Taxpayer response can trigger supervisory penalty approval

Plain-English summary

Chief Counsel advised that supervisory approval is required when a taxpayer challenges the amount of tax underlying a proposed penalty. Automated Underreporter case notes should record the substance of taxpayer correspondence and conversations. If the notes lack detail but show that the taxpayer responded and an agent was assigned, the penalty should be treated as no longer calculated solely through electronic means. That treatment applies unless other evidence shows the contrary.

Ruling snapshot

• Question: When should an automatically calculated penalty be treated as requiring supervisory approval after a taxpayer responds?
• Outcome: Advice given, a substantive challenge and agent assignment trigger the approval requirement
• Key authorities: IRC § 6751

Full text (IRS public release)

 ID:        CCA_2023072614334546              [Third Party Communication:

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

Number: 202346023
Release Date: 11/17/2023
From: ----------------------
Sent: Wednesday, July 26, 2023 2:33:45 PM
To: ----------------------
Cc:
Bcc:
Subject: RE: Supervisory Approval Question


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

Correct. If a taxpayer challenges the amount of tax to which the penalty is attributable
(i.e., the adjustments leading to the imposition of the penalty) we would need
supervisory approval.

Ideally AUR should be including the substance of the correspondence and
conversations in the case notes. When there is no detail in the notes but the taxpayer
has responded and an agent is assigned you should treat the penalty as no longer
calculated through electronic means unless there is some other evidence to the
contrary.

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