Timing of managerial penalty approval varies by circuit

Plain-English summary

Chief Counsel advised that a proposed regulation on managerial penalty approval was not yet controlling and, as drafted, would not apply retroactively. Current timing standards differ by appellate circuit. The Ninth and Eleventh Circuits allow approval before assessment, subject in the Ninth Circuit to an earlier loss of supervisory discretion. The Tenth Circuit requires approval before the statutory notice of deficiency. Elsewhere, approval is due no later than the written notice that the examination team completed its work and unequivocally decided to assert penalties.

Ruling snapshot

• Question: When must managerial approval be obtained for a penalty case subject to deficiency procedures?
• Outcome: Advice given, apply the current circuit-specific timing rules
• Key authorities: Laidlaw’s Harley Davidson v. Commissioner; Minemyer v. Commissioner; Kroner v. Commissioner; Belair Woods, LLC v. Commissioner

Full text (IRS public release)

 ID:         CCA_2023071413184746                   [Third Party Communication:

 UILC:       6751.02-00                             Date of Communication: Month DD, YYYY]

Number: 202346021
Release Date: 11/17/2023
From: ----------------------
Sent: Friday, July 14, 2023 1:18:47 PM
To: --------------------
Cc: ---------------------------------------------
Bcc:
Subject: RE: IRC 6676 Penalty


Hi -----------,

Your analysis for the differences in deficiency/non-deficiency procedure is correct. As
for timing of managerial approval for cases with deficiency procedures, the proposed
regulation is not controlling yet and as currently written will not be controlling
retroactively. Therefore, the current standards on timing of managerial approval are as
follows:

9th Circuit: Approval required before assessment, or, if earlier, before the relevant
supervisor loses discretion of whether or not to approve the assertion of the penalty.
Laidlaw’s Harley Davidson v. Commissioner, 29 F.4th 1066 (9th Cir. 2022).

10th Circuit: Approval required before SND is issued. Minemyer v. Commissioner, 2023
WL 314832 (10th Cir. 2023).

11th Circuit: Approval required before assessment of penalty. Kroner v. Commissioner,
48 F.4th 1272 (11th Cir. 2022).

Everywhere else: Approval required no later than when Exam “formally notifies the
taxpayer, in writing, that it has completed its work and made an unequivocal decision to
assert penalties.” Belair Woods, LLC v. Commissioner, 154 T.C. 1 (2020).

Fell free to reach out if you have any questions or concerns.

-------


---------------------
----------------------------
-------------------
-------------------------------------
------------------------------
-------------------------
                                2

-----------------------
-----------------------------
--------------------------