IRS Controversy · Brief · Pro level
Section 6751(b): the supervisory-approval defense to penalties
No penalty may be assessed unless the initial determination was personally approved in writing by the examiner's immediate supervisor. How the Graev/Chai litigation wave rewrote penalty practice, the timing rules by forum, and how to raise the defense.
Section 6751(b) is a one-sentence procedural statute that sat dormant for two decades and then invalidated more penalties than any substantive defense of its era: no penalty may be assessed unless "the initial determination of such assessment" was "personally approved (in writing) by the immediate supervisor" of the individual making the determination. After Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), and Graev v. Commissioner, 149 T.C. 485 (2017), held the requirement enforceable and jurisdictionally live in deficiency cases, a litigation wave followed in which accuracy-related penalties — including those attached to disallowed credit claims — were conceded or struck for want of a signature. For any practitioner defending penalties under Section 6662, the approval form is now the first document to request.
What the statute covers, and what it exempts
The requirement applies to most civil penalties the exam function asserts: the Section 6662 accuracy-related family (negligence, substantial understatement, valuation misstatements), the Section 6662A reportable-transaction penalty, the Section 6663 fraud penalty, and assessable penalties such as Section 6672 (where Letter 1153 procedures supply the approval). Section 6751(b)(2) exempts the failure-to-file, failure-to-pay, and estimated-tax additions under Sections 6651, 6654, and 6655, and "any other penalty automatically calculated through electronic means" — the basis on which purely computer-generated penalties (an AUR notice's substantial-understatement penalty untouched by human hands) escape the rule, though human involvement anywhere in the determination brings it back.
The timing fight
The statute says approval must precede "assessment," which for penalties subject to deficiency procedures could be years after the exam. Courts filled the gap divergently, and final regulations under §301.6751(b)-1 (2024) adopted forum-based rules going forward:
Where the approval deadline falls depends on the penalty's procedural path.
| Penalty posture | Approval deadline (current administrative rule) | Practical checkpoint |
|---|---|---|
| Pre-assessment, subject to Tax Court review | Before the notice of deficiency (or Form 870-type waiver) is issued | Compare approval date to the 30-day and 90-day letters |
| Raised by IRS answer or amended answer in Tax Court | Before the Chief Counsel attorney requests the penalty | Discovery of counsel's file |
| Assessable penalties (no deficiency procedures) | Before assessment | Compare approval date to assessment date on the transcript |
Caselaw in several circuits remains more taxpayer-favorable than the regulations for pre-regulation years: the Tax Court's Clay v. Commissioner, 152 T.C. 223 (2019), line requires approval before the first formal communication of the penalty to the taxpayer, while Laidlaw's Harley Davidson (9th Cir. 2022) and decisions in the Second and Eleventh Circuits pushed deadlines later. The defense is therefore circuit-sensitive, and the forum-selection considerations in Tax Court versus the refund forum now include where the 6751(b) law is best.
Raising it, forum by forum
- Exam. IDR the civil penalty approval form (Form 300 series or lead sheet) and its date the moment penalties appear in a draft RAR — a routine ask within the information-flow practice described in IDR strategy.
- Appeals. Approval defects are a hazard of litigation like any other; Appeals officers concede penalties on clean 6751(b) failures because Counsel will.
- Tax Court. Plead it. Under Section 7491(c) the Commissioner bears the burden of production on penalties in individual cases, which after Graev includes producing evidence of approval; for entities, raise it affirmatively or risk waiver.
- CDP. Appeals' Section 6330(c)(1) verification duty includes verifying 6751(b) compliance, making a CDP hearing a backstop forum for assessable penalties that never saw a courtroom.
Frequently asked questions
- What does Section 6751(b) require?
- That the initial determination of most penalties be personally approved in writing by the immediate supervisor of the person making the determination, before assessment. Penalties calculated automatically by electronic means and the failure-to-file, failure-to-pay, and estimated-tax penalties under Sections 6651, 6654, 6655, and 6662(b)(9)-(10) are exempt. A missing or late approval invalidates the penalty entirely.
- When must the supervisor approve the penalty?
- The approval must precede assessment; how much earlier depends on forum and circuit. The Tax Court's current rule for deficiency cases requires approval before the IRS first formally communicates the penalty to the taxpayer — typically the 30-day letter or notice of deficiency. Several courts of appeals apply looser timing, some requiring only approval before assessment, so the governing circuit matters.
- How do you raise a Section 6751(b) defense?
- Request the penalty approval documentation — the civil penalty approval form and its date — during the exam or in Appeals, and plead the issue in any Tax Court petition. The IRS bears the burden of production on compliance for individual penalties under Section 7491(c). The defense is also available in CDP hearings as part of Appeals' verification duty, and in refund litigation.