Complying with this requirement is part of the IRS’ burden of production undersection 7491(c). See Graev v. Commissioner, 149 T.C. __ (Dec. 20, 2017), supplementing 147 T.C. __ (Nov. 30, 2016). The petitioners argued that “initial determination” means the issuance of the notice of deficiency.
The Tax Court agreed with the Second Circuit’s holding in Chai soon after it was released. See Graev v. Commissioner, 149 T.C. __ (Dec. 20, 2017). These decisions prompted the Commissioner to ask the court to reopen the record in Rajagopalan (and in a number of other cases) so that he could introduce penalty-approval forms to show he complied with section 6751(b)(1) for the 20% accuracy-related penalties.
Feb.15.2018In light of recent decisions, taxpayers should demand proof from the IRS that it has the requisite authority for asserting a penalty. In Graev v. Commissioner (Graev III), 149 T.C. No. 23 (December 20, 2017), the Tax Court held that (1) penalties cannot be imposed without the requisite supervisory approval and (2) the court had authority to determine whether the IRS had obtained such approval. The Tax Court’s conclusion was unsurprising—the case was appealable to the Second Circuit which recently held the same.
3Chai, 851 F.3d at 220-221.4Graev v. Commissioner, 149 T.C. 485 (2017) (Graev III)."Penalty Abatement Opportunities after Chai v. Commissioner,"by Jed M. Silversmith was published in the Pennsylvania CPA Journal on September 3, 2019. Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.
The IRS’ burden of production includes showing compliance with the supervisory approval requirement of Section 6751(b). See Graev v. Comm’r, 149 T.C. 485, 492-93 (2017); Chai v. Comm’r, 851 F.3d 190, 221 (2d Cir. 2017). The IRS must also offer sufficient evidence to indicate that it is appropriate to impose the penalty.
The Commissioner must show compliance with section 6751(b), which requires that certain penalties be personally approved in writing by the immediate supervisor of the individual making the determination. See Graev v. Comm’r, 149 T.C. 485, 493 (2017).Section 6662(a) imposes a 20% accuracy-related penalty on any portion of an underpayment of tax required to be shown on a return if, as provided by section 6662(b)(1), the underpayment is attributable to “negligence or disregard of rules or regulations.”
Sec. 7491(c);Higbee v. Commissioner, 116 T.C. at 446-447. To meet this burden, in certain cases, the Commissioner also must show that he complied with the procedural requirements ofsection 6751(b)(1) of the Code.Seesec. 7491(c);Graev v. Commissioner, 149 T.C. 485, 492-493 (2017).Once the Commissioner has satisfied his burden of production, the taxpayer bears the burden of proving that the Commissioner’s penalty determination is incorrect or that the taxpayer has an affirmative defense such as reasonable cause.SeeU.S. Tax Court Rule 142(a);see also Higbee v. Commissioner, 116 T.C. at 446-447. The taxpayer then has two non-exclusive avenues: (1) claim that the Commissioner did not comply with applicable rules and regulations, and (2) argue an affirmative defense such as good faith and reasonable cause for the underpayment of tax.
After the IRS has satisfied this initial burden, the taxpayer must come forward with any contrary evidence. See alsoR.C. § 7491(c); Graev v. Commissioner, 149 T.C. 485, 492–93 (2017), supplementing and overruling in part 147 T.C. 460 (2016). Once the IRS meets his burden of production, the taxpayer bears the burden of proving that the IRS’s determination is incorrect.
The IRS must show that it complied with procedural requirements of section 6751(b)(1). See IR.C. § 7491(c); Graev v. Comm’r, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016).Section 6751(b)(1) prohibits a penalty from being assessed unless the initial determination of the assessment was personally approved in writing by the immediate supervisor of the individual making such determination.No penalty is imposed under section 6662 with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to it.
The IRS must show that it complied with procedural requirements of section 6751(b)(1). SeeR.C. § 7491(c); Graev v. Comm’r, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016).Section 6751(b)(1) prohibits a penalty from being assessed unless the initial determination of the assessment was personally approved in writing by the immediate supervisor of the individual making such determination.No penalty is imposed under section 6662 with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to it.