In January 2020, the Tax Court took steps to clarify the penalty supervisory approval requirements in Code section 6751(b), releasing three Tax Court opinions (Belair Woods, Chadwick, and Laidlaw’s Harley Davidson) and one memorandum opinion (Tribune) on this issue. While these opinions purportedly establish and apply a bright line rule, there is still disagreement on where this line should be drawn.
Section 6751(b)(1) provides that “[n]o penalty under [the Internal Revenue Code] shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination . . . .” Congress enacted this provision in response to concerns that revenue agents might threaten to impose penalties during an exam in order to compel taxpayers to settle. See S. Rept. No. 105-174, at 65 (1998). In short, this provision is in the Code to prevent penalties from being improperly used as bargaining chips during the examination process.