Tax Court Rejects Various Hail Mary Claim, Including APA Claims, to Get Out of Penalty Free (10/8/25)

In Computer Sciences Corp. v. Commissioner, 165 T.C. ___, No. 8 (2025), TC Case No. 4823-21, here, at entry 305 dated 10/6/25*, GS [to come]**, and TN here, the Court (Judge Lauber) issued yet another § 6751(b), here, written supervisor approval opinion where, as in other cases, the taxpayer seeks to avoid an IRS penalty because of a supposed IRS footfault in the penalty assertion process. In addition to the usual § 6751(b) hail mary claims for a get out of penalty free escape, the taxpayer raises Administrative Procedure Act (“APA”) Claims which, I presume, are the reason the opinion was designated for T.C. reporting (as opposed to T.C. Memo or simply an Order).

For persons wanting a preliminary look at the underlying issues of what the case is all about, go to the docket entries linked above at entry 42 Order dated 7/24/23.

I report here on the APA claims, and will then cover its reference to the § 6751(b) regulations adopted in final in December 2024.

I start my discussion with a quote from Bryan Camp’s iconic post The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here, which opens:

Kristin Hickman loves the APA. To channel Jed Rakoff, it’s her Stradivarius, her Colt 45, her Louisville Slugger, her Cuisinart, and her True Love. It’s her Hammer, her righteous Mjölnir.

And when you have a hammer, everything looks like a nail. Including ALL Treasury regulations.

Although Computer Sciences is not directly attacking regulations, the same comment is appropriate here. With the modern claims about the APA, everything begins to look like a nail, so taxpayers unleash the APA to attack IRS action regardless of how far-fetched the attack is.

In Computer Sciences, I introduce the Court’s holdings from the opening relevant headnotes that, while not technically part of the opinion, for present purposes fairly summarize the opinion (after each holding, I provide brief comment for context):

          Held, further, the APA provisions P cites do not apply to determinations made by this Court in the exercise of its deficiency jurisdiction under I.R.C. §§ 6213 and 6214(a), including determinations regarding R’s compliance with I.R.C. § 6751(b)(1).

 JAT Note: The key APA provision cited is § 706(2)(A)’s requirement that arbitrary and capricious agency action be held unlawful and set aside. This requirement has been held to require that agency action be based on  "reasoned decisionmaking.” The Court holds that the APA does not apply to the Tax Court’s de novo jurisdiction in deficiency proceedings. (Slip Op. 13-15.)

           Held, further, if the APA provisions P cites were deemed relevant here, a supervisor’s approval of a penalty recommendation does not constitute “final agency action” subject to judicial review under 5 U.S.C. § 704.

JAT Note: The holding (Slip Op. 15-19) needs no further discussion for this blog entry.

           Held, further, if the supervisor’s approval of a penalty were thought to constitute “final agency action,” that action would not be subject to distinct judicial review under the APA because our review of R’s compliance with I.R.C. § 6751(b)(1) in this deficiency case affords P an “adequate remedy in a court” within the meaning of 5 U.S.C. § 704.

 JAT Note: Again, that holding (Slip Op. 19-20) needs no further discussion for this blog entry.

          Held, further, assuming arguendo that the APA requirement of “reasoned decision making” applies to a supervisor’s approval of a penalty under I.R.C. § 6751(b)(1), review of that question would be on the administrative record, and the examination case file shows that the agent’s supervisor engaged in “reasoned decision making.”

JAT Note: The Court’s holding (Slip Op. 21-23) needs some discussion. Computer Sciences argued § 706(2)(A)’s “arbitrary and capricious” standard, interpreted to mean reasoned decisionmaking” applied to the IRS’s rejection of the taxpayer’s reasonable basis defense. The Court held first that the reasoned decisionmaking requirement is tested against the administrative record, which is not an element of a deficiency proceeding. Nevertheless, since the parties included the pertinent portions of the administrative record, it would consider the argument. (Slip Op. 21.) The Court then held that Computer Sciences had not asserted the facts of the reasonable basis defense in a Form 8275 or Form 8275–R and that the agent properly did not consider it and therefore engaged in reasoned decisionmaking.

The § 6751(b) Regulations

In the course of its holdings, the Court has the following footnote (Slip Op. 6 n. 6):

   n6 The Treasury Department recently issued regulations that are consistent with the consensus of the appellate courts discussed in the text. These regulations provide that, for penalties included in a notice of deficiency, section 6751(b)(1) is satisfied “if the immediate supervisor of the individual who first proposed the penalty personally approves the penalty in writing on or before the date the notice is mailed.” Treas. Reg. § 301.6751(b)-1(c). This regulation is effective for all penalties assessed on or after December 23, 2024. Id. para. (f).

The § 6751(b) regulations are 26 CFR § 301.6751(b)-1, here.

One question I ask is whether Loper Bright requires that the regulation interpretation be the best interpretation which means that, if this regulation is valid, it applies retroactively to the date § 6751(b)  was enacted (1998). In this regard, it is important to distinguish between the interpretation and the regulation adopting the interpretation. If the regulation interpretation is the best interpretation (required by Loper Bright for the regulation to be valid), the IRS cannot limit the application of the interpretation even if the regulation adopting the interpretation cannot be effective prior to its adoption in December 2024. I discuss this issue in an article to be published in the ABA Tax Lawyer.

The larger issue regarding the § 6751(b) regulation is that the § 6751(b) is so textually screwed up that much of the statute is ambiguous at best (at worst nonsensical, but I assume ambiguous for present purposes), which means that the best interpretation cannot be determined. Sure, Loper Bright suggests that courts can always interpret out ambiguity to reach a best interpretation, but that is nonsense as § 6751(b) illustrates. I suggest that maybe the courts apply United States v. Correll, 389 U.S. 299. 306-307 (1967)’s unanimous holding:

           Alternatives to the Commissioner's sleep or rest rule are of course available. Improvements might be imagined. But we do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing “all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U. S. C. § 7805 (a). In this area of limitless factual variations, it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments. The role of the judiciary in cases of this sort begins and ends with assuring that the Commissioner’s regulations fall within his authority to implement the congressional mandate in some reasonable manner.

Some of the § 6751(b) text is at best Ambiguous in a State of Interpretive Equipoise as to Best Meaning.

I suggest as I have before that § 706(2)(A)’s requirement that agency actions (here interpretations) be held unlawful and set aside only if “not in accordance with law” requires that the agency interpretation be applied in a state of statutory interpretive equipoise where the court cannot determine the best interpretation meaning that the court cannot determine that the agency interpretation is "not in accordance with law." The Supreme Court’s unanimous interpretation of that standard in Dobson v. Commissioner, 320 U.S. 489 (1943) should be definitive as to its meaning in § 706(2)(A) incorporating that language in the APA.

Finally, and this is perhaps TMI, but I want to address one prominent claim that Dobson and its interpretation of “not in accordance with law,” incorporated in § 706(2)(A), should be ignored. Perhaps the most prominent scholar on the state of deference at the time of the APA's enactment in 1946, UVA Law Professor Aditya Bamzai, makes claims about the state of the law at the time the APA was enacted in 1946 and the meaning of APA § 706 that are not supported by the evidence. Professor Bamzai’s principal articles are (i) The Origins of Judicial Deference to Executive Interpretation, 126 Yale L.J. 908 (2017) (“First Article); and (ii) On the Interpretive Foundations of the Administrative Procedure Act, 31 Geo. Mason L. Rev. 439 (2024) (“Second Article”). In the First Article, cited in Loper Bright, Professor Bamzai claims that the APA requires the reviewing court to interpret statutes de novo without deference to agency statutory interpretation. Significantly, in the First Article, Professor Bamzai missed altogether both of Dobson’s key holdings—(i) review of agency interpretations permit deference (important because the Court treated the Tax Court as an agency as described in the statute); and (ii) interpretation of the words "not in accordance with law" as a standard of review of legal interpretations requires deference. In the First Article, Professor Bamzai also missed parts of the Final Report 1941's descriptions of deference and Skidmore’s full-throated statement on deference to agency interpretive regulations (323 U.S. Skidmore at 140 “This Court has long given considerable and in some cases decisive weight to Treasury Decisions and to interpretative regulations of the Treasury and of other bodies that were not of adversary origin.”). In the Second Article, published after Loper Bright, having discovered his omissions of part of (but not all of) Dobson, Professor Bamzai tries to obscure Dobson with respect to its interpretation of “not in accordance with law,” but makes no attempt to address Dobson’s holding on agency interpretation (number (i) above). In his attack on Dobson’s definitive interpretation of the judicial review standard “not in accordance with law,” Professor Bamzai Professor makes several feints but never engages with the fact that at the time of enactment of the APA in 1946 incorporating the “not in accordance with law” judicial review standard, Dobson’s unanimous interpretation of that standard to require deference was the law. Period. End of discussion.

* The Tax Court’s DAWSON system does not have a permalink to the Slip Op., so recent opinions have to be retrieved from the docket entries. The permalink will come when the Tax Court’s Pamphlets are produced. See the Tax Court’s pamphlets page here. I will try to get back to supply that permalink after it appears which is likely to be several months after the Slip Op.

** The Google Scholar temporary report appears several days after the Slip Op. is entered. I will provide this link in a few days. At the time of this posting, Google Scholar had not yet posted the Computer Sciences Opinion.