When is Written Managerial Approval Required?
In 1998, Congress sought to provide additional protections to taxpayers through passage of the Internal Revenue Service Restructuring and Reform Act (the "Act"). Buried within the Act was new section 6751(b), which requires the IRS to comply with certain procedural requirements prior to making a penalty assessment against a taxpayer.1 Currently, section 6751(b) reads:
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.
Since 2016, federal courts have struggled with the meaning of the key term "initial determination of such assessment." As one Tax Court judge aptly stated, one can determine a deficiency and whether to make an assessment, but one cannot "determine" an assessment. Due to this ambiguity, federal courts have parted ways on precisely when the IRS must obtain written managerial approval of particular penalties. The question is more than academic: if the IRS fails to obtain proper managerial approval of a penalty, the penalty is waived or abated on procedural grounds under section 6751(b).
On April 10, 2023, the IRS issued proposed regulations under section 6751(b). See REG-121709-19. The proposed regulations seek to clarify the timing of when written managerial approval must be obtained by the IRS for a penalty to be effective under section 6751(b).
Background
Congress did not define the term "initial determination" within section 6751(b). Rather, in the legislative history, Congress simply...
