Each year the Internal Revenue Service assesses billions of dollars in civil penalties against taxpayers. In 1998, Congress adopted §6751(b) of the Internal Revenue Code, which imposes a procedural restriction on the IRS’s ability to assess penalties. That section provides that “[n]o penalty … 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.”

For years the IRS’s compliance with this statutory requirement went largely unquestioned by taxpayers. In Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), however, the U.S. Court of Appeals for the Second Circuit reversed the Tax Court and held that the IRS bears the burden of establishing that supervisory approval was given “no later than the date the IRS issues the notice of deficiency (or files an answer or amended answer) asserting such penalty.”

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