Ninth Circuit: Prior supervisory approval for penalty assessment for listed transaction; Tax Court reversed

The case involved when an IRS supervisor must provide the written approval required by section 6751(b) before the IRS can assesses certain penalties.

Penalty assessment for listed transaction

The U.S. Court of Appeals for the Ninth Circuit today reversed the Tax Court’s grant of summary judgment to a taxpayer, in a case involving when an IRS supervisor must provide the written approval required by section 6751(b) before the IRS can assess certain penalties.

The case is: Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, No. 20-73420 (9th Cir. March 25, 2022). Read the Ninth Circuit’s decision [PDF 225 KB] that includes a dissenting opinion.


In 1999, the taxpayer became a participating employer in a purported welfare benefit plan that the IRS later determined was the same as, or substantially similar to, the tax avoidance transactions designated as “listed transactions” in Notice 2007-83. Accordingly, a taxpayer participating in the plan would be subject to a penalty under section 6707A if it did not disclose its participation on its tax return.

The taxpayer initially did not disclose its participation in the plan, but later acknowledged that the plan was a listed transaction. An IRS Revenue Agent (RA) made the initial determination to assert a penalty for failure to disclose and notified the taxpayer by issuing a “30-day letter.” The 30-day letter stated that if the taxpayer took no action by the 30-day response date, penalties would be assessed. However, no IRS supervisor had yet provided the written approval for the penalty as required by section 6751(b). The RA’s immediate supervisor provided the written approval after the 30-day period had expired, and after the taxpayer had submitted a letter protesting the proposed penalty.

The taxpayer’s administrative appeal was unsuccessful, and the IRS assessed the penalty. After a collection-due-process (CDP) hearing, the taxpayer filed a petition in the Tax Court challenging the Appeals Office’s notice of determination from the CDP hearing. Following a remand for the Appeals Office to consider certain issues not raised in this appeal, and a supplemental notice of determination, the Tax Court agreed that the IRS had not complied with the written supervisory requirement in section 6751(b), and in January 2020 granted summary judgment in favor of the taxpayer. Read TaxNewsFlash [PDF 215 KB]

The Ninth Circuit today noted that section 6751(b) requires written supervisory approval before assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment. The appellate court found that in this case, the supervisor gave written approval of the initial penalty determination before the penalty was assessed and while she still had discretion to withhold approval, and consequently reversed the Tax Court’s grant of the taxpayer’s motion for summary judgment


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.