IRS Attorneys Can Make Initial Penalty Determination

Generally, part 6751 requires {that a} supervisor give written approval earlier than penalties could be asserted towards a taxpayer. In Koh v. Commissioner, T.C. Memo. 2020-77, authored by the US Tax Courtroom’s (Tax Courtroom) most up-to-date addition—Choose Travis Greaves—the Tax Courtroom affirmed that an lawyer from Inside Income Service (IRS) Chief Counsel could also be licensed to say such penalties in a solution to a Tax Courtroom petition.

In Koh, the IRS despatched the taxpayer a discover of deficiency that included a dedication associated to penalties beneath part 6662(j). The taxpayer filed a petition with the Tax Courtroom contesting the IRS’s dedication. In its reply, the IRS Chief Counsel lawyer asserted that the taxpayer was answerable for accuracy-related penalties beneath part 6662(b)(1) or (2), within the various to the part 6662(j) penalties assessed within the authentic deficiency discover.

The taxpayer sought partial judgment on the pleadings on the grounds that IRS Chief Counsel attorneys will not be licensed to say penalties within the reply. Underneath part 6751(b)(1), a penalty will not be assessed until the “the preliminary dedication of such evaluation” was “personally permitted (in writing) by the rapid supervisor of the person making such dedication.”

The Tax Courtroom reasoned that because the IRS’s consultant, the Chief Counsel lawyer (or a delegate) could assert further penalties in a solution to a Tax Courtroom petition. Furthermore, the Tax Courtroom dominated that Chief Counsel attorneys had authority to say penalties in a solution in Roth v. Commissioner, T.C. Memo. 2017-248, aff’d, 922 F.3d 1126 (10th Cir. 2019). That opinion was based mostly on quite a few circumstances holding that the IRS could assert penalties in a solution. Nonetheless, Roth pre-dated the Tax Courtroom’s opinion in Clay v. Commissioner, 152 T.C. 223 (2019), which cited US Courtroom of Appeals for the Second Circuit authority for the proposition that “written approval is required no later than the issuance of the discover of deficiency reasonably than the evaluation of the tax.”

Apply Level: Taxpayers proceed to face danger from penalties being asserted for the primary time in a solution in a Tax Courtroom Continuing. We consider that there’s a robust chance that Koh shall be appealed to the US Courtroom of Appeals for the Third Circuit.