Rules for Supervisory Approval of Penalties, 21564-21572 [2023-07232]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 69 (Tuesday, April 11, 2023)]
[Proposed Rules]
[Pages 21564-21572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07232]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-121709-19]
RIN 1545-BP63


Rules for Supervisory Approval of Penalties

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations regarding 
supervisory approval of certain penalties assessed by the IRS. The 
proposed regulations are necessary to address uncertainty regarding 
various aspects of supervisory approval of penalties that have arisen 
due to recent judicial decisions. The proposed regulations affect the 
IRS and persons assessed certain penalties by the IRS.

DATES: Electronic or written comments and requests for a public hearing 
must be received by July 10, 2023. Requests for a public hearing must 
be submitted as prescribed in the ``Comments and Requests for a Public 
Hearing'' section.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-121709-
19) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish any comments submitted electronically and comments 
submitted on paper, to the public docket. Send paper submissions to: 
CC:PA:LPD:PR (REG-121709-19), Room 5203, Internal Revenue Service, P.O. 
Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
David Bergman, (202) 317-6845; concerning submissions of comments and 
requests for a public hearing, Vivian Hayes (202) 317-5306 (not toll-
free numbers) or by email at [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the Regulations on 
Procedure and Administration (26 CFR part 301) under section 6751(b) of 
the Internal Revenue Code (Code). No regulations have previously been 
issued under section 6751.

1. Legislative Overview

    Section 6751 was added to the Code by section 3306 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 (1998 Act), Public 
Law 105-206, 112 Stat. 685, 744 (1998). Section 6751(a) sets forth the 
content of penalty notices. Section 6751(b) provides procedural 
requirements for the Secretary of the Treasury or her delegate 
(Secretary) to assess certain penalties, including additions to tax or 
additional amounts under the Code. See section 6751(c).
    Section 6751(b)(1), as added by the 1998 Act, provides that ``[n]o 
penalty under this title shall be assessed unless the initial 
determination of such

[[Page 21565]]

assessment is personally approved (in writing) by the immediate 
supervisor of the individual making such determination or such higher 
level official as the Secretary may designate.'' As an exception to 
this rule, section 6751(b)(2), as added by the 1998 Act, provides that 
section 6751(b)(1) ``shall not apply to--(A) any addition to tax under 
section 6651, 6654, or 6655 [of the Code]; or (B) any other penalty 
automatically calculated through electronic means.''
    The report of the United States Senate Committee on Finance 
regarding the 1998 Act (1998 Senate Finance Committee Report) provides 
that Congress enacted section 6751(b)(1) because of its concern that, 
``[i]n some cases, penalties may be imposed without supervisory 
approval.'' S. Rep. No. 105-174, at 65 (1998), 1998-3 C.B. 537, 601. 
The report further states that ``[t]he Committee believes that 
penalties should only be imposed where appropriate and not as a 
bargaining chip.'' Id. The report provides that, to achieve this goal, 
section 6751(b)(1) ``requires the specific approval of IRS management 
to assess all non-computer generated penalties unless excepted.''
    Section 212 of the Taxpayer Certainty and Disaster Tax Relief Act 
of 2020, which was enacted as Division EE of the Consolidated 
Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182, 3067 
(2020), expanded the list of penalties in section 6751(b)(2)(A) 
excepted from the supervisory approval requirement of section 
6751(b)(1) by revising the end of section 6751(b)(2)(A) to read ``6654, 
6655, or 6662 (but only with respect to an addition to tax by reason of 
subsection (b)(9) thereof);'' (relating to the addition to tax under 
section 6662(b)(9) of the Code with regard to the special charitable 
contribution deduction under section 170(p) of the Code for taxable 
years of individuals beginning in 2021). Section 605 of Division T of 
the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 
Stat. 4459, 5395 (2022), further amended section 6751(b)(2)(A) by 
striking ``subsection (b)(9)'' and inserting ``paragraph (9) or (10) of 
subsection (b).'' Section 6662(b)(10) imposes an accuracy-related 
penalty on underpayments attributable to any disallowance of a 
deduction by reason of section 170(h)(7).

2. Judicial Treatment

    In 2016, a United States Tax Court (Tax Court) majority read 
section 6751(b)(1)'s silence about when supervisory approval is 
required to mean that no specific timing requirement exists and, thus, 
the approval need only be obtained at some time, but no particular 
time, prior to assessment. Graev v. Commissioner, 147 T.C. 460, 477-81 
(2016), superseded by 149 T.C. 485 (2017).
    The United States Court of Appeals for the Second Circuit (Second 
Circuit) rejected the Graev court's interpretation of section 
6751(b)(1), finding ambiguity in the statute's phrase ``initial 
determination of such assessment.'' Chai v. Commissioner, 851 F.3d 190, 
218-19 (2d Cir. 2017). The Second Circuit held that, with respect to 
penalties subject to deficiency procedures, section 6751(b)(1) requires 
written approval of the initial penalty determination no later than the 
date the IRS issues the notice of deficiency (or files an answer or 
amended answer asserting such penalty). Id. at 221. The Second Circuit 
reasoned that for supervisory approval to be given force, it must be 
obtained when the supervisor has the discretion to give or withhold it, 
and, for penalties determined in a notice of deficiency, this 
discretion no longer exists upon the issuance of the notice. Id. at 
220. In Graev III, 149 T.C. 485 (2017), the Tax Court reversed its 
earlier interpretation of section 6751(b) and followed Chai. Since 
then, the Tax Court has imposed increasingly earlier deadlines by which 
supervisory approval of the initial penalty determination must be 
obtained to be considered timely under the statute, formulating tests 
that are difficult for IRS employees to apply.
    In Clay v. Commissioner, 152 T.C. 223, 249-50 (2019), the Tax Court 
held that supervisory approval of penalties was too late where it was 
obtained before the IRS issued a notice of deficiency but after the 
revenue agent sent the petitioner a ``30-day letter'' proposing 
penalties and giving the petitioner an opportunity to request an 
administrative appeal. In Belair Woods, LLC v. Commissioner, 154 T.C. 
1, 13 (2020), the Tax Court held that supervisory approval must be 
obtained before the IRS sends a notice that ``formally communicates to 
the taxpayer, the [IRS] Examination Division's unequivocal decision to 
assert a penalty.'' In subsequent cases, the Tax Court has held that 
supervisory approval must be obtained before the first communication to 
the taxpayer that demonstrates that an initial determination has been 
made. See, e.g., Beland v. Commissioner, 156 T.C. 80 (2021); Kroner v. 
Commissioner, T.C. Memo. 2020-73, rev'd 48 F. 4th 1272 (11th Cir. 
2022); Carter v. Commissioner, T.C. Memo. 2020-21, rev'd 2022 WL 
4232170 (11th Cir. Sept. 14, 2022). The Tax Court has applied this 
timing rule to penalties subject to pre-assessment review in the Tax 
Court, as well as to assessable penalties.
    Recently the United States Court of Appeals for the Ninth Circuit 
(Ninth Circuit), the United States Court of Appeals for the Tenth 
Circuit (Tenth Circuit), and the United States Court of Appeals for the 
Eleventh Circuit (Eleventh Circuit) reversed the Tax Court's ``formal 
communication'' timing rule, noting that it has no basis in the text of 
the statute. Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 
F.4th 1066 (9th Cir. 2022), reh'g en banc denied, No. 20-73420 (9th 
Cir. July 14, 2022); Minemyer v. Commissioner, Nos. 21-9006 & 21-9007, 
2023 WL 314832 (10th Cir. Jan. 19, 2023); Kroner v. Commissioner, 48 F. 
4th 1272 (11th Cir. 2022). In Laidlaw's, the Ninth Circuit held that 
the statute requires approval before the assessment of a penalty or, if 
earlier, before the relevant supervisor loses discretion whether to 
approve the penalty assessment, and noted that ``[t]he statute does not 
make any reference to the communication of a proposed penalty to the 
taxpayer, much less a `formal' communication.'' Laidlaw's, 29 F. 4th at 
1072. In Minemyer, the Tenth Circuit, in an unpublished opinion, held 
that the statute requires approval before the IRS issues a notice of 
deficiency asserting a penalty. Minemyer, 2023 WL 314832 at *4-5. In 
Kroner, the Eleventh Circuit held that the statute only requires 
approval before assessment, finding that a deadline of assessment is 
``consistent with the meaning of the phrase `initial determination of 
such assessment,' . . . . reflects the absence of any express timing 
requirement in the statute . . . [and] is a workable reading in light 
of the statute's purpose.'' Kroner, 48 F.4th at 1276. The Tax Court has 
continued to use its ``formal communication'' timing rule subsequent to 
Laidlaw's and Kroner. See, e.g., Simpson v. Commissioner, T.C. Memo 
2023-4; Castro v. Commissioner, T.C. Memo. 2022-120.
    Recent cases have also addressed other issues under section 
6751(b)(1), including (but not limited to) clarification as to who is 
an immediate supervisor, see, e.g., Sand Investment Co. v. 
Commissioner, 157 T.C. 136 (2021); what constitutes personal, written 
approval, see, e.g., PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 
(5th Cir. 2018); whether particular Code sections impose a ``penalty'' 
subject to section 6751(b)(1), see, e.g., Grajales v. Commissioner, 156 
T.C. 55 (2021), aff'd 2022 WL 3640274 (2d Cir. 2022); and what 
constitutes a penalty ``automatically calculated through

[[Page 21566]]

electronic means.'' See, e.g., Walquist v. Commissioner, 152 T.C. 61 
(2019).

Explanation of Provisions

    The Treasury Department and the IRS have concluded that it is in 
the interest of sound tax administration to have clear and uniform 
regulatory standards regarding the penalty approval requirements under 
section 6751(b). In the absence of such regulatory standards, caselaw 
has developed rules for the application of section 6751(b). Such 
judicial holdings are subject to unanticipated but frequent change, 
making it difficult for IRS employees to apply them in a consistent 
manner. The difficulty in applying or anticipating how courts will 
construe these rules has resulted in otherwise appropriate penalties on 
taxpayers not being sustained and has undermined the efficacy of these 
penalties as a tool to enhance voluntary compliance by taxpayers. In 
addition, the evolving standards regarding interpretations of section 
6751(b) have served to increase litigation, which consumes significant 
government resources. The recent Ninth Circuit and Eleventh Circuit 
rulings also create a different test to satisfy the requirements of 
section 6751(b) in cases appealable to those circuits as opposed to 
other cases that come before the Tax Court. See Laidlaw's Harley 
Davidson Sales, 29 F.4th at 1066; Kroner v. Commissioner, 48 F. 4th at 
1276. The proposed regulations are intended to clarify the application 
of section 6751(b) in a manner that is consistent with the statute and 
its legislative history, has nationwide uniformity, is administrable 
for the IRS, and is easily understood by taxpayers.

1. Timing Issues

    The proposed regulations would adopt three rules regarding the 
timing of supervisory approval of penalties under section 6751(b) that 
are based on objective and clear standards. One rule addresses 
penalties that are included in a pre-assessment notice that is subject 
to the Tax Court's review, such as a statutory notice of deficiency. 
One rule is for penalties that the IRS raises in an answer, amended 
answer, or amendment to the answer to a Tax Court petition. And one 
rule is for penalties assessed without prior opportunity for review by 
the Tax Court.
A. Penalties Subject to Pre-Assessment Review in the Tax Court
    Proposed Sec.  301.6751(b)-1(c) provides that, for penalties that 
are included in a pre-assessment notice issued to a taxpayer that 
provides the basis for jurisdiction in the Tax Court upon timely 
petition, supervisory approval may be obtained at any time before the 
notice is issued by the IRS. Section 6751(b) clearly provides that 
there be supervisory approval before the assessment of a penalty and 
contains no express requirement that the ``written approval be obtained 
at any particular time prior to assessment.'' Chai, 851 F.3d at 218. 
Courts have noted that there is ambiguity in the statutory phrase 
``initial determination of such assessment [of the penalty]'' that a 
supervisor must approve. See, e.g., Chai, 851 F.3d at 218-19 (noting 
that since an ``assessment'' is the formal recording of a taxpayer's 
tax liability, one can determine a deficiency and whether to make an 
assessment, but one cannot ``determine'' an assessment); Roth v. 
Commissioner, 922 F.3d 1126, 1132 (10th Cir. 2019) (``[W]e agree with 
the Second Circuit that the plain language of Sec.  6751(b) is 
ambiguous. . . .''). But courts have not agreed that an ambiguity about 
what constitutes an initial determination provides an opportunity to 
craft a deadline for approval of an initial determination from the 
statute's legislative history. Compare Chai, 851 F.3d at 219 with 
Laidlaw's Harley Davidson Sales, 29 F.4th at 1072. Instead, courts have 
agreed that a supervisor can approve a penalty only at a time that the 
supervisor has discretion to give or withhold approval. See, e.g., 
Chai, 851 F.3d at 220; Laidlaw's Harley Davidson Sales, 29 F.4th at 
1074; Cf., Kroner, 48 F. 4th at 1276, n.1 (holding that approval is 
required before assessment but declining to address whether the 
supervisor must have discretion at the time of approval because it was 
undisputed in that case that the supervisor did).
    Prior to the Second Circuit's ruling in Chai, the Tax Court 
interpreted section 6751(b) merely to require supervisory approval 
prior to assessment, which is the only definitive deadline provided in 
the statute and which, for penalties determined in a notice of 
deficiency, occurs after the opportunity for Tax Court review of a 
penalty. See Graev v. Commissioner, 147 T.C. 460 (2016), superseded by 
149 T.C. 485 (2017). The Treasury Department and the IRS acknowledge 
that approval of a penalty after the IRS issues a notice subject to Tax 
Court review is counter to the statutory scheme for Tax Court review. 
Once a taxpayer petitions to the Tax Court a notice that includes a 
penalty, section 6215(a) of the Code directs that the Tax Court decides 
whether the penalty will be assessed. In that case, a supervisor no 
longer has discretion that will control. Further, as a practical 
matter, the IRS has no general process for supervisory approval of a 
penalty after issuing a pre-assessment notice to a taxpayer subject to 
review by the Tax Court that includes the penalty, such as a notice of 
deficiency. If a taxpayer does not timely petition the Tax Court, the 
IRS will simply assess any penalty determined in the notice. Therefore, 
the Treasury Department and the IRS conclude that a penalty appearing 
in a pre-assessment notice issued to a taxpayer subject to Tax Court 
review should be subject to supervisory approval before the notice is 
issued. This interpretation is consistent with the Second Circuit's 
holding in Chai and provides for penalty review while the IRS still has 
discretion regarding penalties. See also Laidlaw's Harley Davidson 
Sales, 29 F.4th at 1074 (``Accordingly, we hold that Sec.  6751(b)(1) 
requires written supervisory approval before the assessment of the 
penalty or, if earlier, before the relevant supervisor loses discretion 
whether to approve the penalty assessment.'').
    The proposed regulations do not require written approval of an 
initial determination of a penalty that is subsequently included in a 
pre-assessment notice subject to review by the Tax Court by any 
deadline earlier than the issuance of the notice to the taxpayer. As 
already mentioned, no language in the statute imposes any such earlier 
deadline, and the statutory scheme for assessing such penalties does 
not deprive a supervisor of discretion to approve an initial 
determination before the issuance of a pre-assessment notice subject to 
review by the Tax Court.
    The Treasury Department and the IRS have concluded that an earlier 
deadline for approval of an initial determination of a penalty would 
not best serve the legislative purpose of section 6751(b). The lack of 
any deadline in the statute other than the deadline that approval must 
come before assessment indicates that Congress did not intend an 
earlier deadline. No earlier deadline is mentioned in the legislative 
history. To create earlier deadlines, the caselaw relies on a single 
statement in the limited legislative history that ``[t]he Committee 
believes that penalties should only be imposed where appropriate and 
not as a bargaining chip.'' See Belair Woods, 154 T.C. at 7 (citing S. 
Rep. No. 105-174, at 65 (1998)). But the earlier deadlines created by 
the Tax Court do not ensure that penalties are only imposed where 
appropriate.
    First, the supervisory approval deadlines the Tax Court has created 
are unclear in application. One formulation

[[Page 21567]]

sets the deadline for approval to occur before the IRS ``formally 
communicates to the taxpayer, the Examination Division's unequivocal 
decision to assert a penalty.'' Belair Woods, 154 T.C. at 13. Prior to 
assessment, it is unclear what constitutes this unequivocal decision 
other than a notice that gives the taxpayer the right to petition the 
Tax Court. For any notice before the right to petition the Tax Court, 
the taxpayer is free to present more evidence or arguments to the 
Examination Division as to why a penalty should not apply, which could 
lead the IRS supervisor charged with approving an initial determination 
to conclude that a penalty should not be asserted.
    Second, if the ``Examination Division's unequivocal decision to 
assert a penalty,'' id., means that the Examination Division was 
finished with its work and could or would not change its mind upon 
receiving further information, there is no harm in delaying approval in 
writing until sometime after that moment. There would be no possibility 
of a change to the penalty during the period after the Examination 
Division has completed its work. The Tax Court's imposition of an 
approval deadline immediately after the Examination Division has 
completed its work rather than sometime later would do nothing to 
prevent an attempt to bargain because the Examination Division could 
not consider a bargain if it has already completed its work
    Third, none of the deadlines the Tax Court has imposed actually 
ensure that penalties could never be used as a bargaining chip because 
each formulation of what constitutes an ``initial determination'' has 
been tied to a written communication. Although it would violate 
longstanding IRS Policy Statements and would contradict the Internal 
Revenue Manual's (IRM) instructions, in theory a penalty could be used 
as a bargaining chip if conveyed orally, and the deadlines the Tax 
Court has created do not come into play without written communication. 
As a result, the Tax Court opinions imposing deadlines are not 
effective to prevent bargaining.
    Fourth, the courts' struggles to determine a consistent deadline 
has undermined the legislative purpose that penalties be imposed 
``where appropriate.'' S. Rep. No. 105-714 at 65. The Tax Court has 
found no evidence that an IRS employee actually attempted to use a 
penalty as a bargaining chip in any of the cases in which it 
invalidated a penalty for section 6751(b) noncompliance. Instead, the 
Tax Court has consistently removed penalties when IRS employees simply 
obtained written supervisory approval after deadlines the Tax Court 
created and applied retroactively without any indication that the 
penalty was improper. See, e.g., Kroner, T.C. Memo. 2020-73, rev'd 48 
F. 4th 1272 (11th Cir. 2022); Carter, T.C. Memo. 2020-21, rev'd 2022 WL 
4232170 (11th Cir. Sept. 14, 2022). In one case, the Tax Court 
explicitly noted that imposition of the penalty would be proper but for 
the IRS's failure to obtain written supervisory approval by the 
deadline created by the Tax Court. See Becker v. Commissioner, T.C. 
Memo. 2018-69 (stating that ``Mr. Becker's fraud is evident'' and that, 
but for section 6751(b) compliance, the court's analysis ``would 
normally lead to a holding that sustains the Commissioner's civil fraud 
penalty determinations . . .'').
    In contrast, by allowing a supervisor to approve the initial 
determination of a penalty up until the time the IRS issues a pre-
assessment notice subject to review by the Tax Court, the proposed rule 
ensures that penalties are ``only [ ] imposed where appropriate.'' S. 
Rep. No. 105-714 at 65. With this deadline, the supervisor has the 
opportunity to consider a taxpayer's defense against a penalty, if 
applicable, and decide whether to approve the penalty. If the facts of 
the case suggest that a penalty should have been considered but none is 
imposed, the supervisor's later review would allow the supervisor to 
question why none was recommended. Furthermore, this bright-line rule 
relieves supervisors from having to predict whether approval at a 
certain point will be too early or too late, thereby risking that an 
otherwise appropriate penalty may not be upheld by a court. Pre-
assessment notices that provide a basis for Tax Court jurisdiction are 
well known to supervisors, and the proposed rule will be clear in 
application to both IRS employees and taxpayers.
    Finally, the rule in proposed Sec.  301.6751(b)-1(c) is consistent 
with longstanding IRS Policy Statements. Penalty Policy Statement 20-1 
has, since 2004, included the following direction to IRS employees:
    ``The [IRS] will demonstrate the fairness of the tax system to all 
taxpayers by:
    a. Providing every taxpayer against whom the [IRS] proposes to 
assess penalties with a reasonable opportunity to provide evidence that 
the penalty should not apply;
    b. Giving full and fair consideration to evidence in favor of not 
imposing the penalty, even after the [IRS]'s initial consideration 
supports imposition of a penalty; and
    c. Determining penalties when a full and fair consideration of the 
facts and the law support doing so.

    Note: This means that penalties are not a ``bargaining point'' 
in resolving the taxpayer's other tax adjustments. Rather, the 
imposition of penalties in appropriate cases serves as an incentive 
for taxpayers to avoid careless or overly aggressive tax reporting 
positions.''

IRM 1.2.1.12.1 (9). As reflected in this Policy Statement and the 
language of section 6751(b) itself, it may not be until the IRS has had 
the opportunity to develop the facts in support of or against the 
penalty that a supervisor is in the best position to approve an initial 
determination to assert a penalty as appropriate. Therefore, the 
Treasury Department and the IRS have concluded that the deadline for 
providing approval for penalties appearing in a pre-assessment notice 
that entitles a taxpayer to petition the Tax Court should be no earlier 
than issuance of such notice.
B. Penalties Raised in the Tax Court After a Petition
    Proposed Sec.  301.6751(b)-1(d) provides that, for penalties raised 
in the Tax Court after a petition, supervisory approval may be obtained 
at any time prior to the Commissioner requesting that the court 
determine the penalty. The proposed rule gives full effect to the 
language in both sections 6214 and 6751(b)(1) because once a penalty is 
raised, the Tax Court decision will control whether it is assessed. 
Section 6214(a) permits the Commissioner to raise penalties in an 
answer or amended answer that were not included in a notice that 
provides the basis for Tax Court jurisdiction upon timely petition. The 
proposed rule allows the exercise of this statutory grant of 
independent judgment by the IRS Office of Chief Counsel (Counsel) 
attorney, while maintaining the intent of Congress that penalties be 
imposed only where appropriate, and with meaningful supervisory review. 
Any concern about a Counsel attorney using penalties raised in an 
answer or amended answer as a bargaining chip is mitigated by the 
requirement in proposed Sec.  301.6751(b)-1(d) for supervisory approval 
within Counsel before the answer or amended answer is filed. Moreover, 
by raising a penalty on answer, amended answer, or amendment to the 
answer to, the Commissioner will likely bear the burden of proof at 
trial regarding the application of the penalty, thus reducing further 
the possibility that Counsel will attempt to use a penalty as

[[Page 21568]]

a bargaining chip in a docketed case. See Tax Court Rule 142. 
Furthermore, Tax Court Rule 33(b) provides that signature of counsel on 
a pleading constitutes a certificate by the signer that the pleading is 
not interposed for any improper purpose, thus diminishing the potential 
for abuse. No case has found that a penalty raised on answer, amended 
answer, or amendment to the answer was untimely under section 6751(b).
C. Penalties Not Subject to Pre-Assessment Review in the Tax Court
    Proposed Sec.  301.6751(b)-1(b) provides that supervisory approval 
for penalties that are not subject to pre-assessment review in the Tax 
Court may be obtained at any time prior to assessment. This includes 
penalties that could have been included in a pre-assessment notice that 
provides the basis for Tax Court jurisdiction upon timely petition, but 
which were not included in such a notice because the taxpayer agreed to 
their immediate assessment.
    Unlike penalties subject to deficiency procedures before 
assessment, there is no Tax Court or potential Tax Court decision that 
would make approval of an immediately assessable penalty by an IRS 
supervisor meaningless. Instead, consistent with the language of 
section 6751(b), supervisory approval can be made at any time before 
assessment without causing any tension in the statutory scheme for 
assessing penalties.
    The proposed rule is also consistent with congressional intent that 
penalties not be used as a bargaining chip. Most penalties not subject 
to pre-assessment review in the Tax Court cannot be used as a 
bargaining chip because they are not in addition to a tax liability. 
Rather, the penalty is the sole liability at issue.

2. Exceptions to the Rule Requiring Supervisory Approval of Penalties

    Proposed Sec.  301.6751(b)-1(a)(2) provides a list of penalties 
excepted from the requirements of section 6751(b). Proposed Sec.  
301.6751(b)-1(a)(2) excepts those penalties listed in section 
6751(b)(2)(A), along with penalties imposed under section 6673 of the 
Code. Penalties under section 6673 are imposed at the discretion of the 
court and are designed to deter bad behavior in litigation and conserve 
judicial resources. Section 6673 penalties are not determined by the 
Commissioner, and the applicable Federal court may impose them 
regardless of whether the Commissioner moves for their imposition. The 
proposed rule excepts penalties under section 6673 from the 
requirements of section 6751(b)(1) because section 6751(b)(1) was not 
intended as a mechanism to restrain Federal courts. This rule is 
consistent with the Tax Court's holding in Williams v. Commissioner, 
151 T.C. 1 (2018).

3. Definitions

A. Immediate Supervisor and Designated Higher Level Officials
    Section 6751(b)(1) requires approval by ``the immediate 
supervisor'' of the individual who makes the initial penalty 
determination, or such higher level official as the Secretary may 
designate. The statute does not define the term immediate supervisor. 
The 1998 Senate Finance Committee Report only provides that section 
6751(b) requires the approval of ``IRS management.'' In Sand 
Investment, the Tax Court held that for purposes of section 6751(b) the 
``immediate supervisor'' is the individual who directly supervises the 
examining agent's work in an examination. In the Tax Court's view, the 
legislative history of section 6751(b) supports the conclusion that the 
person with the greatest familiarity with the facts and legal issues 
presented by the case is the immediate supervisor. 157 T.C. at 142.
    Proposed Sec.  301.6751(b)-1(a)(3)(iii) defines the term 
``immediate supervisor'' as any individual with responsibility to 
approve another individual's proposal of penalties without the proposal 
being subject to an intermediary's approval. The proposed rule does not 
limit the term immediate supervisor to a single individual. To limit 
the term to a single individual within the IRS would restrict section 
6751(b)(1) in a way that does not reflect how the IRS operates and 
would invite unwarranted disputes about which specific individual was 
most appropriate in situations where multiple individuals could fairly 
be considered an ``immediate supervisor.'' Instead, the term is better 
understood to refer to any person who, as part of their job, directly 
approves a penalty proposed by another. This includes acting 
supervisors operating under a proper delegation of authority. This 
approach is consistent with the intent of Congress to prevent IRS 
examining agents from operating alone. The proposed rule further 
ensures that the person giving the approval has appropriate supervisory 
responsibility with respect to the penalty.
    Proposed Sec.  301.6751(b)-1(a)(4) designates as a higher level 
official authorized to approve an initial penalty determination for 
purposes of section 6751(b)(1) any person who has been directed via the 
IRM or other assigned job duties to approve another individual's 
proposal of penalties before they are included in a notice prerequisite 
to Tax Court jurisdiction, an answer to a Tax Court petition, or are 
assessed without need for such inclusion. Proposed Sec.  301.6751(b)-
1(a)(3)(iv) defines a higher level official as any person designated as 
such under proposed Sec.  301.6751(b)-1(a)(4).
    With respect to ``higher level officials'' who may provide penalty 
approval in lieu of the immediate supervisor, the statute does not 
specify whether the official needs to be at a ``higher level'' than the 
individual making the initial penalty determination, or at a higher 
level than that individual's supervisor. Read in light of the statute's 
legislative purpose and the structure and operations of the IRS, it is 
appropriate to understand that term as referring to an official at a 
higher level than the individual making the initial penalty 
determination. To do otherwise would be to exclude a large group of 
individuals the IRS has assigned to review proposed penalties. This 
approach is consistent with the legislative history and allows IRS 
employees to operate within the scope of their assigned duties.
    To be able to identify which supervisor should approve an initial 
penalty determination, it must be clear which individual made the 
``initial determination of [a penalty] assessment.'' Proposed Sec.  
301.6751(b)-1(a)(3)(ii) provides that the individual who first proposes 
a penalty is the individual who section 6751(b)(1) references as the 
individual making the initial determination of a penalty assessment. 
Proposed Sec.  301.6751(b)-1(a)(3)(ii) also provides that a proposal 
includes those made either to a taxpayer or to the individual's 
supervisor or a designated higher level official. This approach will 
allow for easy identification of the appropriate supervisor or higher 
level official. Proposed Sec.  301.6751(b)-1(a)(3)(ii) also makes clear 
that the assessment of a penalty must be attributable to an 
individual's proposal for that individual to be considered as the 
individual who made the ``initial determination of such assessment.'' 
If a proposal of a penalty is not tied to an ultimate assessment, then 
it should not be treated as the ``initial determination of such 
assessment.'' This approach allows the IRS the flexibility to pursue 
penalties when new information is received that alters earlier thinking 
on whether a penalty is appropriate. It also allows for more than one 
set of an individual employee and supervisor to exercise

[[Page 21569]]

independent judgment about whether a penalty should be assessed. This 
situation is illustrated by an example in proposed Sec.  301.6751(b)-
1(e)(4).
B. Personally Approved (in Writing)
    Section 6751(b)(1) requires that the immediate supervisor 
``personally approve (in writing)'' the initial determination to assert 
a penalty. Proposed Sec.  301.6751(b)-1(a)(3)(v) provides that 
``personally approved (in writing)'' means any writing, including in 
electronic form, that is made by the writer to signify the writer's 
assent and that reflects that it was intended as approval. The proposed 
rule reflects a straightforward, plain language interpretation of the 
term, and is consistent with the legislative history's requirement that 
``specific approval'' be given. The plain language of the statute 
requires only personal approval in writing, not any particular form of 
signature or even any signature at all. The plain language of the 
statute also contains no requirement that the writing contain the 
supervisor's substantive analysis, nor does the statute require the 
supervisor to follow any specific procedure in determining whether to 
approve the penalty. Thus, for example, a supervisor's signature on a 
cover memorandum or a letter transmitting a report containing penalties 
is sufficient approval of the penalties contained in the report. The 
proposed rule is consistent with existing caselaw on this issue. See 
PBBM-Rose Hill, 900 F.3d at 213; Deyo v. Commissioner, 296 Fed. Appx. 
157 (2d Cir. 2008); Thompson v. Commissioner, T.C. Memo. 2022-80; 
Raifman v. Commissioner, T.C. Memo. 2018-101.
C. Automatically Calculated Through Electronic Means
    Section 6751(b)(2) exempts from the penalty approval requirements 
penalties under sections 6651, 6654, 6655, 6662(b)(9), and 6662(b)(10) 
and ``any other penalty automatically calculated through electronic 
means.'' The term is not defined in the statute and the legislative 
history only provides that approval is required of ``all non-computer 
generated penalties.''
    Proposed Sec.  301.6751(b)-1(a)(3)(vi) provides that a penalty is 
``automatically calculated through electronic means'' if it is proposed 
by an IRS computer program without human involvement. Proposed Sec.  
301.6751(b)-1(a)(3)(vi) provides that a penalty is no longer considered 
``automatically calculated through electronic means'' if a taxpayer 
responds to a computer-generated notice proposing a penalty and 
challenges the penalty or the amount of tax to which the penalty is 
attributable, and an IRS employee works the case.
    Current IRS computer software, including but not limited to the 
Automated Correspondence Exam (ACE) program using Report Generation 
Software (RGS) and the Automated Underreporter (AUR) program, is 
capable of automatically proposing certain penalties to taxpayers 
without the involvement of an IRS examiner. Penalties that can be 
proposed in this way are then assessed without review by an IRS 
examiner. Requiring supervisory approval for these penalties would 
disrupt the automated process of determining a penalty and would not 
square with the statutory text requiring approval by the immediate 
supervisor of the ``individual'' making an initial penalty 
determination.
    When an IRS computer program sends a taxpayer a notice proposing a 
penalty and the taxpayer responds to that notice, an IRS examiner often 
considers the taxpayer's response. If the taxpayer's response questions 
the validity of the penalty or the adjustments to which the penalty 
relates, and an examiner considers the response, any subsequent 
assessment of the penalty would not be based solely on the automatic 
calculation of the penalty by the computer program. Instead, it would 
be at least partially based on a choice made by an IRS employee as to 
whether the penalty is appropriate. Therefore, the exception for 
penalties automatically calculated through electronic means does not 
apply, and supervisory approval is required in that situation. This 
rule is consistent with the Tax Court's holding in Walquist, 152 T.C. 
at 73.

Proposed Applicability Dates

    The proposed rules are proposed to apply to penalties assessed on 
or after the date of publication of the Treasury decision adopting the 
proposed rules as final regulations in the Federal Register.

Special Analyses

I. Regulatory Planning and Review

    It has been determined that this notice of proposed rulemaking is 
not subject to review under section 6(b) of Executive Order 12866 
pursuant to the Memorandum of Agreement (April 11, 2018) between the 
Treasury Department and the Office of Management and Budget regarding 
review of tax regulations.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that this regulation will not have a significant 
economic impact on a substantial number of small entities. This 
certification is based on this regulation imposing no obligations on 
small entities and the effectiveness of the regulation in having 
supervisors ensure that penalties for violations of other provisions of 
tax law are appropriate and not used as a bargaining chip. Because only 
appropriate penalties will apply with the proper application of this 
regulation, the proposed regulations do not impose a significant 
economic impact on a substantial number of small entities.
    Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking has been submitted to the Chief Counsel 
for the Office of Advocacy of the Small Business Administration for 
comment on its impact on small business.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This rule does not include any Federal mandate that may 
result in expenditures by State, local, or Tribal governments, or by 
the private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations do not 
have federalism implications and do not impose substantial direct 
compliance costs on state and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS

[[Page 21570]]

request comments on all aspects of the proposed rules. All comments 
will be available at www.regulations.gov or upon request.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing also are encouraged to be made electronically. If a 
public hearing is scheduled, notice of the date and time for the public 
hearing will be published in the Federal Register. Announcement 2020-4, 
2020-17 I.R.B 1, provides that, until further notice, public hearings 
conducted by the IRS will be held telephonically. Any telephonic 
hearing will be made accessible to people with disabilities.

Drafting Information

    The principal author of these regulations is David Bergman of the 
Office of the Associate Chief Counsel (Procedure and Administration). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendment to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 301 as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805.

0
Par. 2. Section 301.6751(b)-1 is added to read as follows:


Sec.  301.6751(b)-1  Supervisory and higher level official approval for 
penalties.

    (a) Approval requirement--(1) In general. Except as provided in 
paragraph (a)(2) of this section, section 6751(b) of the Internal 
Revenue Code (Code) generally bars the assessment of a penalty unless 
the initial determination of the assessment of the penalty is 
personally approved (in writing) by the immediate supervisor of the 
individual making the initial determination or such higher level 
official as the Secretary of the Treasury or her delegate (Secretary) 
may designate. Paragraph (a)(2) of this section lists penalties not 
subject to section 6751(b)(1) and this paragraph (a)(1). Paragraph 
(a)(3) of this section provides definitions of terms used in section 
6751(b) and this section. Paragraph (a)(4) of this section designates 
the higher level officials described in this paragraph (a)(1). 
Paragraphs (b), (c), and (d) of this section apply section 6751(b)(1) 
and this paragraph (a)(1) to penalties not subject to pre-assessment 
review in the Tax Court, penalties that are subject to pre-assessment 
review in the Tax Court, and penalties raised in the Tax Court after a 
petition, respectively. Paragraph (e) of this section provides examples 
illustrating the application of section 6751(b) and this section. 
Paragraph (f) of this section provides dates of applicability of this 
section.
    (2) Exceptions. Under section 6751(b)(2), section 6751(b)(1) and 
this section do not apply to:
    (i) Any penalty under section 6651, 6654, 6655, 6673, 6662(b)(9), 
or 6662(b)(10) of the Code; or
    (ii) Any other penalty automatically calculated through electronic 
means.
    (3) Definitions. For purposes of section 6751(b) and this section, 
the following definitions apply--
    (i) Penalty. The term penalty means any penalty, addition to tax, 
or additional amount under the Code.
    (ii) Individual who first proposed the penalty. Except as otherwise 
provided in this paragraph (a)(3)(ii), the individual who first 
proposed the penalty is the individual who section 6751(b)(1) and 
paragraph (a)(1) of this section reference as the individual making the 
initial determination of a penalty assessment. A proposal of a penalty 
can be made to either a taxpayer (or the taxpayer's representative) or 
to the individual's supervisor or designated higher level official. A 
proposal of a penalty, as defined in paragraph (a)(3)(i) of this 
section, to a taxpayer does not include mere requests for information 
relating to a possible penalty or inquiries of whether a taxpayer wants 
to participate in a general settlement initiative for which the 
taxpayer may be eligible, but does include offering the taxpayer an 
opportunity to agree to a particular penalty in a particular amount 
other than a penalty under a settlement initiative offered to a class 
of taxpayers. An individual who first proposed the penalty is not the 
individual whom section 6751(b)(1) and paragraph (a)(1) of this section 
reference as the individual making the initial determination of a 
penalty assessment if the assessment of the penalty is attributable to 
an independent proposal made by a different individual.
    (iii) Immediate supervisor. The term immediate supervisor means any 
individual with responsibility to approve another individual's proposal 
of penalties, as defined in paragraph (a)(3)(i) of this section, 
without the proposal being subject to an intermediary's approval.
    (iv) Higher level official. The term higher level official means 
any person designated under paragraph (a)(4) of this section as a 
higher level official authorized to approve a penalty for purposes of 
section 6751(b)(1).
    (v) Personally approved (in writing). The term personally approved 
(in writing) means any writing, including in electronic form, made by 
the writer to signify the writer's assent. No signature or particular 
words are required so long as the circumstances of the writing reflect 
that it was intended as approval.
    (vi) Automatically calculated through electronic means. A penalty, 
as defined in paragraph (a)(3)(i) of this section, is automatically 
calculated through electronic means if an IRS computer program 
automatically generates a notice to the taxpayer that proposes the 
penalty. If a taxpayer responds in writing or otherwise to the 
automatically-generated notice and challenges the proposed penalty, or 
the amount of tax to which the proposed penalty is attributable, and an 
IRS employee considers the response prior to assessment (or the 
issuance of a notice of deficiency that includes the penalty), then the 
penalty is no longer considered ``automatically calculated through 
electronic means.''
    (4) Higher level official. Any person who has been directed by the 
Internal Revenue Manual or other assigned job duties to approve another 
individual's proposal of penalties before they are included in a pre-
assessment notice prerequisite to United States Tax Court (Tax Court) 
jurisdiction, an answer, amended answer, or amendment to the answer to 
a Tax Court petition, or are assessed without need for such inclusion, 
is designated as a higher level official authorized to approve the 
penalty for purposes of section 6751(b)(1).
    (b) Penalties not subject to pre-assessment review in the Tax 
Court. The requirements of section 6751(b)(1) and paragraph (a)(1) of 
this section are satisfied for a penalty that is not subject to pre-
assessment review in the Tax Court if the immediate supervisor of the 
individual who first proposed the penalty personally approves the 
penalty in writing before the penalty is assessed. Alternatively, a 
person designated as a higher level official as described in paragraph 
(a)(4) of this section may

[[Page 21571]]

provide the approval otherwise required by the immediate supervisor.
    (c) Penalties subject to pre-assessment review in the Tax Court. 
The requirements of section 6751(b)(1) and paragraph (a)(1) of this 
section are satisfied for a penalty that is included in a pre-
assessment notice that provides a basis for Tax Court jurisdiction upon 
timely petition if the immediate supervisor of the individual who first 
proposed the penalty personally approves the penalty in writing on or 
before the date the notice is mailed. Alternatively, a person 
designated as a higher level official as described in paragraph (a)(4) 
of this section may provide the approval otherwise required by the 
immediate supervisor. Examples of a pre-assessment notice described in 
this paragraph (c) include a statutory notice of deficiency under 
section 6212 of the Code, a notice of final partnership administrative 
adjustment under former section 6223 of the Code, and a notice of final 
partnership adjustment under section 6231 of the Code.
    (d) Penalties raised in the Tax Court after a petition. The 
requirements of section 6751(b)(1) and paragraph (a)(1) of this section 
are satisfied for a penalty that the Commissioner raises in the Tax 
Court after a petition (see section 6214(a) of the Code) if the 
immediate supervisor of the individual who first proposed the penalty 
personally approves the penalty in writing no later than the date on 
which the Commissioner requests that the court determine the penalty. 
Alternatively, a person designated as a higher level official as 
described in paragraph (a)(4) of this section may provide the approval 
otherwise required by the immediate supervisor.
    (e) Examples. The following examples illustrate the rules of this 
section.
    (1) Example 1. In the course of an audit regarding a penalty not 
subject to pre-assessment review in the Tax Court, Revenue Agent A 
concludes that Taxpayer T should be subject to the penalty under 
section 6707A of the Code for failure to disclose a reportable 
transaction. A sends T a letter giving T the options to agree to the 
penalty; submit additional information to A about why the penalty 
should not apply; or request within 30 days that the matter be sent to 
the Independent Office of Appeals (Appeals) for consideration. After T 
requests that Appeals consider the case, A prepares the file for 
transmission, and B (who is A's immediate supervisor, as defined in 
paragraph (a)(3)(iii) of this section) signs a cover memorandum 
informing Appeals of the Office of Examination's proposed penalty and 
asking Appeals to consider it. The Appeals Officer upholds the penalty, 
and it is assessed. The requirements of section 6751(b)(1) are 
satisfied because B's signature on the cover memorandum is B's personal 
written assent to the penalty proposed by A and was given before the 
penalty was assessed.
    (2) Example 2. In the course of an audit, Revenue Agent A concludes 
that Taxpayer T should be subject to an accuracy-related penalty for 
substantial understatement of income tax under section 6662(b)(2). A 
sends T a Letter 915, Examination Report Transmittal, along with an 
examination report that includes the penalty. The Letter 915 gives T 
the options to agree to the examination report; provide additional 
information to be considered; discuss the report with A or B (who is 
A's immediate supervisor, as defined in paragraph (a)(3)(iii) of this 
section); or request a conference with an Appeals Officer. T agrees to 
assessment of the penalty and signs the examination report to consent 
to the immediate assessment and collection of the amounts shown on the 
report. B provides written supervisory approval of the penalty after T 
signs the examination report, but before the penalty is assessed. 
Paragraph (b) of this section applies because T's agreement to 
assessment of the penalty excepts it from pre-assessment review in the 
Tax Court. Because B provided written supervisory approval before 
assessment of the penalty, the requirements of section 6751(b) are 
satisfied.
    (3) Example 3. In the course of an audit of Taxpayer T by a team of 
revenue agents, Revenue Agent A concludes that T should be subject to 
an accuracy-related penalty for negligence under sections 6662(b)(1) 
and 6662(c). Supervisor B is the issue manager and is assigned the duty 
to approve the Notice of Proposed Adjustment for any penalty A would 
propose. A reports to B, but B is not responsible for the overall 
management of the audit of T. C is the case manager of the team 
auditing T and is responsible for the overall management of the audit 
of T. C may assign tasks to A and other team members, and has 
responsibility for approving any examination report presented to T.
    (i) Only B approves the penalty in writing before the mailing to T 
of a notice of deficiency that includes the penalty. Under paragraph 
(a)(3)(iii) of this section, B qualifies as the immediate supervisor of 
A with respect to A's penalty proposal, and the requirements of section 
6751(b)(1) are met.
    (ii) Only C approves the penalty in writing before the mailing to T 
of a notice of deficiency that includes the penalty. Because C has 
responsibility to approve A's proposal of the penalty as part of 
approving the examination report, C qualifies as a higher level 
official designated under paragraph (a)(4) of this section to approve 
the penalty proposed by A, and the requirements of section 6751(b)(1) 
are met.
    (4) Example 4. In the course of an audit, Revenue Agent A concludes 
that Taxpayer T should be subject to a penalty for negligence under 
section 6662(c). A recommends the penalty to her immediate supervisor 
B, who thinks more factual development is needed to support the penalty 
but must close the audit immediately due to the limitations period on 
assessment expiring soon. The IRS issues a statutory notice of 
deficiency without the penalty and T petitions the Tax Court. In 
reviewing the case file and conducting discovery, IRS Chief Counsel 
Attorney C concludes that the facts support imposing a negligence 
penalty under section 6662(c). Attorney C proposes to her immediate 
supervisor, D, that the penalty should apply and should be raised in an 
Answer pursuant to section 6214(a). D agrees and signs the Answer that 
includes the penalty before it is filed. The section 6662(c) penalty at 
issue is subject to pre-assessment review in the Tax Court and was 
raised in the Tax Court after a petition under paragraph (d) of this 
section. Therefore, written supervisory approval under paragraph (d) of 
this section was required prior to filing the written pleading that 
includes the penalty. Attorney C is the individual who first proposed 
the penalty for purposes of section 6751(b)(1) and paragraphs (d) and 
(a)(3)(ii) of this section, and she secured timely written supervisory 
approval from D, the immediate supervisor, as defined in paragraph 
(a)(3)(iii) of this section, so the requirements of section 6751(b)(1) 
are met. Revenue Agent A did not make the initial determination of the 
penalty assessment because any assessment would not be attributable to 
A's proposal but would be based on the independent proposal of Attorney 
C raised pursuant to section 6214(a).
    (5) Example 5. The IRS's Automated Underreporter (AUR) computer 
program detects a discrepancy between the information received from a 
third party and the information contained on Taxpayer T's return. AUR 
automatically generates a CP2000, Notice of Underreported Income, that 
includes an adjustment based on the unreported

[[Page 21572]]

income and a proposed penalty under section 6662(d) that is mailed to 
T. The CP2000 gives T 30 days to respond to contest the proposed 
adjustments and the penalty. T submits a response to the CP2000, asking 
only for more time to respond. More time is granted but no further 
response is received from T, and a statutory notice of deficiency that 
includes the adjustments and the penalty is automatically generated and 
issued to T. The section 6662(d) penalty at issue is automatically 
calculated through electronic means under paragraphs (a)(2)(ii) and 
(a)(3)(vi) of this section. The penalty was proposed by the AUR 
computer program, which generated a notice to T that proposed the 
penalty. Although T submitted a response to the CP2000, the response 
did not challenge the proposed penalty, or the amount of tax to which 
the proposed penalty is attributable. Therefore, the penalty was 
automatically calculated through electronic means and written 
supervisory approval was not required.
    (f) Applicability date. The rules of this section apply to 
penalties assessed on or after [the date of publication of the Treasury 
decision adopting these rules as final regulations in the Federal 
Register].

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-07232 Filed 4-10-23; 8:45 am]
BILLING CODE 4830-01-P