denied the taxpayers’ motion for summary judgment finding that:

  • The settlement offers did not constitute “the initial determination of * * * [a penalty] assessment” thereby requiring prior supervisory approval.
  • The supervisory approval requirement of section 6751(b)(1) was satisfied when the revenue agent’s immediate supervisor approved the penalties, even though the immediate supervisor held the position on an interim basis.

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us