Can an IRS Penalty Be Challenged for Lack of Supervisory Approval?
An IRS penalty can involve more than one type of defense.
Sometimes the issue is substantive: whether the tax adjustment is correct or whether the taxpayer had reasonable cause for the conduct that produced the penalty.
In other cases, there is a separate procedural question: did the IRS satisfy the supervisory approval requirements of Internal Revenue Code Section 6751 before imposing the penalty?
IRC Section 6751 generally requires written supervisory approval for certain IRS penalties. However, the requirement does not apply to every penalty, and the timing rules have changed significantly as a result of final Treasury regulations that apply to penalties assessed on or after December 23, 2024.
For a taxpayer reviewing a current IRS penalty, the correct analysis begins with the type of penalty, how the penalty arose, when it was assessed, and whether it was subject to Tax Court review before assessment.
What Does IRC Section 6751 Require?
IRC Section 6751 contains two separate procedural requirements that can matter when reviewing an IRS penalty.
Section 6751(a) generally requires an IRS penalty notice to identify:
- The name of the penalty
- The Internal Revenue Code section under which it is imposed
- A computation of the penalty
Section 6751(b)(1) provides the supervisory approval rule.
Unless an exception applies, the initial determination of a penalty assessment must be personally approved in writing by the immediate supervisor of the individual making the determination or by another qualifying higher level official.
This does not mean every IRS penalty requires a supervisor's signature before the taxpayer first hears about it.
Current Treasury regulations establish different approval deadlines depending on the procedural path of the penalty.
The Current Rules Changed for Penalties Assessed After December 23, 2024
Treasury issued final regulations under IRC Section 6751 in December 2024.
Treas. Reg. Section 301.6751(b)-1 applies to penalties assessed on or after December 23, 2024.
For current penalty cases, these regulations establish three separate timing rules.
Penalties Not Subject to Tax Court Review Before Assessment
If a penalty is not subject to preassessment review in the United States Tax Court, supervisory approval generally must occur before the penalty is assessed.
The regulations specifically contemplate situations in which the IRS proposes a penalty, the taxpayer requests Appeals consideration, and supervisory approval occurs later but still before assessment.
For these penalties, an earlier communication proposing the penalty does not necessarily make the supervisory approval untimely.
Penalties Included in a Notice That Creates Tax Court Jurisdiction
A different rule applies when the penalty is included in a preassessment notice that gives the taxpayer the right to petition the Tax Court.
The most familiar example is a statutory Notice of Deficiency under IRC Section 6212.
Under Treas. Reg. Section 301.6751(b)-1(c), supervisory approval must generally occur on or before the date the qualifying preassessment notice is mailed.
For these penalties, the relevant deadline is not necessarily the date the IRS first discusses or proposes the penalty during an examination.
Penalties First Raised After a Tax Court Petition
A third rule applies when the Commissioner first raises a penalty after a Tax Court case has already begun.
Under Treas. Reg. Section 301.6751(b)-1(d), supervisory approval generally must occur no later than the date the Commissioner asks the Tax Court to determine the penalty.
What Counts as Written Supervisory Approval?
The final regulations also define what qualifies as written approval.
A handwritten signature is not necessarily required.
Written approval can include an electronic writing if the circumstances show that the supervisor intended the writing as approval. No particular words are required.
The administrative record may therefore contain an electronic approval, memorandum, email, penalty lead sheet, examination document, or other writing showing the required supervisory assent.
Not Every IRS Penalty Requires Supervisory Approval
IRC Section 6751 contains important exceptions.
The statutory supervisory approval requirement generally does not apply to additions to tax under:
- IRC Section 6651, including many failure to file and failure to pay additions to tax
- IRC Section 6654, involving estimated tax for individuals
- IRC Section 6655, involving estimated tax for corporations
- Certain penalties under IRC Section 6662(b)(9) and Section 6662(b)(10)
- Other penalties automatically calculated through electronic means
The Treasury regulations also treat penalties imposed by a court under IRC Section 6673 as outside the supervisory approval requirement.
This means that receiving an IRS penalty notice does not automatically create a Section 6751 issue. The first step is identifying the actual penalty Code section.
Automatically Calculated Penalties Require Special Attention
The electronic calculation exception can be particularly important in automated IRS correspondence.
Treas. Reg. Section 301.6751(b)-1 provides an example involving the IRS Automated Underreporter program and a CP2000 notice.
If the IRS computer system automatically proposes a substantial understatement penalty and the taxpayer does not challenge the penalty or the underlying tax adjustment in a manner that requires an IRS employee to independently consider it before assessment, the penalty may remain within the automatic calculation exception.
The result can change when a taxpayer responds.
If the taxpayer challenges the penalty or the amount of tax to which it relates and an IRS employee considers that response before assessment or before issuance of a Notice of Deficiency containing the penalty, the penalty is no longer treated as automatically calculated through electronic means under the regulation.
At that point, written supervisory approval may be required.
The Ninth Circuit Rule Is Particularly Important for California Taxpayers
Before the final regulations were issued, federal courts disagreed about when supervisory approval had to occur.
For California taxpayers, the leading appellate authority is Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, decided by the United States Court of Appeals for the Ninth Circuit in 2022.
The Ninth Circuit rejected the position that supervisory approval necessarily had to occur before the IRS first formally communicated the penalty to the taxpayer.
Instead, the court held that IRC Section 6751(b)(1) requires written supervisory approval before assessment or, if earlier, before the relevant supervisor loses discretion to approve or reject the penalty.
In Laidlaw's, the IRS supervisor approved the penalty after a 30 day letter had been issued but before assessment and while the supervisor retained discretion over the penalty. The Ninth Circuit held that the supervisory approval requirement had been satisfied.
The current Treasury regulations are generally consistent with the central timing principle applied by the Ninth Circuit.
Swift v. Commissioner
The Fifth Circuit addressed the issue again in Swift v. Commissioner in July 2025.
The taxpayers had received an examination letter and report proposing accuracy related penalties before the group manager signed the penalty approval form.
The manager approved the penalties before the IRS issued the Notice of Deficiency.
The Fifth Circuit agreed with the Ninth Circuit's reasoning in Laidlaw's and held the supervisory approval timely.
The Supreme Court denied the taxpayers' petition for certiorari on April 20, 2026.
That denial left the Fifth Circuit judgment in place. It did not create a Supreme Court decision adopting the Fifth Circuit's interpretation on the merits.
Battat v. Commissioner
The Eleventh Circuit reached a similar result in Battat v. Commissioner in September 2025.
The taxpayers argued that an accuracy related penalty should fail because the initial examination correspondence had not been approved by the examiner's supervisor.
The supervisor subsequently approved the penalty before the Notice of Deficiency was issued.
The Eleventh Circuit applied its earlier decision in Kroner v. Commissioner and concluded that the IRS satisfied Section 6751(b)(1).
The Supreme Court denied certiorari in Battat on April 27, 2026.
Again, the denial left the lower court decision intact but did not constitute a Supreme Court ruling on the merits of the supervisory approval issue.
Why the New Treasury Regulations Matter More for Current Penalties
Laidlaw's, Swift, Battat, and the cases preceding them remain important for understanding the development of Section 6751.
However, a taxpayer evaluating a penalty assessed today should not stop with those cases.
Treas. Reg. Section 301.6751(b)-1 applies to penalties assessed on or after December 23, 2024 and now provides a specific regulatory framework for determining when approval must occur.
For a current penalty, the analysis should therefore consider:
- When the penalty was assessed
- Whether it was subject to preassessment Tax Court review
- Whether it appeared in a Notice of Deficiency or another qualifying preassessment notice
- Whether it was first raised during Tax Court litigation
- Whether the penalty falls within a statutory or regulatory exception
- Whether the penalty was initially generated automatically through electronic means
- Whether subsequent taxpayer correspondence caused an IRS employee to independently consider the penalty
- When the required supervisory approval was documented
A statement that supervisory approval always must occur before the IRS first proposes a penalty is no longer a reliable description of current law.
How Can Supervisory Approval Be Reviewed?
When Section 6751 potentially applies, the relevant IRS administrative records should be reviewed.
IRS procedures require written supervisory approval to be retained in the case file when the statutory requirement applies.
Depending on the case, relevant records may include:
- Civil penalty approval forms
- Penalty lead sheets
- Examination workpapers
- Electronic approvals
- Internal memoranda
- Examination reports
- Appeals records
- The date of the Notice of Deficiency
- IRS account records showing the assessment date
The document has to be evaluated in relation to the penalty involved, the person who proposed it, the approving official, the applicable regulation, and the relevant dates.
Supervisory Approval Is Different From Penalty Abatement
A Section 6751 challenge addresses whether the IRS complied with a procedural requirement for imposing a particular penalty.
Reasonable cause addresses a different question.
A taxpayer may have a reasonable cause defense even when the IRS fully complied with Section 6751. Likewise, identifying a possible Section 6751 issue does not establish that reasonable cause exists.
For a detailed discussion of substantive and administrative penalty relief, see IRS penalty abatement, reasonable cause, and current administrative penalty relief.
What Should Be Reviewed When an IRS Proposes a Penalty?
When reviewing an IRS penalty notice or examination report, the analysis should separate several issues:
- Is the underlying tax adjustment correct?
- What specific penalty has the IRS proposed?
- Does IRC Section 6751(b) apply to that penalty?
- If supervisory approval is required, when was it obtained?
- What procedural deadline controls under Treas. Reg. Section 301.6751(b)-1?
- Does the taxpayer have a reasonable cause or other substantive defense?
- Is administrative penalty relief separately available?
- Is there a response, Appeals, or Tax Court deadline that must be protected?
Section 6751 should be reviewed when relevant, but it should not replace analysis of the underlying tax issue or the taxpayer's substantive penalty defenses.
For a broader discussion of IRS notices and response procedures, see my IRS notice review and response services.
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