Buried in the Internal Revenue Code at 26 U.S.C. Section 6751(b)(1) is a short procedural command that has become one of the most important tools available to taxpayers facing IRS civil penalties. The provision states that no penalty under Title 26 shall be assessed unless the initial determination of that assessment is personally approved, in writing, by the immediate supervisor of the IRS employee making the determination, or by a higher level official the Treasury Secretary designates.

Congress enacted the rule in the Internal Revenue Service Restructuring and Reform Act of 1998. The Senate Report explained the reason in plain terms: penalties should be imposed where appropriate, not used as a bargaining chip during settlement negotiations. Supervisory approval was designed as a check, a moment of independent management review before a penalty hardens into an assessment.

For nearly two decades, the provision generated almost no litigation. Beginning in 2016 with the Tax Court’s decision in Graev v. Commissioner and continuing through the Second Circuit’s 2017 decision in Chai v. Commissioner, Section 6751(b) was transformed into one of the most heavily litigated procedural provisions in the Internal Revenue Code. Today it remains a meaningful defense, especially in business tax controversies where penalty exposure can run into six figures or more.

Section 6751(b) reaches most civil tax penalties in Title 26, but not all of them. Understanding the line between covered and excepted penalties is the first step.

Penalties typically covered

• Accuracy-related penalty under Section 6662, including the negligence and substantial-understatement variants
• Civil fraud penalty under Section 6663 (75 percent of the underpayment attributable to fraud)
• Erroneous claim for refund or credit under Section 6676
• Most assessable penalties, including the listed-transaction penalty under Section 6707A and the reportable-transaction understatement penalty under Section 6662A
• Promoter and aider-and-abettor penalties under Section 6700, Section 6701, and related provisions
• Most international information return penalties, including those under Sections 6038, 6038A, 6038B, 6038C, 6038D, 6677, and 6679
• Trust Fund Recovery Penalty (TFRP) proposals under Section 6672, with respect to which approval must occur in connection with the formal proposal of the penalty

Statutory exceptions under Section 6751(b)(2)

The statute itself excepts several categories of additions to tax. These additions to tax may still apply, but the supervisory approval rule does not give the taxpayer a procedural defense:

• Failure-to-file and failure-to-pay additions to tax under Section 6651
• Individual estimated tax additions to tax under Section 6654
• Corporate estimated tax additions to tax under Section 6655
• Penalties under Section 6673, and special non-compliance additions to tax under Section 6662(b)(9) (overstatement of charitable deductions tied to Section 170(p)) and Section 6662(b)(10)
• Any penalty automatically calculated through electronic means without human involvement

The “automatically calculated through electronic means” line

The automatic-calculation exception sounds clean but is litigated heavily in practice. The December 2024 final regulations provide that a penalty stops being automatically calculated, and therefore becomes subject to Section 6751(b), once an IRS employee considers a taxpayer response that challenges the penalty. The example most commonly involved is the Automated Underreporter (AUR) program that issues CP2000 notices.

If a Maryland or Pennsylvania taxpayer responds to a CP2000 with a substantive challenge to the proposed penalty, and an IRS employee considers that challenge before assessment, the penalty has crossed into human-touched territory and Section 6751(b) applies. We have written separately about CP2000 notices and how to respond to them; the interaction with Section 6751(b) is one more reason a substantive written response is worth the time.

Why does the legal landscape on Section 6751(b) matter to a Maryland or Pennsylvania business owner today? Because the IRS’s compliance is judged against a body of case law that, depending on when the penalty was assessed and where the case is filed, may apply different rules. A short tour explains why.

The paper-tiger era (1998 to 2016)

For nearly twenty years after enactment, Section 6751(b) generated almost no litigation. Taxpayers rarely raised it; the IRS rarely defended it; the Tax Court treated it as imposing no hard deadlines. That changed in 2016.

Graev II and the Tax Court’s first reading

In Graev v. Commissioner (commonly called Graev II), the Tax Court read the statute to require written supervisory approval at any time before assessment, even the day before the assessment was actually recorded on the IRS books. Under that reading, approval was a near-formality.

Chai v. Commissioner (2d Cir. 2017)

A few months later, the United States Court of Appeals for the Second Circuit rejected the Tax Court’s approach in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017). The court held that for penalties subject to deficiency procedures, supervisory approval is required no later than the date the IRS issues the notice of deficiency, or files an answer or amended answer asserting the penalty. Chai also held that compliance with Section 6751(b)(1) is part of the IRS’s burden of production under Section 7491(c) in cases involving individual liability for a penalty.

Graev III and the Tax Court’s pivot

The Tax Court reversed course shortly after Chai. In Graev v. Commissioner (Graev III), 149 T.C. 485 (2017), the court adopted the Chai rule for all deficiency cases. In subsequent decisions including Clay v. Commissioner, 152 T.C. 223 (2019) and Belair Woods, LLC v. Commissioner, 154 T.C. 1 (2020), the Tax Court refined the rule into what is now called the formal communication rule: supervisory approval must be obtained by the earlier of the notice of deficiency or the first formal communication by the IRS to the taxpayer of its determination to assert the penalty.

The expanding circuit split

Other circuits have rejected the Tax Court’s reading.

• Ninth Circuit (2022): In Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066 (9th Cir. 2022), the court held that approval is required before assessment, or, if earlier, before the supervisor loses discretion to approve or refuse the penalty.
• Eleventh Circuit (2022): In Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 2022), the court adopted a bright-line rule that approval is timely so long as it precedes assessment, regardless of any prior communication to the taxpayer.
• Tenth Circuit (2023): In Minemyer v. Commissioner, an unpublished order, the court agreed with the Second Circuit that approval is required no later than the notice of deficiency.
• Eighth Circuit (2020): In Wells Fargo & Co. v. United States, 957 F.3d 840 (8th Cir. 2020), the court held that Section 6751(b) is not implicated where the government asserts a penalty solely as an offset defense in a refund suit.

The result, by late 2024, was a four-way split layered over a Tax Court doctrine that continued to govern in circuits that had not spoken (which includes the Third and Fourth Circuits, where Pennsylvania and Maryland sit, respectively). Identical fact patterns could produce opposite outcomes based on the taxpayer’s state of residence under the Tax Court’s Golsen rule.

Treasury and the IRS finalized regulations under Section 6751(b) on December 23, 2024, in Treasury Decision 10017, 89 Fed. Reg. 104,419. The preamble candidly states a goal of providing nationwide uniformity, administrability for the IRS, and ease of understanding for taxpayers. The final regulations are codified at 26 C.F.R. Section 301.6751(b)-1.

Three timing rules, each tied to procedural posture

The regulations adopt three rules:

1. Pre-assessment notices providing a basis for Tax Court jurisdiction: For penalties included in a notice that triggers Tax Court review (principally the statutory notice of deficiency under Section 6212, and partnership-level notices under former Section 6223 and current Section 6231), the immediate supervisor must approve the penalty in writing on or before the date the notice is mailed.
2. Penalties not subject to pre-assessment Tax Court review (assessable penalties): Approval must be obtained at any time before the penalty is assessed.
3. Penalties raised in Tax Court after a petition is filed (Section 6214 penalties): Approval must be obtained no later than the date on which the Commissioner asks the court to determine the penalty.

Definitional rules

The regulations define the terms that the case law had been struggling with:

• Individual who first proposed the penalty: The person Section 6751(b)(1) references as making the initial determination is the individual who first proposed the penalty, and a proposal must be made either to a taxpayer or to the individual’s supervisor or designated higher level official. Casual coworker conversations do not count.
• Immediate supervisor: Any individual with responsibility to review another individual’s proposal of penalties, without that proposal being subject to an intermediary’s approval. The definition is functional rather than title-based.
• Higher level official: Anyone the Internal Revenue Manual or other assigned job duties direct to approve a penalty proposal.
• Personally approved (in writing): Any writing, including in electronic form, made by the writer to signify assent and reflecting that it was intended as approval. No signature is required, no particular words are required, and the regulations declined to mandate digital signatures or software-generated timestamps.
• Automatically calculated through electronic means: Any penalty proposed by an IRS computer program without human involvement, with the exception falling away once an IRS employee considers a taxpayer response challenging the penalty.

Applicability date is the cliff edge

The applicability rule is critical. Under 26 C.F.R. Section 301.6751(b)-1(f), the regulations apply only to penalties assessed on or after December 23, 2024. For penalties assessed before that date, including penalties currently pending in Tax Court cases that span the applicability date, the pre-regulation framework continues to control. That includes Chai, Graev III, Clay, Belair Woods, Laidlaw’s, Kroner, and Minemyer.

Federal tax controversies arising in Maryland are typically appealable to the United States Court of Appeals for the Fourth Circuit. Federal tax controversies arising in Pennsylvania are typically appealable to the United States Court of Appeals for the Third Circuit. As of this writing, neither the Third Circuit nor the Fourth Circuit has issued a published decision on the timing of supervisory approval under Section 6751(b).

That absence has practical consequences. Under the Tax Court’s Golsen rule, the Tax Court follows squarely on-point precedent of the court of appeals to which the case is appealable. Where no such precedent exists, as in Maryland and Pennsylvania, the Tax Court applies its own framework. For Maryland and Pennsylvania business owners, that means:

Strategic implications for pre-2024 assessments

For Maryland or Pennsylvania penalties assessed before December 23, 2024, a taxpayer in Tax Court can still invoke the Tax Court’s pre-regulation formal communication rule. Where the IRS proposed a penalty in an early letter, such as a Letter 950 30-day letter or an examination report, but the supervisor’s signature on the Civil Penalty Approval Form postdates that communication, the Tax Court has historically held the penalty invalid. Beland v. Commissioner, 156 T.C. 80 (2021), is a leading example: the Tax Court invalidated a civil fraud penalty because the approving signature postdated a closing conference at which the revenue agent presented the report to the taxpayer.

Strategic implications for post-2024 assessments

For Maryland or Pennsylvania penalties assessed on or after December 23, 2024, the December 2024 timing rules govern. The defense focus shifts from when approval was obtained to whether approval was obtained, who signed it, and whether the writing in fact reflects an intent to approve the specific penalty asserted. Where the IRS asserts the regulations support its position, the Tax Court will apply the regulations until the Third or Fourth Circuit holds otherwise.

Even after the December 2024 regulations, three distinct categories of defect continue to defeat civil penalties. Understanding which one is in play shapes the discovery requests, the Appeals presentation, and the litigation theory.

1. Missing approval

The simplest defect: the IRS cannot produce any writing signed by an appropriate supervisor or higher level official covering the specific penalty at issue, by the governing deadline. The leading example is The Cannon Corp. v. Commissioner, where a redacted email from a supervisor, with the redactions obscuring what the email actually said, did not satisfy the approval requirement.

2. Late approval (timing defect)

Approval exists but the signature postdates the applicable deadline. Before December 23, 2024, the relevant deadline depends on the circuit, the procedural posture, and the Tax Court rule. After December 23, 2024, the regulations supply uniform deadlines, which makes pure timing defects somewhat less common, but not extinct. A penalty added by Chief Counsel in an answer or amended answer, after examination, requires approval before the request to determine the penalty in Tax Court. A penalty added at Appeals creates its own approval moment.

3. Identity defect (wrong approver)

This category survives, and may even gain importance, under the new regulations. The regulations define the immediate supervisor functionally: any individual with responsibility to review another individual’s proposal of penalties, without the proposal being subject to an intermediary’s approval. Sand Investment Co. v. Commissioner, 157 T.C. 136 (2021), requires a fact-intensive inquiry into who had that responsibility at the moment of approval. In team examinations, particularly in Large Business and International (LB&I), multiple candidates may exist; an approval form signed by the wrong person is a defect that survives the new regulations because it is a failure of identity, not of timing.

Every Section 6751(b) case is won on the strength of the administrative record. The single most important document is usually the Civil Penalty Approval Form. The single most important fact is usually a date. Both are generated inside the IRS, and the taxpayer’s ability to challenge IRS compliance depends on the taxpayer’s ability to obtain and analyze internal records.

The IRS’s internal framework

The Internal Revenue Manual sets the framework. IRM 4.10.9 requires documentation of the Civil Penalty Approval Form on lead sheet 300-01 within the Report Generation Software (RGS), with a separate form for each penalty proposed. IRM 20.1.1 sets the general approval prerequisite. The 2025 update to IRM 4.10.6 incorporates Interim Guidance Memoranda issued after the December 2024 regulations and supersedes earlier versions of the IRM.

The IDR checklist that practitioners should build from

A well-constructed Information Document Request (IDR) on Section 6751(b) should request, at a minimum:

• Every version of the penalty lead sheet, including drafts
• The Civil Penalty Approval Form for each penalty proposed, with all signatures and dates
• Any cover memorandum transmitting the case from examination to Appeals
• All emails between the revenue agent, the immediate supervisor, and any higher level official bearing on the penalty
• The native electronic file with metadata intact, including document properties and audit-trail logs from RGS or Integrated Automation Technologies (IAT)
• Form 886-A explanation of items showing how the penalty was computed
• Form 5344 closing record showing the assessment date
• Form 4549 or Form 4605-A examination report
• Organizational charts and Position Description documents establishing the supervisor’s role at the moment of approval

What metadata reveals

The regulations’ tolerance for approval through any writing that signifies assent means that a single sentence in an email can suffice or fail depending on context. Native electronic files with intact metadata can show when an email was actually drafted, when it was edited, who else accessed the file, and whether the approval document was created before or after the relevant deadline. The IRS sometimes resists native production; a careful practitioner asks for it explicitly and follows up if the IRS produces only PDF printouts.

Where the IRS resists: FOIA and Section 6103(e)

Where the examination team will not produce documents informally, two backup paths exist:

• A Freedom of Information Act request filed with the IRS Disclosure Office can produce portions of the exam file that the examiner refuses to share, subject to FOIA exemptions.
• A Section 6103(e) request for return information can yield a useful complement to the FOIA response.

Neither route substitutes for Tax Court discovery, but both can be used to pre-position the record before Appeals or before litigation begins.

The Appeals stage protest

By the time a case reaches the Independent Office of Appeals, the Section 6751(b) issue should be reduced to a written memorandum that identifies:

• The specific penalty Code sections at issue
• The date of each written communication from the IRS proposing the penalty
• The identity of the revenue agent who proposed the penalty
• The identity of the claimed immediate supervisor and the factual basis for concluding that person had responsibility to review the proposal
• The date of any claimed approval
• Any gaps, inconsistencies, or defects in the approval record
• The relevant timing rule under either the final regulations or the pre-regulation framework

Our IRS and state tax appeals practice handles this stage for Maryland and Pennsylvania business clients across a wide range of penalty types, from accuracy-related penalties to international information return penalties.

Because the December 2024 regulations do not override circuit-level precedent and because Section 7491(c) applies only in proceedings involving individual liability, forum selection now does much of the work that timing arguments once did. The first strategic question after a 30-day letter is not whether to contest, but where.

Tax Court (the default)

The Tax Court remains the default forum for two reasons. First, it is prepayment jurisdiction, so a taxpayer who cannot afford to pay the disputed amount up front retains access. Second, Section 7491(c) shifts the initial burden of production to the IRS in cases involving individual liability for a penalty. Under Higbee v. Commissioner, 116 T.C. 438 (2001), the IRS must come forward with evidence sufficient to show that the penalty applies, and under Graev III and Frost v. Commissioner, that burden includes evidence of Section 6751(b) compliance. In practice, the IRS must ordinarily produce the Civil Penalty Approval Form and supporting documentation before any penalty survives trial.

Section 7491(c) does not apply to partnerships, corporations, or partnership-level proceedings under the Bipartisan Budget Act of 2015 (or under former TEFRA), per Dynamo Holdings Ltd. P’ship v. Commissioner and NT, Inc. v. Commissioner. For Maryland and Pennsylvania businesses operating as multi-member LLCs taxed as partnerships, or as C corporations, the burden-of-production advantage is reduced.

Collection due process

Under Sections 6320 and 6330, a taxpayer who receives a final notice of intent to levy or a notice of federal tax lien may request a collection due process (CDP) hearing within thirty days. CDP offers two material advantages for Section 6751(b) work:

• Appeals officers in CDP often have access to internal IRS databases, including the Integrated Data Retrieval System and RGS, that examination teams resist sharing.
• The Appeals officer’s determination, including any Section 6751(b) analysis, becomes the administrative record that the Tax Court reviews on petition.

An important limit: a taxpayer who received a statutory notice of deficiency, or otherwise had an opportunity to dispute the underlying liability, generally cannot relitigate the underlying liability in CDP under Section 6330(c)(2)(B). For assessable penalties that bypass deficiency review entirely, however, CDP is often the first opportunity to challenge Section 6751(b) compliance in a quasi-judicial setting. Our tax debt and collections defense practice regularly handles CDP hearings for Maryland and Pennsylvania business owners.

Refund litigation

As a general rule, a taxpayer must fully pay the disputed liability and file an administrative claim for refund before suing in a federal district court or the U.S. Court of Federal Claims, under Flora v. United States, 362 U.S. 145 (1960). For income tax deficiencies, that usually means full payment of the assessed deficiency before a refund suit. Some liabilities, however, are treated as divisible, including certain employment tax and Trust Fund Recovery Penalty liabilities, so a taxpayer may be able to create refund jurisdiction by paying the divisible portion, filing a refund claim, and then suing after disallowance or the required waiting period. The full-payment rule, and the need to prepay even a divisible portion, still eliminates refund litigation as a practical matter for many clients. For those who can meet the jurisdictional payment requirement, the benefits include broader discovery under the Federal Rules of Civil Procedure and more aggressive treatment of metadata and supervisor evidence.

Caveat: under Wells Fargo & Co. v. United States, 957 F.3d 840 (8th Cir. 2020), Section 6751(b) is not implicated where the government asserts a penalty solely as an offset defense in a refund suit. The doctrine applies narrowly but is a trap for the unwary refund-suit plaintiff whose theory rests on an offset-only penalty.

Different penalties produce different Section 6751(b) strategies because they follow different procedural routes. The three most heavily litigated categories illustrate the range.

Accuracy-related penalties under Section 6662

Section 6662 penalties, including the negligence and substantial-understatement variants, are typically asserted in the notice of deficiency and fall within the deficiency-procedure timing rule. For penalties assessed after December 23, 2024, the regulations require approval on or before the notice is mailed.

The opportunity often arises where the IRS proposes multiple accuracy-related penalties on alternative theories, such as substantial understatement under Section 6662(b)(2) and negligence under Section 6662(b)(1), and the approval form covers only one. Example 5 of the regulations is the template: a revenue agent who first proposes a negligence penalty and, at the supervisor’s suggestion, adds a substantial-understatement penalty to the report is the individual who first proposed both penalties because the revenue agent, not the supervisor, is the one who proposed them to the taxpayer. The Civil Penalty Approval Form must therefore cover both penalties.

Civil fraud penalty under Section 6663

The civil fraud penalty is 75 percent of the underpayment attributable to fraud, which makes even a partial Section 6751(b) win unusually valuable. Beland v. Commissioner, 156 T.C. 80 (2021), remains the leading case for pre-regulation Tax Court strategy: a fraud penalty failed where the approving signature postdated a closing conference at which the revenue agent presented a revenue agent report asserting fraud. Under the new regulations, the deadline for a deficiency-procedure fraud penalty is the mailing of the notice of deficiency, and the Beland defect would not survive on those facts. But the regulatory definition of immediate supervisor still requires that the approving person have had responsibility to review the penalty proposal without intermediary approval, and fraud cases often involve specialized units with multiple layers of review, opening identity-based challenges.

International information return penalties

International information return penalties under Sections 6038, 6038A, 6038B, 6038C, 6038D, 6677, and 6679, among others, produce the richest set of Section 6751(b) questions because the examinations follow non-standard procedures. Some of these penalties are assessable and follow the non-deficiency timing rule (approval before assessment); others can be rolled into deficiency procedures in particular circumstances. IRM 20.1.9 addresses international penalties, and the IRM’s continuation-penalty procedures often require re-approval every several months for ongoing non-compliance, which means each continuation creates a new Section 6751(b) moment. The Farhy v. Commissioner line of cases, which addresses the IRS’s assessment authority for certain Section 6038 penalties, intersects with Section 6751(b) and creates additional defenses.

For Maryland and Pennsylvania clients with cross-border operations, foreign subsidiaries, or non-resident shareholders, our international tax planning and compliance practice integrates Section 6751(b) defenses into a broader compliance and controversy strategy.

Trust Fund Recovery Penalty (Section 6672)

The Trust Fund Recovery Penalty, although it sits outside the deficiency framework, is also covered by Section 6751(b) and presents its own approval timing questions. We have written separately about the TFRP for Maryland and Pennsylvania business owners, and the Section 6751(b) overlay is a critical component of that defense.

The National Taxpayer Advocate has repeatedly recommended that Congress amend Section 6751(b) to require supervisory approval before the first written communication proposing a penalty. The 2022 and 2023 Purple Books include the recommendation.

In 2025, Congress took up the proposal. H.R. 5346, the Fair and Accountable IRS Reviews Act, was introduced on September 15, 2025, reported amended by the House Ways and Means Committee on September 30, 2025, and passed by the House on December 1, 2025. The Senate received the bill on December 2, 2025, and referred it to the Committee on Finance, where it was pending as of this writing.

If enacted in its House-passed form, the FAIR Act would amend Section 6751(b)(1) to require written supervisory approval before any written communication with respect to the penalty is sent to the taxpayer, and would define immediate supervisor as the person to whom the IRS employee making the determination reports. The amendments would apply to notices issued, and penalties assessed, after December 31, 2025.

Pulling the preceding analysis together, here is a compact playbook keyed to the examination milestones at which penalty risk most often crystallizes.

At the opening of the examination

• Engage tax counsel before responding to the initial contact letter or Letter 2205.
• Request a copy of the IRS’s internal case activity record and any penalty consideration memoranda by IDR or informal letter.
• Begin a chronology of every written IRS communication, with full headers and exact dates.

When a penalty is first proposed

• Request the Civil Penalty Approval Form and the penalty lead sheet (lead sheet 300-01 or its equivalent), along with any cover memorandum.
• Request the file in native electronic format with metadata intact.
• Document the date and form of the first written communication that proposes the penalty. This may be a 30-day letter, an examination report, a Notice of Proposed Adjustment (NOPA), or a closing conference document, depending on the exam.

At Appeals

• Reduce the Section 6751(b) protest to a written memorandum identifying the specific penalty Code sections, the chronology of formal communications, the identity of the proposing examiner, the claimed immediate supervisor and the factual basis for that designation, the date of any claimed approval, and any gaps in the record.
• Preserve any constitutional or administrative law arguments, including any reliance on Loper Bright to challenge the regulations.

At the petition stage

• Include Section 6751(b) in the assignments of error at the threshold, per Tax Court Rule 34(b)(4).
• Track the IDR checklist in document requests; use Tax Court Rule 90 requests for admission to lock in dates and identities.
• Where appropriate under Tax Court Rule 74, take limited depositions focused on the identity of the proposer and the timing of supervisor review.

At trial

• The Civil Penalty Approval Form will usually be admitted as a business record. Even after admission, fact-based challenges to completeness, accuracy, and timing remain available.
• Where the approval signature is alleged to be a stamp, an unclear electronic mark, or a signature by a person who did not satisfy the regulatory definition of immediate supervisor, the practitioner can press those issues directly.

Section 6751(b)(1) of the Internal Revenue Code provides that no penalty under Title 26 may be assessed unless the initial determination of the assessment is personally approved in writing by the immediate supervisor of the IRS employee making the determination, or by a higher level official the Treasury Secretary designates. Congress enacted the rule in the 1998 IRS Restructuring and Reform Act to prevent the IRS from using penalties as a bargaining chip during examinations.

Yes. The Treasury Department issued final regulations under Treasury Decision 10017 on December 23, 2024, but the rule still gives taxpayers a real defense. The regulations apply to penalties assessed on or after December 23, 2024, and they set timing rules favorable to the IRS. Taxpayers can still defeat penalties where the IRS cannot produce written approval, where the approver did not have responsibility to review the proposal, where the approval postdates the deadline that applies to that procedural posture, or where the IRS asserts a penalty in a case governed by pre-regulation circuit precedent.

Maryland sits in the Fourth Circuit, and Pennsylvania sits in the Third Circuit. Neither circuit has issued a published, binding opinion interpreting the timing of supervisory approval under Section 6751(b). For Maryland and Pennsylvania taxpayers in Tax Court, that means the Tax Court applies its own pre-regulation formal communication rule for penalties assessed before December 23, 2024, and applies the December 2024 final regulations for penalties assessed after that date.

Section 6751(b) covers most civil tax penalties under Title 26, including the accuracy-related penalty under Section 6662, the civil fraud penalty under Section 6663, certain international information return penalties, and most assessable penalties. It does not cover additions to tax under Section 6651, individual estimated tax additions to tax under Section 6654, corporate estimated tax additions under Section 6655, penalties under Section 6673, the special non-compliance additions under Section 6662(b)(9) and Section 6662(b)(10), or any penalty automatically calculated through electronic means without human involvement.

The regulations supply three timing rules. For penalties included in a notice that triggers Tax Court jurisdiction, such as a statutory notice of deficiency, approval must be on or before the date the notice is mailed. For penalties not subject to pre-assessment Tax Court review, approval must be obtained at any time before the penalty is assessed. For penalties raised by the IRS in Tax Court after the petition is filed, approval must be obtained no later than the date the Commissioner asks the court to determine the penalty.

Under 26 C.F.R. Section 301.6751(b)-1(a)(3)(iii), the immediate supervisor is any individual with responsibility to review another individual’s proposal of penalties, without that proposal being subject to an intermediary’s approval. The definition is functional rather than title-based. The Tax Court has held in Sand Investment Co. v. Commissioner, 157 T.C. 136 (2021), that the immediate supervisor is the person with the greatest familiarity with the facts and legal issues presented by the case, which can become a fact-intensive question in team examinations or specialty audits.

The taxpayer should issue a detailed Information Document Request asking for every version of the penalty lead sheet, the Civil Penalty Approval Form, all supervisor and approver communications, native electronic files with metadata intact, and any cover memoranda transmitting the case to Appeals. Where the IRS resists, a Freedom of Information Act request to the IRS Disclosure Office and a Section 6103(e) request for return information can supplement the record. In Tax Court, requests for production and requests for admission under Tax Court Rule 90 can force the IRS to admit, deny, or qualify specific factual propositions about dates, documents, and identities.

Yes. Section 6751(b) applies in Tax Court, in federal district court refund litigation, in the U.S. Court of Federal Claims, and in collection due process hearings, subject to certain limits. In Tax Court cases involving individual liability for a penalty, Section 7491(c) places the initial burden of producing evidence of supervisory approval on the IRS. That burden does not apply to partnerships, corporations, or partnership-level proceedings, which can affect forum strategy for Maryland and Pennsylvania business clients.

Engage tax counsel as early as possible, ideally on receipt of the initial contact letter or 30-day letter. Preserve every IRS communication, request the penalty lead sheet and Civil Penalty Approval Form by Information Document Request, document the chronology of all written communications from the examiner, and consider raising Section 6751(b) defenses in writing during Appeals so the issue is preserved for litigation. Tax Court Rule 34(b)(4) provides that any issue not raised in the assignments of error is deemed conceded, so the defense must appear in the petition.

In Tax Court, Section 7491(c) places the initial burden of production on the IRS for a penalty against an individual, meaning the IRS must come forward with evidence sufficient to indicate the penalty is appropriate, which under Graev III includes evidence of Section 6751(b) compliance. Once the IRS satisfies that production burden, the burden of proof on issues like reasonable cause typically remains with the taxpayer. Section 7491(c) does not apply to partnerships, corporations, or partnership-level proceedings.

Not yet. The FAIR Act passed the House on December 1, 2025, and was referred to the Senate Finance Committee on December 2, 2025. As of this writing, the bill has not been enacted. If enacted in its House-passed form, the bill would amend Section 6751(b)(1) to require supervisory approval before any written communication regarding the penalty is sent to the taxpayer, and would apply to notices issued and penalties assessed after December 31, 2025. Maryland and Pennsylvania business owners with active examinations should monitor the bill’s progress and preserve every Section 6751(b) defense available under current law.