Tax Court Determines §6672 Penalties are Penalties Subject to §6751(b) Requirements
In Chadwick v. Commissioner, a recent collection due process hearing (CDP) case, the United States Tax Court upheld an IRS notice of intent to levy. Chadwick v. Comm’r, 154 T.C. No. 5 (2020) stemmed from the taxpayer’s failure to pay employment taxes for two LLC entities for which he was responsible and the subsequent assessment of trust fund recovery penalties (TFRPs) against him personally for taxes owed by the businesses. The same day that each revenue officer on the case received written supervisory approval under section 6751(b)(1) of their Form 4183, the IRS issued Letters 1153 notifying Mr. Chadwick of the assessment of TFRPs, which was not appealed. The IRS later mailed a levy notice attempting to collect the unpaid TFRPs, and the taxpayer requested a CDP hearing.
The court noted that the requirements of written supervisory approval under §6751(b)(1) may be relevant in a CDP case. The IRS argued that the §6751(b)(1) approval requirements do not apply to TFRPs, as §6672 essentially imposes a tax rather than a penalty. Taking up this issue for the first time, the Tax Court pointed to the plain text of §6672(a), which states that “a responsible person incurs liability under section 6672(a) only if he ‘willfully fails’ to discharge his Federal tax obligations on behalf of the employer.” The court reasoned that this indicates that TFRPs are imposed as a sanction and constitute a penalty from the viewpoint of the person sanctioned.
Having held that TFRPs are penalties subject to the supervisory approval requirement of §6751(b)(1), the court next assessed whether that supervisory approval for the TFRPs was timely secured. §6751(b)(1) requires that approval be secured befor the initial determination penalty assessment, which the court has previously determined is embodied by the letter formally notifying the taxpayer of the IRS’s decision to assess penalties. The court determined that the initial determination of the assessment of the TFRPs was embodied in the Letters 1153. The court further concluded that approval was timely secured, noting that the electronic signatures of each RO’s supervisor on the Forms 4183 were sufficient to constitute approval.
The court additionally reviewed the denial of petitioner’s request to place his account in currently non-collectible (CNC) status. Noting that petitioner failed to submit necessary information, despite repeated opportunities to do so, and his noncompliance with his tax filing obligations for 2015–2017, the court found no abuse of discretion.
Having found no abuse of discretion, the court granted the IRS’s motion for summary judgment and sustained the notice of intent to levy.
Though recent case law has emerged regarding compliance with the statutory requirements of §6751(b)(1), the court looked to the plain statutory text to make clear that TFRPs are penalties subject to the §6751(b)(1) approval requirements.
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