DC Circuit Holds IRS Has Assessment Authority for § 6038(b) Penalty, Reversing Tax Court (5/3/24; 11/19/24)

In Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 5/3/24), CADC here**, TN here, and GS here, the Court of Appeals (Judge Pillard author) held that the IRS has assessment authority for the § 6038(b) penalty. In so holding, the Court rejected the Tax Court holding that the IRS did not have assessment authority. Judge Pillard’s opinion is well-reasoned and presented. Although it is not a short opinion, I highly recommend reading the whole thing.

I will say that the opinion talks in terms of Congress’ intent. Thus, for example, summarizing the reasoning (Slip op. 13-14, emphasis supplied by JAT):

We need not embrace either party’s tax code-wide default rule to resolve this case. We accordingly do not pass on those broader theories beyond explaining why Farhy’s does not preclude assessment of section 6038(b) penalties. Instead, we conclude that a narrower set of inferences suffices to show that Congress intended to render those penalties assessable. Read in light of its text, structure, and function, section 6038 itself is best interpreted to render assessable the fixed-dollar monetary [*14] penalties subsection (b) authorizes. As a result, the Commissioner’s authority to assess all “assessable penalties” encompasses the authority to assess penalties imposed under section 6038(b).

My analysis is that there was no congressional intent on assessment authority issue. But given the schema, one can fairly infer that, had Congress had an intent on the assessment authority issue, it would have been to confer assessment authority on the IRS. That is simply filling in the gaps as a matter of statutory interpretation.

For my thoughts on the issue (noting particularly my skepticism on the Tax Court’s now reversed decision, see my prior blog posts (chronological order)):

• Tax Court Holds that IRS Has No Authority to Assess § 6038(b) Penalties for Form 5471 Delinquencies (Federal Tax Procedure Blog 4/3/23; 4/23/23), here.
• Regulations Interpreting Pre-1996 Code Provisions; Fixing Farhy (Federal Tax Procedure Blog 5/11/23; 5/12/23), here.

Added 5/3/35 9:00 pm:

JAT Comments:

Taxpayer Advocate Annual Report with Graphics on the Tax Procedure Processes (2/14/19)

The Taxpayer Advocate has issued the Annual Report to Congress for 2018, here.  There is a lot in the report that I will blog on here (or incorporate in the working draft for my next Federal Tax Procedure Book that will be finalized and posted on SSRN in August 2019).

I offer here seven pages of schematic graphics from the report that show the various stages of the tax procedure process.  I think the graphics are good, but for best use requires some understanding of the various steps in the process.  The graphics are as follows:

• Tax Return Preparation Roadmap
• Tax Return Processing Roadmap
• Notices Roadmap
• Exam Roadmap
• Appeals Roadmap
• Collection Roadmap
• Litigation Roadmap