INSIGHTS AND RESOURCES
IRS updates procedures for supervisor approval of penalties
TAX ALERT |
Authored by RSM US LLP
The IRS Director of Examination Field and Campus Policy recently issued a memorandum detailing specific guidance to implement the interim guidance issued on May 20, 2020, pertaining to supervisory approval of penalties in accordance with section 6751(b)(1).
Section 6751(b)(1) provides that 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. This section applies to all civil penalties in the Internal Revenue Code, except for penalties under section 6651, failure to file tax return or to pay tax section 6654, failure by individual to pay estimated income tax section 6655, failure by corporation to pay estimated income tax and penalties that are automatically calculated through electronic means.
The U.S. Tax Court provided judicial definition to aspects of section 6751(b)(1) in a series of cases issued over the last year. In Clay v. Commissioner, 152 T.C. 223 (2019), the Court said that the initial determination means the first formal communication to the taxpayer of the IRS determination to assert penalties. In Belair Woods, LLC v. Commissioner, 154 T.C. No. 1 (2020), the Court outlined characteristics that demonstrate a ‘determination’ such as: a definite decision to assert penalties, a formal written document, unequivocal language and offering appeal rights, but stopped short of declaring any particular document as the initial determination in all cases. For a more detailed discussion of these cases and others, please see our Jan. 10, 2020 and Jan. 30, 2020 alerts.
In an effort to provide a bright-line rule to IRS employees by means of policy, the IRS issued interim guidance effective May 20, 2020 that for all penalties subject to section 6751(b)(1), written supervisory approval required under section 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.
The specific guidance makes clear that it is a change in policy not law. Therefore, it will only enforce this requirement for cases effective May 20, 2020, or later. For such cases, the IRS will abate any penalties that were not approved in writing by a supervisor before the proposing agent issues a written communication to taxpayer that provides opportunity to sign an agreement or consent to assessment or proposal of the penalty. In cases that do not meet this criteria such as sections 6721 or 6722, the approval must occur before the case leaves the group. The guidance also provides instructions on how an acting supervisor may sign the penalty approval. The guidance encourages communication with the taxpayer and clarifies what documents and communications would be considered part of the negotiation stage prior to the written approval requirement. Specifically, the examiners are encouraged to consider reasonable cause and abatement of penalties.
This new guidance implementing the May 20, 2020 policy announcement should provide further clarity to both the taxpayer and the examiner with regard to when supervisor approval is required.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Evan Stone, Alina Solodchikova and originally appeared on 2020-09-30.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.