Second Circuit Says § 6751(b) Means What It Says-Appeals Officer in CDP Appeal Must Verify the Supervisor Approval Requirement (6/30/29)

In Besicorp v. Commissioner, ___ F.4th ___ (2d Cir. 2026), 2Cir here and GS here [to come], the Court held that, in a CDP Appeals Office Conference, the Appeals Officer must verify the IRS’s compliance with § 6751(b)’s written supervisor approval requirement for penalties. The Court says that in 29 pages cogently, if not succinctly, traversing the applicable statute and other authority. Those 29 pages are not all fluff without lessons for students and practitioners, so I address certain key points.

1. I open with a comment I make in a soon to be published article. Section 6751(b) is nonsensical and a textual mess. That comment was focused on the courts’ flailing around to make sense of the mess and was an argument for courts to approve the regulations adopted in December 2024 to make sense of key components of § 6751(b). However, as to the text in § 6751(b) that Besicorp interprets and applies, the text is clear, so Besicorp is correct that CDP Appeals Office proceedings require verification of the written supervisor approval requirement. (I except from that the possible application of res judicata discussed below in ¶ 5.) That is a textualist reading of the text; I don’t see any reasonable mode of interpretation that would reach a different conclusion.

2. Of course, in making that verification, the Appeals Officer must wade into the mess of the other components of § 6751(b) which are a mess with differing interpretations by the courts. I suppose, the Appeals Officer might rely upon the § 6751(b) regulations, either proposed or permanent, although the Besicorp Appeals Office hearing likely occurred before the regulations were proposed or adopted. (In this regard, the Second Circuit argument in Besicorp was 2/5/24; and Besicorp (and consolidated cases) were filed in the Tax Court in 2017. See T.C. dkt. Entries here, before the 2024 regulations were even a twinkle in the Commissioner’s eye.

3. The income tax liabilities in Besicorp and consolidated cases arose from bullshit tax shelters. The Court says the tax and interest (Slip Op. 3) reporting and tax savings from “tax shelter transactions designed to avoid the payment of taxes,” as determined by the IRS. The tax shelter transactions were of the “intermediary tax shelter” aka Midco ilk. (Slip Op. 10.) Besicorp’s deficiency was $50 million. (Slip Op. 5.) And, being a category of bullshit tax shelters, the IRS also asserted the 40% penalty which for Besicorp was “roughly $20 million penalty on a $50 million deficiency for its accuracy-related gross valuation misstatements,” citing § 6662(h). (Slip Op. 5.)

4. The taxpayers involved in Besicorp and consolidated cases may have been affiliated with the promoters who promoted the bullshit tax shelters. Indeed, from my work in this area, I found it was not uncommon for the promoters who “earned” very large amounts from promoting the fake tax savings (a price taxpayers were willing to pay for fraud insurance) to themselves then “shelter” their income with their own bullshit tax shelters (always permitting some variance in the smoke and mirrors game). I note in this regard that one of the attorneys for the taxpayers was also an attorney for at least one promoter and related corporation.

5. In earlier deficiency proceedings in the Tax Court, “the Tax Court upheld the noticed deficiencies and penalties. No Taxpayer appears to have litigated any issue related to Section 6751’s supervisory approval requirement in those earlier proceedings.” (Slip Op. 10.) Certainly, the taxpayers could have litigated the § 6751(b) supervisory approval requirement in the deficiency proceedings. For this reason, the taxpayers had a previous opportunity to contest the penalties on that basis and thus could not contest  the penalties in a CDP hearing and probably were barred under res judicata from doing so. The different issue in Besicorp was whether the IRS confirmed the supervisory approval requirement. In Besicorp, the IRS asserted res judicata as a reason for the Appeals Officer not having to confirm the requirement. The Court rejected that argument. (Slip Op. 20, 24.) [I am not convinced that holding is correct; if the taxpayers were barred from raising the issue in the CDP proceeding because they could have litigated in the deficiency proceedings, if res judicata applied, even if the written supervisory approval requirement was not met, the Appeals Officer could not grant relief in the CDP proceeding; I suppose that the Appeals Officers files should show why she did not do verify other than res judicata prior opportunity.]

6. The Court somewhat cryptically in a footnote to § 6751(b)’s “timing requirements. (Slip Op. 21 n. 17.) The statute says: “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor…” Textually, the timing requirement is before the assessment. That timing requirement does not make sense, as the courts have held (unanimously, I think) and thus requiring resort to the Committee Reports for meaning; the Committee Report says that the purpose of the provision is to prevent rogue IRS agents from threatening penalties to extract concessions on tax liabilities. (Note that this is an instance where the pervasive ambiguity or nonsense in § 6751(b) requires even textualists to rely upon legislative history.) The timing requirements have drawn differing interpretations because the text is a mess. (Because the text is a mess, I argue in the article that courts should approve the 2024 regulations regardless of how they justify such approval.)

7. The Court carves out and does not decide the separate issue of (Slip Op. 22, n. 18)

whether the Appeals Officer’s failure to comply with Section 6330(c)(1)’s verification requirement bars collection by liens and levies of only the penalties to which Section 6751(b)(1)’s supervisory approval requirement attaches or of the entire tax liability addressed in the Notices of Determination. In its initial, later vacated, summary judgment rulings, the Tax Court denied summary judgment only as to the Service’s collection of the assessed penalties by liens and levies. But the parties seemed to suggest at oral argument in our Court that the Service would have to collect all amounts owed by the Taxpayers—tax deficiencies, penalties, and interest—by other means. See Transcript of Oral Argument at 6, 9-10, 13-14. We question why this provision should bar the use of liens and levies to collect the underlying tax liabilities (as opposed to penalties). Because the parties did not brief this issue, however, we leave it for another day (including, perhaps, for resolution by the Tax Court on remand).

 I suspect that the taxpayers may try to litigate this issue on remand (if for no other reason than to increase the delay (see ¶ 9, below).

8. Query whether this may be a pyrrhic victory. If indeed, as I suspect, the taxpayers were related to the promoters of the bullshit / aka fake shelters, the civil statute of limitations would almost certainly be unlimited for the IRS to make additional assessments of the penalties which were already approved in the deficiency proceedings. § 6501(c)(1) & (2). Even if the taxpayers were non-fraudulent purchasers of the bullshit tax shelters (a big if), the IRS might still assert that the promoters' fraud is on the returns thus invoking the unlimited statute of limitations. See Supreme Court Denies Cert in Murrin on Issue of Whether Taxpayer's Fraud is Required for § 6501(c)(1) Unlimited Statute of Limitations (Federal Tax Procedure Blog 6/22/26), here.

9. Of course, delay is one of the primary goals of CDP Proceedings, which is why Professor Bryan Camp said that “CDP” is short for “Collection Delay Process.” Bryan Camp, Lesson from the Tax Court: The Long and Short of CDP (Tax Prof Blog 4/6/20). These taxpayers have been able to delay the process. Note above that the Besicorp CDP case in the Tax Court was filed in 2017. (See ¶2 above.) The thinking among some tax practitioners is that that will give plenty of opportunity to mitigate the final financial cost (other than attorneys fees) of the assessments that have been delayed.

Conclusion

I am sure that there other points in the cases that I could commote about but must turn to other matters. Reader comments will be appreciated and responded to if I think I can add anything.