Section 6751(b) Penalty Approval Circuit Split

Eleventh Circuit Sides with Ninth Circuit on Section 6751(b) Circuit Split

Introduction: Section 6751(b) and the Timing of Supervisory Approval of a Penalty

The Eleventh Circuit’s decision in Kroner v. Commissioner[1], is the latest opinion to address section 6751(b) and, specifically, the appropriate timing of the supervisory approval of a penalty.[2] The Eleventh Circuit reversed the Tax Court which held, consistent with its recent section 6751(b) jurisprudence that section 6662 penalties were disallowed because the supervisory approval did not occur before the IRS examiner sent the taxpayer a letter asserting penalties. In reversing the Tax Court, the Kroner court agreed with the Ninth Circuit’s decision in Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner[3]. While the IRS has continued to unsuccessfully litigate the issue before the Tax Court[4] it has gained significant victories in two Circuit Courts whose holdings are in direct conflict with the Second Circuit’s opinion in Chai v. Commissioner[5]. Importantly, the Kroner and Laidlaw’s Harley Davidson Sales, Inc. decisions set up a circuit split on the timing of section 6751(b) supervisory approval and raise the possibility that the United States Supreme Court may resolve the dispute.

Background Facts

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