Tax Court Holds the TFRP is a Penalty Subject to § 6751(b) Supervisor Written Approval Requirement (1/23/20)

Update 1/27/20 9:15am:  Bryan Camp offers an excellent discussion of Chadwick:  Bryan Camp, Lesson From The Tax Court: §6672 Trust Fund Recovery Penalty Is Really A Penalty ... Sort Of (Tax Prof Blog 1/27/20), here.

The Tax Court has been on a tear recently with precedential (including reviewed) T.C. opinions and significant T.C.M. opinions dealing with the nuances of § 6751(b)’s immediate supervisor written approval requirement.  See e.g., FTP2019 Update 05 - § 6751(b)'s Requirement for Supervisor Written Approval for Penalties (1/11/20; 11/23/20), here.  Tuesday, the Tax Court dropped another decision, Chadwick v. Commissioner, 154 T.C. ___, No. 5 (2020), here, holding that

A TFRP [Trust Fund Recovery Penalty in § 6672] is a “penalty” within the meaning of I.R.C. sec. 6751(b)(1). It is thus subject to the requirement that written supervisory approval be secured for the “initial determination of such assessment.

As I noted in the blog above, that was still an open issue, although Tuesday's Chadwick opinion, though precedential in the Tax Court, does not necessarily close the issue.  The IRS had taken the position that the TFRP is not a penalty for § 6751(b)’s immediate supervisor written approval requirement and may appeal.

The relevant portion of the opinion is Slip Op. 11-17.  That’s relatively short (those interested must read it), so I’ll just bullet point the key points in the Court’s analysis.

• The Code calls the TFRP a penalty.  “Section 6672 was in place in 1998 when Congress enacted section 6751, and Congress is presumed to have known that section 6672 refers to the liability it creates as a ‘penalty.’” (See Slip Op. 11 n. 2.)
• Congress placed § 6672 among the penalty sections of the Code.
• Section 6751(c) says that penalties include “includes any addition to tax or any additional amount.”
• The TFRP imposes liability for “willful” conduct, imposed as a sanction for not doing something.  “From the standpoint of the person sanctioned, they are “penalties” both as denominated by the Code and in the ordinary sense of the word.” (Slip Op. 15.)
• Apparently addressing the IRS argument that TFRP was a tax because assessed and collected in the same manner as taxes, the applicable section simply says that the TFRP and other penalties are collected “assessed and collected in the same manner as taxes.”  So this argument would exempt from § 6751 many penalties to which it plainly applies.  (Slip Op. 16.)

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