10th Circuit in Unpublished Opinion Holds § 6751(b)(1) Written Supervisor Approval Must Precede Notice of Deficiency (1/20/23; 1/21/23)

In Minemyer v. Commissioner (10th Cir. 1/19/23), 10^th Cir. here and TN here and GS here (Unpublished), The Court key holding is relatively short, so I copy and paste it held (Slip Op. 10-13 , footnotes omitted):

             The IRS argues that the tax court imposed a requirement that appears nowhere in the text of the statute. That position is supported by two recent circuit court decisions, from the Ninth and Eleventh Circuits, which have examined the plain language of § 6751(b)(1) and concluded that it is not ambiguous and does not require supervisory approval before an initial determination of an assessment is communicated to the taxpayer. Kroner v. Comm’r, 48 F.4th 1272, 1276-81 (11th Cir. 2022); Laidlaw’s Harley Davidson Sales, Inc. v. Comm’r, 29 F.4th 1066, 1070-74 (9th Cir. 2022). The courts in Kroner and Laidlaw’s found nothing in the text of the [*11] statute to support the timing requirement imposed by the tax court here. See Kroner, 48 F.4th at 1278 (“nothing in the text . . . requires a supervisor to approve penalties at any particular time”); Laidlaw’s, 29 F.4th at 1072-73 (“[t]he statute does not make any reference to the communication of a proposed penalty to the taxpayer”). We agree with these assessments of § 6751(b)(1) and hold that its plain language does not require approval before proposed penalties are communicated to a taxpayer.

            That does not end our inquiry, however, for there remains the question whether § 6751(b)(1) imposes a timing requirement of any kind. The Second Circuit has observed that “[i]f supervisory approval is to be required at all, it must be the case that the approval is obtained when the supervisor has the discretion to give or withhold it.” Chai, 851 F.3d at 220. The court reasoned that supervisory approval would be meaningless if the statute were construed to allow such approval after the supervisor lost the authority to prevent the penalty from being assessed. See id. at 220-21. The court further observed that the last moment that a supervisor still has [*12] discretion to give or withhold approval is the IRS’s issuance of the notice of deficiency, id. at 221, because after a notice of deficiency is issued the IRS loses the discretion not to assess penalties. See 26 U.S.C. § 6213(c) (“the deficiency . . . shall be assessed” if the deadline for seeking tax court review expires); § 6215(a) (if taxpayer petitions the tax court, then the tax court determines the deficiency and penalties, which “shall be assessed” once the tax court’s decision becomes final). Accordingly, the Second Circuit held “that § 6751(b)(1) requires written approval of the initial penalty determination no later than the date the IRS issues the notice of deficiency . . . asserting such penalty.” Chai, 851 F.3d at 221.

            We are persuaded by the Second Circuit’s reasoning and hold that with respect to civil penalties, the requirements of § 6751(b)(1) are met so long as written supervisory approval of an initial determination of an assessment is obtained on or  before the date the IRS issues a notice of deficiency.6  In this case, it is undisputed that the proposed penalties received written supervisory approval three months before the IRS issued the notice of deficiency to Mr. Minemyer. That is all that § 6751(b)(1) required. We therefore reverse the holding of the tax court denying a [*13] civil fraud penalty for 2001 and remand for the tax court to decide on the evidence whether Mr. Minemyer is liable for the civil fraud penalty for 2001.

I have discussed the holdings in Kroner and Laidlaw’s in Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (Federal Tax Procedure Blog 9/20/22), here.

JAT Comment:

1. On unpublished opinions:

The footnote on p. 1 making the opinion nonprecedential says (bold face supplied by JAT):

* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist in the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

Rule 32.1, titled Citing Judicial Dispositions, here, says in part here relevant:

(a) Citation Permitted. A court may not prohibit or restrict the citation of federal judicial opinions, orders, judgments, or other written dispositions that have been:
    (i) designated as “unpublished,” “not for publication,” “non-precedential,” “not precedent,” or the like; and
    (ii) issued on or after January 1, 2007.

10th Cir. R. 32.1, here, provides (bold face supplied by JAT):

32.1 Citing judicial dispositions.

(A) Precedential value. While citation to published authority is preferred, citation of unpublished decisions is permitted as authorized in Federal Rule of Appellate Procedure 32.1. Unpublished decisions are not precedential, but may be cited for their persuasive value. They may also be cited under the doctrines of law of the case, claim preclusion, and issue preclusion. Citation to unpublished opinions for which a Federal Appendix cite is unavailable must include an “unpublished” parenthetical. E.g., United States v. Wilson, No. 13-2047, 2015 WL 3072766 (10th Cir. Oct. 31, 2016) (unpublished).

(B) Reference. If an unpublished decision cited in a brief or other pleading is not available in a publicly accessible electronic database, a copy must be attached to the document when it is filed and must be provided to all other counsel and pro se parties. Where possible, references to unpublished dispositions should include the appropriate electronic citation.

(C) Retroactive effect. Parties may cite unpublished decisions issued prior to January 1, 2007, in the same manner and under the same circumstances as are allowed by Federal Rule of Appellate Procedure 32.1(a)(i) and part (A) of this local rule.

I suppose that this is analogous to giving Skidmore respect (not deference) to agency interpretations if they are persuasive. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here; see also “Deference” to Judicial Opinions (with War Story) (Federal Tax Procedure Blog 9/1/21), here (in which I explore a personal anecdote from my days at DOJ Tax Appellate involving a case, Standard Oil Co. (Indiana) v. Commissioner, 465 F.2d 246 (7th Cir. 1972). here, where the Court said (p. 251 n. 15): "We give special deference to the views of the Fifth Circuit which has considered the issue on several occasions;" since other Circuit opinions are not precedential, they can be influential if, like Skidmore respect (not deference), they are persuasive (including bringing special expertise to bear)).

2. Added 1/21/23: 11:30pm:  The Taxpayer Advocate in the 2022 Annual Report to Congress, here, recommended among the Purple Book highlighted recommendations (bold-face supplied by JAT):

• Clarify That Supervisory Approval Is Required Under IRC § 6751(b) Before Proposing Penalties. IRC § 6751(b)(1) states: “No penalty under this title 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… .” At first, it seems a requirement that an “initial determination” be approved by a supervisor would mean the approval must occur before the penalty is proposed. However, the timing of this requirement has been the subject of considerable litigation, with some courts holding that the supervisor’s approval might be timely even if provided after a case has gone through the IRS Independent Office of Appeals and is in litigation. Very few taxpayers litigate their tax disputes. Therefore, to effectuate Congress’s intent that the IRS not penalize taxpayers in certain circumstances without supervisory approval, the approval must be required earlier in the process. We recommend that Congress amend IRC § 6751(b)(1) to require that written supervisory approval be provided before the IRS sends a written communication to the taxpayer proposing a penalty.

The detailed discussion of the proposal (with discussion categories of Summary Present Law, Reasons for Change and Recommendation) is here.  I recommend that those interested in the current state of court activity review the Reasons for Change (seems to be up to date on key cases, excluding Minemyer which was decided after the date of the Report).  The Recommendation is (italics in document):

• Amend IRC § 6751(b)(1) to clarify that no penalty under Title 26 shall be assessed or entered in a final judicial decision unless the penalty is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate prior to the first time the IRS sends a written communication to the taxpayer proposing the penalty as an adjustment.