Final Regulations Issued On Penalty Supervisory Approval

Highlights

• The U.S. Department of the Treasury and IRS recently issued final regulations addressing supervisory approval of penalties.
• The final regulations do not require approval until very late in an administrative proceeding and define "immediate supervisor" to maximize the number of people whose approval will satisfy the requirement.
• The final regulations also largely dismiss significant comments from practitioners expressing concern that the regulations are inconsistent with Congress' intent and may be subject to a Loper Bright challenge as invalid.

More than 25 years ago, Congress enacted Internal Revenue Code Section 6751(b) to protect taxpayers from the IRS using penalties as a bargaining chip in an effort to coerce taxpayers to settle. Generally, Section 6751(b) requires approval of the initial determination of the penalty by the immediate supervisor of the person making the initial determination. If the IRS does not obtain the required