The TFRP and the § 6751(b) Requirement for Supervisor Written Approval (11/9/15)

In United States v. Rozbruch, 2015 U.S. App. LEXIS 19223 (2d Cir. 2105), here, a nonprecedential opinion, the Second Circuit sustained the district court's holding that the TFRP penalty in the case under § 6672, here, did not fail the requirement in § 6751(b), here, for the written approval of "the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate."  The Court's holding is cryptic, so I will include the entire discussion of the argument on appeal:

Appellants argue that the District Court erred in holding that TFRPs imposed pursuant to Section 6672(a) of the Internal Revenue Code, 26 U.S.C. § 6672(a), do not trigger the written supervisory approval requirement of Section 6751(b)(1), id. § 6751(b)(1). But even assuming, without deciding, that TFRPs are governed by Section 6751(b)(1), the record here nevertheless supports a finding that the Government functionally satisfied Section 6751(b)(1)'s written supervisory approval requirement. Thus, we affirm the District Court's grant of summary judgment, which reduced to judgment Appellants' unpaid TFRPs. See Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 405 (2d Cir. 2006) ("[W]e are free to affirm a decision on any grounds supported in the record, even if it is not one on which the trial court relied.").

Apparently the Court cited Thyroff because the district court had not held for the Government based on functional satisfaction of § 6751(b)'s requirement.

The briefs are helpful in understanding how the Court threaded the needle to get to a summary affirmance while avoiding having to decide whether the TFRP was even subject to § 6751(b).  The briefs are here.

• Appellant's opening brief, here.
• Appellee U.S. Answering brief, here.
• Appellant's reply brief, here.

The gravamen of of the Appellant's argument is that the TFRP is a penalty subject to § 6751(b) because Congress said the TFRP is a penalty.  Appellant does make some policy arguments, but the force of the argument is that the TFRP is a penalty because Congress said so.  And this is true even though it functions, unlike other penalties, as simply a collection mechanism.  The Government's argument is that, although labeled a penalty, it is really just a fall-back collection device for the trust fund tax that was not withheld and paid over.  The applicability of § 6751(b) to the TFRP has not yet been decided, so, rather than decide the issue, the Court said that, even § 6751(b) did apply, there was functional satisfaction of the requirement.  I presume functional satisfaction is something like substantial compliance.  The reason, as recounted in more detail in the Government brief is that manager level approval was given in the process required to approve the TFRP.

Here is the relevant portion of the argument from the Government's brief (pp. 9-10):

Loper Bright’s Effects on the § 6751(b) Regulations (Herein Difference Between Regulations and Interpretations) (8/7/25)

I am today considering the wonders and discontinuities of Loper Bright Ent. v. Raimondo, 603 U.S. 369 (2024)(“Loper Bright”). I do this in the context of updating my Federal Tax Procedure Book editions. For this blog, I zero in on one facet related to Loper Bright’s perceived command that courts apply de novo the best statutory interpretation (whether or not it is the agency interpretation). The general rule is that judicial interpretations apply retroactively to the effective date of the statute. Harper v. Va. Dep't of Taxation, 509 U.S. 86 (1993). 

The context is the § 6751(b) regulations. 26 C.F.R. § 301.6751(b)-1, with an effective date of December 23, 2024. Those regulations were promulgated to resolve the inconsistent interpretations of § 6751(b) as courts flailed around, often inconsistently, to apply the textually nonsensical statute. Loper Bright denied Chevron deference from the fiction of statutory ambiguity, but said nothing about a statute that is ambiguous and textually nonsense. That requires that either (i) § 6751(b)  is facially invalid with no application or (ii) susceptible to interpretation which will require that lines be drawn similar to the way a line was drawn in United States v. Correll, 389 U.S. 299 (1967) (adopting the agency sleep and rest interpretive line for the statutory “away from home” requirement). In other words, a best interpretation could not be made until some authority draws the line.

At least in theory, in order to pass Loper Bright muster, the § 6751(b) interpretive regulations must state the best interpretation. For purposes of this discussion, I distinguish between the interpretation and the regulation which adopts the interpretation. The best interpretation should apply from the effective date of the statute. That means, for example, that the § 7805(b) limitations on retroactive effective dates for interpretive regulations may still apply to the regulation but are meaningless if the regulations state the best interpretation.

This phenomenon was always true but perhaps was not true for agency interpretations of ambiguous text that had no best interpretation from the effective date of the statute, but with a best interpretation discernible only by some action, such as a regulation interpretation, that permitted a best interpretation to be applied. E.g., United States v. Correll, 389 U.S. 299 (1967) (once the line drawing was approved in Correll, it applied to all pending and future cases).

Thus, the conundrum of effective dates for the § 6751(b) regulations is presented. If the interpretations in the § 6751(b) regulations are best interpretations, they apply from the effective date of the statute and should apply to pending Tax Court cases for periods prior to the regulations’ effective date of December 2024. If that is right, should not the courts in pending cases for periods prior to the December 2024 effective date be considering whether the regulations interpretation (not the regulation) applies. If the § 6751(b)  regulations are best interpretations for validity, why should courts for those pre-effective date periods not apply the best interpretations. In other words, why are Tax Court judges applying the mish-mash of interpretations preceding the effective date of the § 6751(b) regulations without considering the § 6751(b) interpretations? See e.g., Hancock County Land Acquisitions LLC v. Commissioner, T.C. Memo. 2025-50.

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 here**, 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):

Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (9/20/22)

In Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 9/13/22), CA11 here and GS here, the Eleventh Circuit has become the second Circuit to push against the machinations courts, principally the Tax Court, in trying to apply the written supervisor requirement of § 6751(b). In my Federal Tax Procedure book 370 (2022 Practitioner Edition) (available on SSRN here), I introduce the problem in the nonsensical statutory text (footnotes omitted):

Second, § 6751(b)(1) prohibits the assessment of a penalty “unless the initial determination of such assessment 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.” Although not stated in the statute, the purpose of the requirement is to prevent agents from improperly using the threat of a penalty as inappropriate leverage–a “bargaining chip”–to extract concessions when the IRS institutionally had not made a determination to  assert a penalty. The wording of the statute, however, is facially nonsensical because there is no such thing in the tax law as the determination of an assessment and, in any event, the assessment comes long after the threat of penalties could have been made to bully taxpayers. In statutory interpretation lingo, if not nonsensical, the statutory text is “ambiguous,” a characterization which has spawned many opinions as the courts try to deal with the deficiencies in the statutory text through purposive interpretation strategies to apply the text as the courts think or speculate Congress intended but did not say in the statutory text. Section 6751(b) is a quintessential case illustrating this struggle to interpret and apply “ambiguous” statutory text on an ad hoc, case-by-case basis to interpret the “law” that can then be applied in future cases.

I then provide in the following pages (371-377) wanderings through the maze of opinions trying to make sense of this landscape. Basically, the wanderings show courts’ attempts to construct policy (or law) on an ad hoc basis around a statute with facially nonsensical text. These opinions behind these wanderings focus on IRS communications to the taxpayer rather than “the initial determination of such assessment,” as if communications were a proxy for that statutorily required initial determination.

The Eleventh Circuit decided that it could, and should, decide the case before it on the basis of the statutory text rather than the meanderings of courts crafting solutions, based principally on a purpose stated in the legislative history.

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.

Second Circuit Says § 6751(b) Means What It Says-Appeals Officer in CDP Appeal Must Verify the Supervisor Approval Requirement (6/30/26)

In Besicorp Group, Inc. v. Commissioner, 180 F.4th 402 (2d Cir. 2026), 2Cir here and GS here, 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.

Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (1/8/24; 1/15/24)

Section 6751(b)(1) provides:

(1) In general

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 or such higher level official as the Secretary may designate.

Penalties cannot be assessed unless they have written supervisor approval by some magical moment; stated otherwise, an assessment or a step predicate to assessment of penalties without prior written approval is invalid. The only magical moment in the statute is the “initial determination of the assessment.” That statutory language on its face is nonsense because there is no “initial determination of the assessment,” at least other than the assessment itself. The courts have made hash of the language of the statute, which, through its fuzziness coupled with a snippet in the legislative history, lends itself to fuzzy thinking about the tax system we have and to disparate outcomes. In short, the interpretation and application of § 6751(b) is a mess. 

I  discuss the mess in my Federal Tax Procedure (current 2023.2 Practitioner Edition SSRN here) at pp. 385-393. Because of the mess, which has been brewing for several years, I have noted in recent versions of my Federal Tax Procedure Practitioner Edition (e.g., 2023.2 Edition p. 387 n. 1645):

    n1645 This appears to me to be a classic case where a well-considered statutory amendment or, failing that, comprehensive interpretive regulations could clean up the mess. The courts have already found the statute ambiguous, the condition required for “reasonable” interpretive regulations. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). By adopting well-considered interpretive regulations, the IRS could essentially moot out the plethora of prior and future court machinations to deal with the problem. See National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967, 981 (2005) (permitting the agency to adopt interpretive regulations contrary to prior judicial interpretations so long as the prior judicial interpretations are not compelled by the text of the statute, which would not be true here because the statute is ambiguous). I don’t think reversal of the court interpretations of § 6751(b) would be foreclosed under Brand X by prior judicial precedent that foreclose the agency new interpretation as occurred in United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012). An interpretive regulation, with notice and comment, by Treasury, the expert on IRS processes and the big picture, would likely produce a more holistic set of interpretations than courts can do anecdotally as unique cases arise. The problem with the regulations approach is that final regulations could take a very long time, perhaps a couple of years. But since the regulations would be interpretive, Treasury could adopt a Temporary Regulation and, provided that the final Regulation is adopted within three years, the Temporary Regulation could be effective immediately (§ 7805(e)) and the final Regulation could be effective from the date of the Temporary Regulation (§ 7805(b)). And, perhaps even, the Temporary and Final Regulations might be persuasive authority under Skidmore v. Swift & Co., 323 U.S. 134 (1944) for application retroactively to the date of the statute for any case still in pipeline or getting there involving conduct prior to the effective date of the Temporary Regulation. Such retroactive application beyond the limits imposed by § 7805 is a long subject, I think that the interpretation might apply retroactively with the only limit being that the  interpretation be within the scope of § 6751(b)’s ambiguity from the enactment of the statute.

Separately, the Taxpayer Advocate proposed a legislative solution. See Legislative Recommendations 32 and 36 in Taxpayer Advocates Legislative Recommendations for 2023 and 2022, respectively as follows: 

FTP2019 Update 05 - § 6751(b)'s Requirement for Supervisor Written Approval for Penalties (1/11/20; 11/17/23)

Yesterday, I posted this as a standalone blog entry, but decided to incorporate it into the FTPB Update series.  Accordingly, I changed the caption and provide below a table entry showing the changes to the Federal Tax Procedure Book.  Otherwise I leave the blog as posted.

Section Affected	Edition page numbers
Ch. 8.  Penalties.    III. Civil Penalties.       L. Penalty Administration.  1. Authority to Assess; Notice.	Practitioner Ed. pp. 414-419 Student Ed. pp. 287-289

This week, the Tax Court issued two T.C. opinions (one of which was a reviewed opinion) and a T.C. Memo Opinion dealing with the ongoing refinement, through interpretation, of the meaning of § 6751(b), here, which is:

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 or such higher level official as the Secretary may designate.

There are some exceptions, but the focus in most of the cases (including the ones decided this week) has been the text quoted above.

The opinions are: Belair Woods, LLC v. Commissioner, 154 T.C. ___, No. 1 (2020) (reviewed), here; Frost v. Commissioner, 154 T.C. ___, No. 2 (2020), here; and Tribune Media Company v. Commissioner, T.C. Memo. 2020-2, here.  An excellent discussion of the opinions are presented in Bryan Camp's offering Lesson From The Tax Court: A Practical Interpretation Of The Penalty Approval Statute § 6751 (Tax Prof Blog 1/13/20), here. (Note:  I added this link to Bryan's article on 1/13/20.)

Rather than discussing those opinions, I offer an  overview of the current state of play on the interpretation of § 6751(b) from my Federal Tax Procedure book as I now have it in the working draft for the 2019 editions (which will be published in August 2020).  The key holdings of the cases are incorporated in this overview.  The overview in the blog below does not include footnotes; for those wanting the footnotes, I offer the text and footnotes in pdf format here. Here is a cut and paste of the overview without footnotes.  I do not indent to show that this is quoted text.

Second, § 6751(b)(1) prohibits the assessment of a penalty “unless the initial determination of such assessment 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.”  The purpose of the requirement was to prevent agents from improperly using the threat of a penalty as inappropriate leverage–a “bargaining chip”–to extract concessions when the IRS institutionally had not made a determination to assert a penalty.  This wording of statute, however, is facially nonsensical because there is no such thing in the tax law as the determination of an assessment and, in any event, the assessment comes long after the threat of penalties could have been made to bully taxpayers.  In statutory interpretation lingo, the statutory text is “ambiguous,” a characterization which has spawned many opinions as the courts try to deal with the deficiencies in the statutory text through purposive interpretation strategies to apply the text as the courts think or speculate Congress intended but did not say in the statutory text.  I attempt to bullet-point key features of the statutory prohibition under the current state of play.  I state the current state of play in general overview, but do not develop many of the nuances, some of which are yet to come.  There undoubtedly will be further refinements as the courts address various unique fact patterns, so stay tuned.  With those caveats, here is my summary:

• The most significant issue has been the timing of the written approval.  Once the courts accepted that timing must be before the assessment despite the statutory text, the issue is to identify the timing of the initial determination required for the written approval.  The statutory text provides no guide for determining that earlier timing, but by focusing on the requirement for an “initial determination” and the legislative history, courts have looked to some event indicating more than a communication to the taxpayer that the agent was considering penalties.  The initial determination is “the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties.”  In the context of an audit, the initial determination is the 30-day letter (or equivalent such as the 60-day letter in a TEFRA audit) sent to the taxpayer stating Examination’s determination to assert one or more penalties and offering the taxpayer a right to contest the determination in Appeals.  Mere notice that to the taxpayer the agent is considering asserting penalties and asking the taxpayer to discuss the penalties is not the determination requiring written approval.  However, if the RAR is prepared asserting the penalty and delivered to the taxpayer, written approval must be before or contemporaneous with the RAR.  And, even a notice that the IRS has preliminarily determined to assert a penalty that the taxpayer can avoid by action on his part is not the initial determination requiring written approval.

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.)

JAT Comments:

Prominent Senate Finance Committee Members Offer Discussion Draft of Bill to Fix Certain IRS Procedure and Administration Issues (2/2/25)

Note to Readers: This blog entry was posted yesterday to a page rather than a blog page. I have moved it to the blog page. I will leave the page error up with a link to this blog entry. Please comment on this blog page.

Senators Crapo (R) and Wyden (D), prominent Senate Finance Committee members, have proposed a discussion draft, here, of a proposed bill making what Senator Wyden says would be “common-sense fixes to Internal Revenue Service (IRS) procedure and administration.” The proposed bill is nonpartisan. Many of the proposals address issues presented in cases that I have blogged about on the Federal Tax Procedure Blog. Senators Crapo and Wyden’s section-by-section explanation of the proposal is here. The announcement of this initiative, here, seeks comments by March 31, 2025; comments may be sent to discussiondraft@finance.senate.gov.

I have reviewed the section-by-section explanation and parts of the draft bill. For what it is worth, I applaud the proposal. It indeed does provide “common-sense” fixes to problems that have unnecessarily vexed tax procedure. It does not fix all problems, but it fixes a fair number of them. Nor does it fix issues the way I or other practitioners or interested parties would have fixed them, but the fixes are pretty good. With appropriate comments, perhaps other problems could be fixed, and of course the proposals may be fine-tuned and improved.

I link here to the Table of Contents for the proposed bill which I encourage readers to review.

JAT Comments:

My comments are necessarily selective for proposals that particularly interest me (based on my blogging). I encourage readers to read the entire bill and/or the section-by-section explanation.

1. Fixing the supervisor written approval timing requirement in § 6751(b). Sec. 113. Modification of procedural requirements for penalties and disallowance periods.

As I have noted before, current § 6751(b) is poorly drafted. See e.g., Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (Federal Tax Procedure Blog 9/20/22), here. Poor draftsmanship is not surprising given its genesis in the IRS Restructuring and Reform Act of 1998. See Federal Tax Procedure (2024 Practitioner Ed.) pp. 345 and (2024 Student Ed.) 22. I have posted 26 blog entries, here, on the Federal Tax Procedure Blog discussing § 6751(b). The poor draftsmanship has given hope to those who have abused the tax system that they can avoid penalties for playing the audit lottery for a real or perceived IRS footfault in the assertion of penalties. This hope has played itself out in, for example, syndicated conservation easement cases as recently as January 30 in Park Lake II v. Commissioner, T.C. Memo. 2025-11, GS here (finding no footfault, so that the case can proceed on the merits which may be not much but will chew up a lot of IRS, taxpayer, and Court time and resources).

The solution in the proposed bill is to amend § 6751(b) to require that the supervisor approval must occur before the initial determination of the penalty (much like the current law) but defines initial determination by adding at the end of § 6751(b):

FTPB 2020 Update 05 - New IRM Summary of the § 6751 Written Supervisor Approval Requirement (10/22/20)

One of the most frequent high-profile items in tax procedure in the last couple of years has been § 6751(b)’s written supervisor approval timing requirement.  In the absence of regulations, the Tax Court has struggled on a case-by-case basis to apply the requirement in various factual situations – seemingly a myriad – that can arise.  To put it mildly, the ad hoc treatment is daunting to the Tax Court, the IRS and practitioners.  

The IRM was recently revised to cut through the smog of this ad hoc treatment.  The provision is here and I quote in full:

20.1.1.2.3.1 (10-19-2020)
Timing of Supervisory Approval

For all penalties subject to IRC 6751(b)(1), written supervisory approval required under IRC 6751(b)(1) must be obtained prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to:

• Sign an agreement, or
• Consent to assessment or proposal of the penalty

For a little background, I cut and paste from my Tax Procedure Book (this is from the working draft for the 2021 editions, with some of the text changed from the 2020 editions and with footnotes omitted; note that the only change that I specifically note here is to reflect the new IRM provision with the font in red):

Second, § 6751(b)(1) prohibits the assessment of a penalty “unless the initial determination of such assessment 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.”  Although not stated in the statute, the purpose of the requirement is to prevent agents from improperly using the threat of a penalty as inappropriate leverage–a “bargaining chip”–to extract concessions when the IRS institutionally had not made a determination to assert a penalty.  The wording of the statute, however, is facially nonsensical because there is no such thing in the tax law as the determination of an assessment and, in any event, the assessment comes long after the threat of penalties could have been made to bully taxpayers.  In statutory interpretation lingo, if not nonsensical, the statutory text is “ambiguous,” a characterization which has spawned many opinions as the courts try to deal with the deficiencies in the statutory text through purposive interpretation strategies to apply the text as the courts think or speculate Congress intended but did not say in the statutory text. Section 6751(b) is a quintessential case illustrating this struggle to interpret and apply “ambiguous” statutory text on an ad hoc, case by case basis to interpret the “law” that can then be applied in future cases.

I attempt to bullet-point key features of the statutory prohibition under the current state of play.  I state the current state of play in general overview, but do not develop many of the nuances, some of which are yet to come.  There undoubtedly will be further refinements as the courts address various unique fact patterns, so stay tuned.  With those caveats, here is my summary:

• The most significant issue has been the timing of the written approval.  Once the courts accepted that timing must be before the assessment despite the statutory text, the issue is to identify the timing of the initial determination required for the written approval.  The statutory text provides no guide for determining that earlier timing, but by focusing on the requirement for an “initial determination” and the purpose indicated in the legislative history, courts have concluded that initial determination is “the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties.”  In the context of an income tax audit, the latest date for the initial determination is the 30-day letter (or an equivalent (including the 60-day letter in a TEFRA audit) sent to the taxpayer) stating Examination’s determination to assert one or more penalties and offering the taxpayer a right to contest the determination in Appeals.  Mere notice to the taxpayer that the agent is considering asserting penalties and asking the taxpayer to discuss the penalties is not the determination requiring written approval.  Further, a communication offering a reduced penalty as part of a campaign to settle issues such as abusive shelters involved many taxpayers which say that, if the settlement is not accepted, an examination will be conducted and may result in penalties is not an initial determination.  However, a Revenue Agent’s Report (“RAR”) including penalties delivered to the taxpayer is the written determination requiring written approval.  And, even a notice that the IRS has preliminarily determined to assert a penalty that the taxpayer can avoid by action on his part is not the initial determination requiring written approval.  Cutting through all this, the IRM was recently revised to state guidance to agents succinctly (perhaps cryptically) that the “written supervisory approval required under IRS 6751(b)(1) must be obtained prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to [i] Sign an agreement, or [ii] Consent to assessment or proposal of the penalty.”  While that guidance may not be outcome determinative in cases arising from audits where the operative facts preceded the date of the new IRM, it perhaps might be the solution going forward to render the commotion around timing moot.

Textualism's Malleability -- Picking Your Friends (6/24/20)

Yesterday, in a Zoom session with a Houston tax group, the Wednesday Tax Forum (which meets on Tuesday), George Connelly, here, discussed § 6751(b), here, which requires supervisor approval before the initial determination of IRS penalty claims.  Since the IRS frequently asserts penalties, this requirement has been a frequent topic in litigation, at least after it surfaced a few years ago.  Basically, the ground covered by § 6751(b) has shifted dramatically and the aftershocks continue to alter the understanding of the requirement, now in more nuanced ways than before.

I do not plan to discuss § 6751(b) in this blog. For those interested in more on § 6751(b), George’s article, titled I.R.C. Section 6751(b) – What You Need to Know, may be viewed and downloaded here.

I do want to address one of the issues that I raised in the Zoom session – that is how the Tax Court which, like other courts, has moved into or at least toward the textualist camp for statutory interpretation (see Jonathan H. Choi, An Empirical Study of Statutory Interpretation in Tax Law, 95 N.Y.U. Law Rev. 363 (2020), here), abandons textualism for § 6751(b) because the text is nonsense, and applies a purposivist reading to get to the result they think Congress must have intended (whether Congress actually intended the result or not).  (There’s that notion, purportedly anathema to textualists, that Congress’ intent, real or imagined, means anything.)

In my prior prior posting, Supreme Court Case on Statutory Interpretation (Federal Tax Procedure Blog 6/16/20), here, I discussed the theme of textualism in Bostock v. Clayton County, 590 U.S. ___, ___ S.Ct. ___ (6/16/20), here.

I just read a more robust discussion of Bostock’s themes of textualism.  Anita S. Krishnakumar, Three Lessons About Textualism from the Title VII Case, by Anita S. Krishnakumar (Notice & Comment 6/24/20), here.  In the article, Professor Krishnakumar (bio here) discusses three key topics / lessons from Bostock that are counter to the oft-repeated claims of textualism:

1. Textualism does not necessarily lead to a single correct reading of a statute.
2. Textualists care about practical consequences and other extratextual considerations.
3. Textualism often involves some speculation about legislative intent or purpose.

Professor Krishknakumar concludes:

In the end, the Court’s trio of textualist opinions in Bostock have much to teach us about what textualism means on the modern Court. And while textualists can certainly celebrate that all three opinions “flew a textualist flag” as Justice Alito put it, they also should take note that textual analysis did not produce a single clear-cut reading of the statute—and that all three opinions took into account extratextual considerations as well.

Which is to say that, well, textualism is malleable.  In that sense, could it be that textualism suffers the same argument against that textualists (at least some of them) assert for legislative history:  It is like "looking over a crowd and picking out your friends."  See Brett M. Kavanaugh, Book Review: Fixing Statutory Interpretation, 119 Harv. L. Rev. 2118, 2149 (2016), here (in fn. 157, citing "Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (quoting Patricia M. Wald, Some Observations on the Use of Legislative History in the 1981 Supreme Court Term, 68 IOWA L. REV. 195, 214 (1983), in turn borrowing Judge Leventhal's 'memorable phrase'").  Indeed, reading through Bostock, somehow, one might get the Humpty-Dumptian feeling that, with competing dictionaries and definitions, a word " means just what I choose it to mean—neither more nor less."  That is the textualist notion even when textualists reach different definitions.

The Treasury Green Book Proposals for Tax Legislation on Procedure (including the NTA Blog Regarding the § 6751 Proposal) (5/7/24)

The National Taxpayer Advocate, currently Erin M. Collins, offers a blog that often contains information useful for tax procedure enthusiasts. The recent blogs are here. The most recent is Treasury FY 2025 Green Book Proposes to Essentially Eliminate Written Supervisory Approval for Penalties (NTA Blog 5/2/24), here.
 
The NTA laments that Treasury wishes to do away with § 6751(b)’s written supervisory approval requirement.  Section 6751(b) is a poorly drafted statute causing considerable confusion and requiring considerable administrative and judicial resources. From my perspective, the commotion around § 6751(b) has served little purpose other than rewarding tax abusers by avoiding penalties because of an IRS procedural foot-fault that really did not affect those taxpayers negatively. Nevertheless, being the NTA, the NTA must advocate for the taxpayers and finds some value in the written supervisor approval requirement. For Treasury’s view on the subject, readers might want to read the section of the Green Book General Explanations starting on p. 175, here.
 
The Green Book catalogs Treasury’s proposals to Congress for changes in statutory law. The Treasury General Explanations of the Green Book are here. The Table of Contents for the General Explanations is here. The General Explanations make the proposals in a format discussing present law, reason for change, and the proposals for change.

I thought I would mention without detail some of the other Green Book proposals that might be of interest to tax procedure enthusiasts. These proposals are under headings titled Improve Tax Administration and Improve Tax Compliance (see Table of Contents pp. iii & iv which provide links for the items in the Table of Contents). All of the proposals are important, but the ones I thought worth mentioning are:
 
1. The modification of § 6751(b)’s written supervisor approval requirement discussed above, starting at p. 175 here. (JAT Note: One matter perhaps relevant here is that Treasury has Proposed Regulations that attempt to make some sense and order from the 6751(b)’s written supervisor approval requirement. See Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here.)
 
2. Revision of § 6103 to clarify that Tax Return Information Disclosed on the Public Record in Judicial Proceedings or in Publicly Filed Notice of Federal Tax Lien Is Not Tax Return Information Prohibited From Disclosure (General Explanations starting at p. 187, here.)
 
3. Allow Admission in Innocent Spouse Cases of Relevant Evidence at Trial (Rather than Limited to Administrative Record) (General Explanations starting at p. 190, here.)

D.C. Circuit Affirms Tax Court's Holdings on Written Supervisor Approval, Qualified Amended Return, and Statute of Limitations on UBS JDS (4/25/24)

In Lamprecht v. Commissioner, ___ F.4th ___ (D.C. Cir. 4/23/24), D.C. Cir. here and GS here, the Court affirmed the Tax Court in Lamprecht v. Commissioner, T.C. Memo. 2022-91, here. See Tax Court Sustains Accuracy-Related Penalty for Offshore Accounts, Rejecting Taxpayer's QAR, Statute of Limitations, and § 6751(b) Arguments (Federal Tax Procedure Blog 9/1/22), here. In so doing, the Court (Judge Walker) steps through the arguments and the resolution in a crisp straightforward opinion.

The background discussed in the opinion is that the IRS issued a John Doe Summons to UBS in 2008 (which essentially set off the IRS and DOJ foreign account initiative). UBS did not immediately reply with full and complete response. As a result, the civil statute of limitations for persons within the scope of the summons (U.S. person account holders) was suspended and did not pick up until the summons was resolved. Suspension of Statute of Limitations From the UBS John Doe Summons (Federal Tax Crimes Blog 1/26/14), here.

The opinion holds in the Court’s outline format:

I. The IRS Complied with 26 U.S.C. § 6751(b)(1)

A. It Doesn’t Matter When (or Whether) a Supervised
Tax Examiner Signs the Approval Required by
§ 6751(b)(1)’

B. The IRS May Use a Form 5345-D to Comply with
§ 6751(b)(1)

C. The Tax Court’s Refusal to Exclude the Forms 5345-D
from Evidence Was Not an Abuse of Discretion

II. The Lamprechts’ Corrected Returns Did Not Protect
Them from Penalties [QAR Issue]

A. The [UBS] Summons Was Legal

B. The Summons Relates to a Benefit Claimed on the
Lamprechts’ Original Tax Returns

III. The Penalty Assessments Were Not Too Late

A. The [UBS] Summons Was Not Resolved in August 2009

B. The [UBS] Summons Was Legal (Again)

 JAT Notes:

More on § 6751(b)'s Written Supervisor Approval Requirement (2/4/20)

Keith Fogg has a great post today on the continuing § 6751(b) saga.  Belair Woods – The Ghouls Continue (Procedurally Taxing Blog 2/4/20) here.  Readers know that saga – the § 6751(b), here, requirement that a penalty cannot be assessed “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.”  I have covered this saga in many posts, but the most relevant is the one I posted when Belair Woods was decided along with other contemporaneous decisions.  FTP2019 Update 05 - § 6751(b)'s Requirement for Supervisor Written Approval for Penalties (Federal Tax Procedure Blog 1/11/20; 11/17/23), here.  Another good read on the issue is Bryan Camp’s Lesson From The Tax Court: A Practical Interpretation Of The Penalty Approval Statute § 6751 (Tax Prof Blog 1/13/20), here.

Keith, Bryan and I lament the shoddy legislation.  But, the courts (and we) have to take the statute and it is,

If one were a textualist (such as Justice Kagan who famously asserted "we're all textualists now," but she did not mean it exactly as Justice Scalia did), then you would, as Judge Lauber did, focus on the word "determination" because that is the word the statute uses.  My quick and dirty search on LII for the the word determination in the IRC 1986 (26 USC) shows the word used 511 times.  I looked at some of those, but could not discern that the word is a sufficient term of art that might be applicable to § 6751(b).  So, it is unclear what determination means, particularly when drafted by a bunch of ideologues with no background for tax procedure or even appreciation of the IRS. (See my comment #2 below.)

We could apply a dictionary (a favorite of textualists who view anything but the text (particularly legislative history) with disdain).  I do note in passing that, use of a dictionary, seems to make the dictionary something like legislative history (and politically unaccountable legislative history), but let’s move on.

Merrian-Webster, here, on line offers several nuanced definitions of “determination” applicable in different contexts.  These are the ones that seem appropriate (emphasis supplied):

1alaw : a judicial decision settling and ending a controversy
b: the resolving of a question by argument or reasoning
3a: the act of deciding definitely and firmly
b: firm or fixed intention to achieve a desired end

So, let’s say that this dictionary captures the word determination in 1998 when § 6751(b) was enacted.  I think it is fair to say that the concept in use of the word “determination” is that a decision has been made.  It is not that the actor (a court, a government agent, or everyday person) is thinking about doing something; it is that the actor has made a decision to do something.

But, the statute also says that the determination must be the "initial determination."  I don't think a dictionary is going to help there, but the statutory text does indicate that there can be more than one determination and that the locus for the text  is the first one.

Judge Lauber addresses this concept (Slip Op. 14-16):

Tax Court Sustains Accuracy-Related Penalty for Offshore Accounts, Rejecting Taxpayer's QAR, Statute of Limitations, and § 6751(b) Arguments (9/1/22)

 This blog will alert readers of a new Tax Court opinion, Lamprecht v. Commissioner, T.C. Memo. 2022-91, involving the accuracy-related penalty for failure to report income from foreign accounts. (The opinion may be retrieved at docket entry 181 from the docket entries, here; or GS here.) I will set up my discussion from the syllabus for the key points decided (on the value of the syllabus see point 6 at the end of this blog):

            Ps are citizens of Switzerland who lawfully resided in the United States, where P–H worked as an investment consultant managing investments for himself and his clients. Ps filed U.S. income tax returns for 2006 and 2007 which understated their income in both years by omitting income that Ps treated as foreign sourced.

            In 2008 the IRS issued to Swiss Bank a John Doe summons which sought to discover the identities of U.S. taxpayers using foreign entities and Swiss bank accounts to avoid reporting income on their U.S. tax returns.

            In 2010 Ps filed amended returns for 2006 and 2007 on which they reported the previously omitted income. Upon examination of Ps’ 2006 and 2007 returns, R determined an accuracy-related penalty under I.R.C. § 6662 against Ps for each year on the basis of the tax attributable to the income omitted from the original returns, and issued to Ps a notice of deficiency. Ps timely filed a petition to challenge the penalty determinations in the notice of deficiency, arguing (1) that the IRS failed to comply with I.R.C. § 6751(b)(1) requiring written supervisory approval of penalties, (2) that their amended returns for 2006 and 2007 are “qualified amended returns” within the meaning of Treas. Reg. § 1.6664-2(c)(3), [*2] precluding penalty liability, and (3) that assessment of the accuracy-related penalties for 2006 and 2007 is barred by the statute of limitations under I.R.C. § 6501.

            Held: The amended returns are not “qualified amended returns” under Treas. Reg. § 1.6664-2(c)(3)(i)(D) because they were filed after the service of a John Doe summons.

            Held, further, assessment of the accuracy-related penalties is not barred by the statute of limitations under I.R.C. § 6501 because the limitations period was suspended by the service of the John Doe summons pursuant to I.R.C. § 7609(e)(2).

            Held, further, the IRS complied with the written supervisory approval requirement of I.R.C. § 6751(b)(1).

            Held, further, Ps are liable for the I.R.C. § 6662 accuracy-related penalties as determined by R for the 2006 and 2007 years.

Loper Bright’s Motivated Mistreatment of Statutory Ambiguity and Best Interpretations (8/28/25)

On August 26, 2025, I gave a talk to a Houston tax group, the Wednesday Tax Forum. The paper I circulated was a high-level summary of a longer article that I have submitted for publication in the ABA Tax Lawyer in Spring 2024; the submitted article addresses the tax implications of Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 377-378 (2024), see Preliminary Print here. I link that summary here so that readers may download if they wish. Note that the linked summary is redlined to show changes that I made shortly after giving the talk. I will not attempt to further summarize the arguments.

I address in this blog entry the overarching claim that I make. The domain of Chevron was a state of ambiguity where the court was not able to determine whether the agency interpretation or an opposing interpretation was the best interpretation. I call that state interpretive equipoise to relate it to the more familiar concept of factual equipoise where a factfinder is unable to determine whether a critical fact exists or not. In a state of factual equipoise, the factfinder resolves the issue by holding against the party bearing the burden of persuasion on that fact. In a state of interpretive equipoise, the court cannot find that either the agency interpretation or the opposing interpretation is the best interpretation. Chevron resolved the case in that state of interpretive equipoise, effectively placing on the opponent of the agency interpretation a burden to persuade the court that its opposing interpretation was “best.”

Why did Chevron tilt in favor of the agency interpretation in a state of interpretive equipoise? First consider the alternatives. Would it be acceptable for courts to decide in equipoise by flipping a coin, consulting a ouija board or soothsayer, or some other unprincipled way of resolving the ambiguity? Of course, that would not be acceptable. Still, courts must resolve interpretive issues in equipoise in some way. Chevron offered that way. I will address below why that is a principled resolution based on the APA, but I ask first what Loper Bright offered in lieu of Chevron to resolve cases of interpretive equipoise?

Loper Bright offers nothing for interpretive equipoise other than the ill-considered notion that courts can always interpret out all ambiguity to derive the single best interpretation. That would be nice if it made logical sense or experiential sense. Courts have the same interpretive skills after Loper Bright that they had under Chevron where they were admonished by Chevron’s famous footnote 9 to use those skills to avoid ambiguity where possible. Nevertheless, in some cases, ambiguity remained. I submit that cases of ambiguity—interpretive equipoise—will remain under Loper Bright. Loper Bright offers no guidance on what a court does where, using its best interpretive skills in de novo review, ambiguity exists.

Traditional Skidmore will not solve the problem of interpretive equipoise. Traditional Skidmore simply requires courts to respect agency interpretations in determining the best interpretations. The phenomenon I address here is where, after using all of those tools of interpretation (including Skidmore), the court cannot determine, as between the agency interpretation and the opposing interpretation, which is the best interpretation. Both interpretations must be in play—that is reasonable within the scope of the statutory ambiguity—but neither is the best interpretation. In that state of play, Loper Bright offers no way to resolve the case.

Of course, I say traditional Skidmore. Skidmore has traditionally been called Skidmore deference even though it was not deference but simply a consideration in reaching the best interpretation. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here. It is possible that, post-Loper Bright, courts may reimagine Skidmore to fill some of the conceptual space on the spectrum between respect and deference, sort of more than respect but less than deference, if that is a possible thing, say deference “light.” I can’t offer anything meaningful on that possibility.

Litigation is About Persuasion Which Requires Credibility (4/12/24; 4/23/24)

I write on the tax saga of Burt Kroner. The underlying saga goes back many years and has played out in three tax cases.

• Kroner v. Commissioner (Kroner I), T.C. Memo.  2020-73, here, sustaining the substantial penalty but denying the substantial penalty because of failure to obtain written supervisor approval required by § 6751(b)(1).
• Kroner v. Commissioner (Kroner II), 48 F.4th 1272 (11th Cir. 2022), here, reversing Kroner I on the § 6751(b) penalty issue (the Tax Court’s sustaining of the deficiency was not appealed); I previously wrote on Kroner II. Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (Federal Tax Procedure Blog 9/20/22), here. 
• Kroner v. Commissioner (Kroner III), T.C. Memo. 2024-41, TA here and GS here, applying the penalty on the merits on remand and rejecting Kroner’s reasonable cause defense. 

The holding in these cases that will likely be cited most in the future is the holding in Kroner II regarding the proper timing of the written supervisor approval requirement as courts further calibrate precisely what the requirement is (perhaps based in part on the Treasury proposed regulations when finalized).

I write today on the merits of the tax deficiency which the recitation of facts in the recent opinion in Kroner III suggested I should take a further look.

The deficiency issue was whether a series of transfers into Kroner’s accounts were gifts from a business associate (also an alleged friend), a David Haring, or taxable income. Kroner claimed the transfers were gifts which IRC § 102 excludes from taxable income; the IRS claimed that they were not gifts (or at least that Kroner had not shown on audit or at trial that they were gifts). The concept is that the Code taxes all income (generally all accretions to wealth presently subject to a realization requirement) unless the income is excluded by some Code section, in this case § 102. The taxpayer bears the burden of persuading the trier of fact that the transfers were gifts.

As an aside, the gift v. income issue can arise in many settings. See e.g., my trial and appellate war stories in Justice Thomas and Tax -- The Plot Sickens (Federal Tax Procedure Blog 10/29/23; 10/31/23), here.

Judge Marvel explains the Code’s gift meaning (Kroner I, slip op. 8):

Discussion with Reporter about Possible Demise of Deference, Now Often Called Chevron Deference (3/28/24)

Yesterday, I spoke with a reporter about the effect of reversal or elimination of Chevron deference would have on tax administration. As readers of this blog will know, that issue is now before the Supreme Court in two cases. Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.; and Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here). 

I thought some readers might like to engage with some of the points of the discussion. I will bullet point the key points starting with some predicate points to set up the issue of the effect of reversal or elimination of Chevron deference.

• The key predicate step is to define deference. Deference is a court applying an agency interpretation that the court does not believe is the best interpretation of the ambiguous statutory text. Based on my anecdotal research in significant datasets of courts of appeals opinions noising about Chevron, courts often are not concluding that there is a better nonagency interpretation. Best interpretations of otherwise ambiguous statutory text easily pass Chevron’s test that the interpretations be reasonable.
• I say that this is a predicate step, but it points to the final conclusion. If the Supreme Court says that deference is eliminated, that will only affect those cases where the court affirmatively determines that a nonagency interpretation is the best interpretation. Not affected are those cases where the court determines that, within the range of reasonable interpretations of the ambiguous statutory text, the agency interpretation is best reasonable interpretation or the court is in equipoise as to the best reasonable interpretation (unable to determine that any interpretation is best and agency interpretation is as good as nonagency interpretation).
• I did not discuss with the reporter how often a court might be in equipoise as to the best interpretation; some like the late Justice Scalia claimed that he was rarely if ever in equipoise in statutory interpretation; for present, I assume that legal realists know or intuit that a state of equipoise in statutory interpretation is at least a possibility.
• Chevron did not create deference. Deference existed long before Chevron, in Supreme Court cases describing deference as we now describe Chevron deference—(i) ambiguous statutory text; and (ii) reasonable agency interpretation within the scope of the ambiguity. See John A. Townsend, The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here (showing these articulated features particularly in tax cases before the APA).
• Reversal or elimination of Chevron deference will affect only interpretations in Treasury regulations (both final and temporary) because (i) Treasury (IRS) and DOJ Tax do not claim Chevron deference (or any other deference) and (ii) courts do not “defer” to interpretations in IRS subregulatory guidance (Revenue Rulings, etc.). In this regard, Skidmore respect is often mislabeled as deference but is not deference. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here.
• If I am right in my conclusion based on anecdotal research and my intuition that courts now do not commonly really defer to agency interpretation (see definition above), then I suspect that eliminating deference (whether called Chevron or not) will not affect many outcomes, certainly not as many as the commotion about Chevron would suggest.
• Eliminating Chevron deference will exponentially increase tax litigation. It has been observed that the mix of administrative law and tax administration is like a lawyer with a hammer who imagines that there are a lot of nails out there that he or she can profitably hammer through litigation at high billing rates. See Bryan Camp, The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here (“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.).
• The question that should be asked is whether the burst of litigation attacking IRS interpretations in regulations will (or should) affect many final outcomes. I think not. But lawyers with this anti-Chevron hammer will certainly try and in the process charge their high fees. The IRS will underwrite those attempts by giving the taxpayers deductions for the high fees they pay their lawyers to go on what is often a quixotic adventure. (Part of the cost-benefit analysis for taxpayers is how many dollars are involved and the benefits of delay (including the audit lobby and the time benefit/cost of delay).)
• I pointed particularly to the commotion about the written supervisor approval requirement in § 6751(b) involving intersection of a poorly written statute (drafted in a highly partisan atmosphere surrounding RRA ’98 apparently without much thought about how it would actually work) and courts trying to make sense from nonsense. Sooner or later (much, much later), the courts will reach some consensus as to the various ambiguous (or nonsensical) terms in the statute or, more likely, either the courts will honor the IRS’s interpretations in final regulations (now in proposed form) or the Supreme Court will have to come in more than once to clean up the mess. See Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here.
• Section 6751(b) is just one instance where deferring to agency regulations will avoid a lot of unnecessary commotion. Another instance I like to use (although not mentioned to the reporter) are interpretations such as those “deferred to” in United States v. Correll, 389 U.S. 299 (1967) where the agency interpreted the statute’s “away from home” requirement to include sleep or rest, hardly compelled by the statutory text but reasonable for administering the tax system. What happens to the thousands, if not millions, of interpretations buried in Treasury regulations that may now seem to be in play to those with a high-priced hammer?
• Finally, I vented to the reporter my concern that deference is just a battle in the larger war to discredit what is perceived (or claimed for political purposes) to be an evil administrative state. That is a political issue that plays out in many contexts; deference is just one context where politics is disguised with legal and even constitutional overtones (lipstick on the pig). My point is that given the community we have in the United States and where we want to be in the world, a robust administrative state is required. That means that we should honor those who work in that administrative state (military, IRS agents, etc.) and strive to make them better rather promoting a narrative that administrative agencies are enemies, a narrative that can seep through our fabric, even for such things as Chevron deference. 

Added 3/30/24 @ 2:30 pm:

NTA 2023 Annual Report and 2024 Purple Book (1/15/24)

The National Taxpayer Advocate has issued her 2023 annual report (here allowing download of the Full Report, the Executive Summary, and the NTA Purple Book Compilation of Legislative Recommendations, and Research Reports). The Full Report and its components have much that tax procedure enthusiasts will want to consider. I bullet point here some of the items that caught my eye on a quick overview. I may come back with more detail later.

• MOST LITIGATED ISSUES – NATIONAL TAXPAYER ADVOCATE RECOMMENDATIONS TO MITIGATE DISPUTE, pp. 169-171, beginning here.
• The 2024 Purple Book: Compilation of Legislative Recommendations, here.

Some of these are repeats of carryover issues from earlier years. For example, her recommendations on § 6751(b), which I discuss in Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here.

My only comments are: