Laidlaw's Harley Davison Sales, Inc. v. Commissioner of Internal Revenue, No. 20-73420 (9th Cir. 2022)
Annotate this CaseThe Ninth Circuit reversed the tax court's decision granting summary judgment to taxpayer, holding that 26 U.S.C. 6751(b) requires written supervisory approval before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment. In this case, because the supervisor gave written approval of the initial penalty determination before the penalty was assessed and while she had discretion to withhold approval, the IRS satisfied 6751(b)(1).
Court Description: Tax. The panel reversed a decision of the Tax Court granting summary judgment to a taxpayer, in a case involving when a supervisor must provide the written approval required by 26 U.S.C. § 6751(b) before the Internal Revenue Service assesses certain penalties. Taxpayer was required to disclose its participation in a purported welfare benefit plan (“Plan”) as a “listed transaction.” Taxpayer initially did not disclose its participation in the Plan, but later acknowledged that the Plan was a listed transaction. A Revenue Agent (RA) made the initial determination to assert a penalty for failure to disclose. The RA so notified taxpayer by issuing a “30-day letter.” Although the letter stated that if the taxpayer took no action by the 30-day response date, “we will assess the penalty and begin collection procedures,” no supervisor had yet provided the written approval for the penalty as required by § 6751(b). The RA’s immediate supervisor provided the written approval after the 30-day period had expired, and after taxpayer had submitted a letter protesting the proposed penalty. Taxpayer’s administrative appeal was unsuccessful, the IRS assessed the penalty, then issued a notice of intent to levy. After a collection-due-process (CDP) hearing, taxpayer filed a petition in the Tax Court challenging the Appeals Office’s notice of determination from the CDP LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 3 hearing. Following a remand for the Appeals Office to consider certain issues not raised in this appeal, and a supplemental notice of determination, the Tax Court agreed that the IRS had not complied with the written supervisory requirement in § 6751(b), and granted summary judgment in favor of taxpayer. The panel held that § 6751(b) requires written supervisory approval before assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment. Here, the supervisor gave written approval of the initial penalty determination before the penalty was assessed and while she still had discretion to withhold approval. The panel concluded that the IRS had satisfied § 6751(b). Accordingly, the panel reversed the Tax Court’s grant of taxpayer’s motion for summary judgment, and remanded for further proceedings. Judge Berzon dissented, and would have affirmed the Tax Court’s judgment for different reasons. Judge Berzon would read the statute to require that a supervisor personally approve the “initial determination” of a penalty by a subordinate, or else no penalty can be assessed based on that determination, whether the proposed penalty is objected to or not. Because the 30-day letter in this case made clear that the initial determination would have operative effect unless objected to, supervisory approval was required at a time when it would be meaningful—before the letter was sent. Judge Berzon explained that this reading of the statute is consistent with Congress’s purpose of preventing threatened penalties never approved by supervisory personnel from being used as a “bargaining chip” by lower-level staff. 4 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR
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