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Without that deduction, Sand had a large Under Sec. 6751(b)(1), the IRS
understatement of tax and, accordingly, generally cannot assess a penalty un- The IRS generally
on Sept. 27, 2018, Cooper decided to as- less the initial determination of the cannot assess a
sert accuracy-related penalties under Sec. assessment is “personally approved (in
6662A and Sec. 6662(a) for 2015. She writing) by the immediate supervisor of penalty unless the
initial determination
set out her penalty recommendations in the individual making such determina-
a “Penalties Lead Sheet.” Burris, as her tion.” In a TEFRA case, supervisory of the assessment is
supervisor on the Sand examination, digi- approval for penalties generally must be
‘personally approved
tally signed this document on Nov. 20, obtained before the FPAA is issued to
2018, as the “Case/Issue Manager.” the partnership. If supervisory approval (in writing) by the
Cooper at the same time also prepared was obtained by the FPAA issue date,
a Supplemental Civil Penalty Approval the partnership must establish “that immediate supervisor
Form, which stated that she “made the there was a formal communication of the of the individual
initial determination to assert … penal- penalty before the proffered approval” was
ties.” Cooper signed that form on Nov. secured to benefit from the supervisory making such
20, 2018, and Burris digitally signed it approval requirement. determination.’
the same day as the “Case & Issue Su- The IRS asserted that a penalty
pervisor.” Cooper also sent a copy of the approval form was signed by both of
penalty approval form to Wilson, who Cooper’s supervisors, Burris and Wilson,
signed on Nov. 23 as the “Immediate more than two months before the defi-
Supervisor.” nite decision to impose the penalties was that if a statute does not define a term,
On Nov. 21, 2018, Cooper sent Sand communicated to Sand in the FPAA. the term is given its ordinary meaning.
a packet of documents including a Form Thus, the approval of the penalties It determined in this context that “im-
5701, Notice of Proposed Adjustment, was timely. mediate” meant “with no intermediary,”
and a Letter 1807, TEFRA Partnership Sand advanced a two-step argument and that “supervisor” meant a person who
Cover Letter for Summary Report, which that the penalty approval was not timely. oversees, directs, or manages work, work-
summarized Cooper’s positions in the First, Sand asserted that the penalties ers, projects, etc.
case, including the possible imposition were formally communicated to the LLC Applying these definitions to Sand’s
of penalties. One month later Cooper on Nov. 21, 2018, when Cooper trans- situation, in which two different supervi-
held a closing conference, after which she mitted a packet of documents includ- sors oversaw different aspects of her work
proceeded to close Sand’s case. The IRS ing a Letter 1807 and Form 5701 that as an IRS agent, the court concluded,
issued a final partnership administrative mentioned the penalties. Second, Sand given that Sec. 6751(b) deals with the ap-
adjustment (FPAA) to Sand, disallowing asserted that since Cooper’s “immediate proval of penalties, that the relevant work
its charitable contribution deduction and supervisor” on that date was Wilson, and for purposes of the supervisory approval
determining penalties. Wilson did not sign the penalty approval requirement was the work on the Sand
Sand filed a petition in Tax Court. form until Nov. 23, 2018, his approval of examination, which generated the penal-
It argued that it was not liable for the the penalty was late. ties. Because Burris supervised Cooper
penalties because the IRS had not met The Tax Court found that because on that examination, the Tax Court held
the Sec. 6751(b) supervisory approval re- it rejected the second step of Sand’s that he was the immediate supervisor for
quirement for the penalties. In Tax Court, argument, it did not have to address the purposes of Sec. 6751(b).
the parties filed cross-motions for sum- merits of the first argument. It began its The Tax Court further found that the
mary judgment on the penalty issue. analysis of the second step by examining legislative history supported its position.
the text of the statute. The legislative history indicated that
The Tax Court’s decision The Tax Court noted that the term Congress enacted Sec. 6751(b) to prevent
The Tax Court held that the supervisory “immediate supervisor” is not defined IRS agents from coercing settlements
approval requirement had been met for in the Code. Based on examples from from taxpayers by threatening unjustified
the penalties and upheld them. It found the Internal Revenue Manual, it further penalties or using penalties as a bargain-
that the proper person for the require- found that the IRS did not employ the ing chip in settlement negotiations. In
ment was the person who supervises the term uniformly in its personnel practices. the court’s view, with this legislative
substantive work of the examining agent Thus, the Tax Court relied on the “well- purpose, an examining agent’s immediate
who asserts the penalties. established” rule of construction that supervisor most logically would be seen

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