Section 6751(b) And Assessable Penalties

Section 6751(b) of the Code has been a potent weapon for taxpayers since the Second Circuit held in Chai that certain penalties are not valid without written managerial approval.  See Chai v. Comm’r, 851 F.3d 190 (2d Cir. 2017).  In Chai, the Second Circuit reasoned that written managerial approval must occur “no later than the date the IRS issues the notice of deficiency (or files an answer or amended answer) asserting such penalty.”  And, after the decision in Chai, the Tax Court has gone further in holding that the IRS must obtain written managerial approval of certain penalties before the IRS “formally communicates to the taxpayer its determination that the taxpayer is liable for the penalty.”  See, e.g., Clay v. Comm’r, 152 T.C. 223 (2019).  For more detailed information on Section 6751(b), readers can view my article in The Tax Adviser here.

But not all civil penalties in the Code are subject to deficiency procedures—i.e., they do not require the IRS to issue a statutory notice of deficiency to provide the taxpayer with judicial review prior to assessment.  These so-called “assessable penalties” may be assessed at any time by the IRS prior to the IRS providing notice of the civil penalty to the taxpayer.  Although, in some instances, the IRS will provide notification of the proposed civil penalty prior to making the assessment to permit the taxpayer to contest the penalty determination administratively.

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