FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LAIDLAW’S HARLEY DAVIDSON 

SALES, INC.,

Petitioner-Appellee,

v.

COMMISSIONER OF INTERNAL 

REVENUE,

Respondent-Appellant.

No. 20-73420

Tax Ct. No.

14616-14L

OPINION

Appeal from a Decision of the

United States Tax Court

Argued and Submitted December 6, 2021

Pasadena, California

Filed March 25, 2022

Before: Marsha S. Berzon, Carlos T. Bea, and

Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Bea;

Dissent by Judge Berzon
2 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

SUMMARY*

Tax

The panel reversed a decision of the Tax Court granting 

summary judgment to a taxpayer, in a case involving when 

a supervisor must provide the written approval required by 

26 U.S.C. § 6751(b) before the Internal Revenue Service 

assesses certain penalties.

Taxpayer was required to disclose its participation in a 

purported welfare benefit plan (“Plan”) as a “listed 

transaction.” Taxpayer initially did not disclose its 

participation in the Plan, but later acknowledged that the 

Plan was a listed transaction. A Revenue Agent (RA) made 

the initial determination to assert a penalty for failure to 

disclose. The RA so notified taxpayer by issuing a “30-day 

letter.” Although the letter stated that if the taxpayer took no 

action by the 30-day response date, “we will assess the 

penalty and begin collection procedures,” no supervisor had 

yet provided the written approval for the penalty as required 

by § 6751(b). The RA’s immediate supervisor provided the 

written approval after the 30-day period had expired, and 

after taxpayer had submitted a letter protesting the proposed 

penalty.

Taxpayer’s administrative appeal was unsuccessful, the 

IRS assessed the penalty, then issued a notice of intent to 

levy. After a collection-due-process (CDP) hearing, 

taxpayer filed a petition in the Tax Court challenging the 

Appeals Office’s notice of determination from the CDP 

* This summary constitutes no part of the opinion of the court. It 

has been prepared by court staff for the convenience of the reader.
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 3

hearing. Following a remand for the Appeals Office to 

consider certain issues not raised in this appeal, and a 

supplemental notice of determination, the Tax Court agreed 

that the IRS had not complied with the written supervisory 

requirement in § 6751(b), and granted summary judgment in 

favor of taxpayer.

The panel held that § 6751(b) requires written 

supervisory approval before assessment of the penalty or, if 

earlier, before the relevant supervisor loses discretion 

whether to approve the penalty assessment. Here, the 

supervisor gave written approval of the initial penalty 

determination before the penalty was assessed and while she 

still had discretion to withhold approval. The panel 

concluded that the IRS had satisfied § 6751(b). Accordingly, 

the panel reversed the Tax Court’s grant of taxpayer’s 

motion for summary judgment, and remanded for further 

proceedings.

Judge Berzon dissented, and would have affirmed the 

Tax Court’s judgment for different reasons. Judge Berzon 

would read the statute to require that a supervisor personally 

approve the “initial determination” of a penalty by a 

subordinate, or else no penalty can be assessed based on that 

determination, whether the proposed penalty is objected to 

or not. Because the 30-day letter in this case made clear that 

the initial determination would have operative effect unless 

objected to, supervisory approval was required at a time 

when it would be meaningful—before the letter was sent. 

Judge Berzon explained that this reading of the statute is 

consistent with Congress’s purpose of preventing threatened 

penalties never approved by supervisory personnel from 

being used as a “bargaining chip” by lower-level staff.
4 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

COUNSEL

Jacob Earl Christensen (argued), Francesca Ugolini, and 

Kathleen E. Lyon, Attorneys, Tax Division; David A. 

Hubbert, Acting Assistant Attorney General; United States 

Department of Justice, Washington, D.C.; for RespondentAppellant.

William J. Wise (argued), Chicago, Illinois, for PetitionerAppellee.

OPINION

BEA, Circuit Judge:

Section 6751(b)(1) of the Internal Revenue Code 

(“I.R.C.”) (26 U.S.C.), states that “[n]o penalty . . . shall be 

assessed unless the initial determination of such assessment 

is personally approved (in writing)” by a supervisor. At 

issue in this case is exactly when the supervisor must provide 

the approval. The Tax Court granted Laidlaw’s Harley 

Davidson Sales, Inc. (“Taxpayer”) summary judgment 

because it held that § 6751(b)(1) “requires the [Internal 

Revenue Service (“IRS”)] to obtain written supervisory 

approval before it formally communicates to the taxpayer its 

determination that the taxpayer is liable for the penalty.” On 

appeal, the Commissioner of Internal Revenue 

(“Commissioner”) argues that § 6751(b)(1) requires 

supervisory approval only before a penalty is assessed and 

while the supervisor retains discretion whether to approve of 

the penalty determination, which in this case the supervisor 

retained even after the IRS formally communicated its 

determination of liability to Taxpayer. We have jurisdiction 

under I.R.C. § 7482(a)(1) and reverse.
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 5

I. BACKGROUND

The facts of this case are not in dispute. Taxpayers must 

disclose participation in transactions designated by the IRS 

as “listed transactions” by attaching a disclosure statement 

to their return for each taxable year in which they participate 

in such a transaction. I.R.C. § 6011(a); 26 C.F.R. § 1.6011-

4(a), (b)(2), (e). The penalty for a corporation’s failure to 

disclose a reportable transaction is generally 75% of the 

decrease in tax shown on the return as a result of the 

transaction, but must be at least $10,000 and at most 

$200,000. I.R.C. § 6707A(a)–(b).

In 1999, Taxpayer became a participating employer in a 

purported welfare benefit plan called the Sterling Benefit 

Plan (“Plan”). The IRS later determined that the Plan was 

the same as, or substantially similar to, the tax avoidance 

transactions designated as “listed transactions” in the IRS’s 

Notice 2007-83 and that a taxpayer participating in the Plan 

would be subject to a penalty under § 6707A if it did not 

disclose its participation on its tax return. See Our Country 

Home Enters., Inc. v. Comm’r, 145 T.C. 1, 57, 64 (2015) 

(holding that the Plan was “substantially similar to the 

transaction described in Notice 2007-83”).

The IRS issued Notice 2007-83 on November 5, 2007. 

Taxpayer filed its return for the 2007–2008 fiscal year on 

February 16, 2009, without disclosing its participation in the 

Plan. In December 2010, Taxpayer filed several Reportable 

Transaction Disclosure Statements (IRS Form 8886), in 

which Taxpayer first disclosed to the IRS its participation in 

the Plan during the fiscal years ending in 1999 and 2005–

2008. Taxpayer then acknowledged that the Plan was a 

listed transaction.
6 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

Revenue Agent Czora (“RA Czora”) examined 

Taxpayer’s return for potential liability for a penalty under 

§ 6707A due to the failure to include reportable transaction 

information with its original 2007–2008 fiscal year return, 

filed in 2009. She made the initial determination for 

purposes of § 6751(b)(1) to assert the § 6707A penalty 

against Taxpayer for $ 96,900. RA Czora notified Taxpayer 

of the proposed penalty by issuing a so-called “30-day 

letter,” dated May 26, 2011.

The letter included threatening language that, it turns out, 

overstated the IRS’s position. The letter stated: “We are 

proposing the assessment of a penalty under IRC section 

6707A (a) for failing to disclose [a] reportable transaction.” 

If Taxpayer agreed with the penalty, the letter instructed 

Taxpayer to sign and return a form waiver of restrictions on 

assessment and collection and send payment to the United 

States Treasury. If Taxpayer did not agree with the penalty, 

the letter stated Taxpayer could request a conference with 

the IRS Appeals Office by filing a written protest of the 

penalty. Alternatively, Taxpayer could seek review in either 

a U.S. District Court or the U.S. Court of Federal Claims by 

fully paying the penalty and filing a claim for a refund. 

However, the letter also stated that if Taxpayer took no 

action by the 30-day response date (June 27, 2011), “we will 

assess the penalty and begin collection procedures.”

RA Czora enclosed an examination report with the 30-

day letter, which included (1) a Form 4549-A, Income Tax 

Discrepancy Adjustments, showing her computation of the 

proposed penalty based on the claimed income tax benefit 

resulting from Taxpayer’s participation in the Plan, and (2) a 

Form 886-A, Explanation of Items, explaining the basis for 

the proposed penalty. The Form 886-A attached to RA 

Czora’s 30-day letter identifies as the “government’s 
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 7

position” that “[t]he Taxpayer is subject to the penalty under 

section 6707A” and concludes that the “Taxpayer is liable 

for the penalty under section 6707A in the amount of 

$96,900.00.”

But, at the time RA Czora sent the letter, it could not 

have been guaranteed that, as the letter stated, if Taxpayer 

took no action by the June 27, 2011, deadline, “we will 

assess the penalty and begin collection procedures.” This is 

because I.R.C. § 6751(b)(1) provides that certain penalties, 

including penalties under § 6707A, cannot be assessed 

without written supervisory approval. And, as it turns out, 

no supervisor had yet provided written approval of the 

§ 6707A penalty that the letter represented would be 

assessed against Taxpayer.

On July 21, 2011, and after the 30-day period had

expired, Taxpayer submitted a letter protesting the proposed 

penalty and requesting a conference with the Appeals Office. 

On August 23, 2011, about a month after Taxpayer wrote to 

protest the proposed penalty, RA Czora’s immediate 

supervisor (“Supervisor Korzec”), signed a Form 300, Civil 

Penalty Approval Form, providing written approval of the 

proposed penalty. The next day, Supervisor Korzec 

transferred the case to the Appeals Office. Taxpayer’s 

administrative appeal was unsuccessful, and, in August 

2013, the Appeals Office recommended assessment of the 

§ 6707A penalty. The IRS assessed the penalty in the 

amount of $96,900 on September 16, 2013.

Taxpayer did not pay the penalty after notice and 

demand, and the IRS issued a notice of intent to levy and

notice of Taxpayer’s right to a collection-due-process 

(“CDP”) hearing before the Appeals Office. Taxpayer 

timely requested a CDP hearing, which was held on May 9, 

2014. On May 21, 2014, the Appeals Office sustained the 
8 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

proposed levy, and stated that the Appeals Office “obtained 

verification from the IRS office collecting the tax that the 

requirements of any applicable law, regulation or 

administrative procedure with respect to the proposed levy 

. . . have been met,” in accordance with I.R.C. § 6330(c)(1).1

In June 2014, Taxpayer timely filed a petition in the Tax 

Court challenging the Appeals Office’s notice of 

determination from the CDP hearing. The Tax Court 

remanded the matter to the Appeals Office to consider 

certain statute-of-limitations and penalty-rescission 

arguments raised by Taxpayer. On remand, the Appeals 

Office again sustained the proposed levy in a supplemental 

notice of determination. The supplemental notice of 

determination expressly determined that the § 6707A 

penalty was validly assessed after being approved in writing 

by RA Czora’s immediate supervisor in accordance with 

§ 6751(b)(1). Following the supplemental notice of 

determination, the parties stipulated in the Tax Court to a 

reduction in the amount of the penalty at issue to $10,000—

the minimum amount imposed by § 6707A. The Tax Court 

thereafter permitted Taxpayer to file an amended petition. In 

the amended petition, Taxpayer argued that the IRS had not 

complied with the written supervisory approval requirement 

in § 6751(b)(1) and that the Appeals Office had, therefore, 

abused its discretion in sustaining the proposed levy. 

Taxpayer moved for summary judgment on that ground.

The Tax Court granted summary judgment to Taxpayer, 

holding that the Appeals Office abused its discretion in 

sustaining the collection action, and disallowed the penalty. 

1 I.R.C. § 6330(c)(1) states: “[t]he appeals officer shall at the hearing 

obtain verification from the Secretary that the requirements of any 

applicable law or administrative procedure have been met.”
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 9

The Tax Court held that the Appeals Office erred in 

verifying that all applicable laws and administrative 

procedures had been followed for collection of the penalty 

in accordance with § 6330(c)(1), because the supervisory 

approval of the penalty was untimely under § 6751(b)(1).

The Tax Court rejected the Commissioner’s argument 

that § 6751(b)(1) requires that the IRS secure supervisory 

approval only before the assessment of a penalty. The Tax 

Court reasoned that the statute’s legislative history, as 

analyzed in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 

2017), “strongly rebuts” the Commissioner’s argument 

because the statute “would make little sense if it permitted 

approval of an ‘initial’ penalty determination up until and 

even contemporaneously with the IRS’s final 

determination.” The Tax Court also rejected the 

Commissioner’s argument that under Chai the timeliness of 

written supervisory approval hinges on whether the 

supervisor retained authority to give approval because “[t]o 

so suggest would be to ignore the paramount role that the 

legislative history of section 6751(b)(1) played in Chai’s 

analysis.”

Relying on its previous decision in Clay v. 

Commissioner, 152 T.C. 223 (2019), and other Tax Court 

precedent, the Tax Court ruled that supervisory approval of 

an assessable penalty is required before the IRS “formally 

communicates to the taxpayer its determination that the 

taxpayer is liable for the penalty.” The Tax Court held that 

RA Czora’s 30-day letter “embodied the initial 

determination” to assert the § 6707A penalty because it was 

“the first formal communication by the IRS of the 

conclusion” that the § 6707A penalty applied to Taxpayer. 

Accordingly, the court ruled that Supervisor Korzec’s 

written approval of the penalty after that communication to 
10 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

Taxpayer was untimely, thus invalidating the penalty 

assessment. The Tax Court entered an order granting 

Taxpayer’s motion for summary judgment and a decision 

holding that the proposed levy was not sustained and that 

Taxpayer is not liable for the § 6707A penalty. The 

Commissioner now appeals.

II. STANDARD OF REVIEW

“We review the Tax Court’s decision ‘in the same 

manner and to the same extent as decisions of the district 

courts in civil actions tried without a jury.’” Mazzei v. 

Comm’r, 998 F.3d 1041, 1054 (9th Cir. 2021) (quoting 

I.R.C. § 7482(a)(1)). Accordingly, we review the Tax 

Court’s conclusions of law, including interpretations of the 

I.R.C., de novo. Knudsen v. Comm’r, 793 F.3d 1030, 1033 

(9th Cir. 2015).

III. ANALYSIS

As Justice Kagan has stated, “we’re all textualists now.”2 

When interpreting a statute, “our inquiry begins with the 

statutory text, and ends there as well if the [statute’s] text is 

unambiguous.” United States ex rel. Hartpence v. Kinetic 

Concepts, Inc., 792 F.3d 1121, 1128 (9th Cir. 2015) (en 

banc) (alteration in original) (quoting BedRoc Ltd. v. United 

States, 541 U.S. 176, 183 (2004)).

Section 6751 imposes notice and supervisory approval 

requirements on the assessment of a host of tax penalties, 

including a penalty for failure to report participation in a 

2 Justice Elena Kagan, The Scalia Lecture: A Dialogue with Justice 

Kagan on the Reading of Statutes at 8:28 (Nov. 17, 2015), 

http://today.law.harvard.edu/in-scalia-lecture-kagan-discusses-statutory

-interpretation [http://perma.cc/3BCF-FEFR].
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 11

listed transaction under § 6707A. At issue here is the 

supervisory approval requirement of § 6751(b)(1), which 

provides:

No penalty under this title shall be assessed 

unless the initial determination of such 

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.

In this statute, “assessed” refers to a ministerial function: 

“the formal recording of a taxpayer’s tax liability on the tax 

rolls,” which is “the last of a number of steps required before 

the IRS can collect” a tax or penalty from a taxpayer. Chai,

851 F.3d at 218; see also Roth v. Comm’r, 922 F.3d 1126, 

1131 (10th Cir. 2019).

The Commissioner argues that in this case § 6751(b)(1) 

permitted written supervisory approval at any time before 

the assessment of the penalty. However, the Commissioner 

acknowledges that because the initial determination must be 

“approved” by a supervisor, a penalty cannot be assessed 

unless supervisory approval occurs at a time when the 

supervisor still has discretion whether to approve the 

subordinate IRS official’s initial penalty determination.3

We agree that a supervisor cannot truly approve of a 

penalty determination without also possessing discretion to 

withhold approval. Accordingly, a supervisor cannot always 

satisfy § 6751(b)(1) by waiting to provide written approval 

3 We use the term “discretion” here to mean a power or authority to 

approve, which includes the power or authority not to approve.
12 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

until just before the moment of assessment. For example, an 

earlier deadline for supervisory approval might be required 

when the penalty at issue is subject to the I.R.C.’s deficiency 

regime.4 But the § 6707A penalty at issue in this case is not 

subject to the I.R.C.’s deficiency procedures. And Taxpayer 

does not argue that Supervisor Korzec lacked discretion to 

give written approval for any other reason. Accordingly, we 

conclude that Supervisor Korzec had discretion to approve 

RA Czora’s initial determination when Supervisor Korzec 

signed the Civil Penalty Approval Form on August 23, 

2011.5

4 If the Commissioner determines that a taxpayer owes more tax than 

the taxpayer has paid, the Commissioner may send the taxpayer a notice 

of deficiency. I.R.C. § 6212(a). But once the notice is sent, the 

Commissioner begins to lose discretion over whether the penalty is 

assessed. If the taxpayer does not file a petition with the Tax Court 

within 90 days, the Code provides that “the deficiency . . . shall be 

assessed.” I.R.C. § 6213(c). Alternatively, if the taxpayer files a timely 

petition in the Tax Court, the IRS generally cannot assess the deficiency 

“until the decision of the Tax Court has become final.” I.R.C. § 6213(a). 

And, at the conclusion of the Tax Court proceedings, the Code provides 

that “the entire amount redetermined as the deficiency by the decision of 

the Tax Court which has become final shall be assessed.” I.R.C. 

§ 6215(a). When the law provides that a penalty “shall be assessed,” an 

IRS supervisor no longer has discretion to approve or disapprove of the 

assessment.

5 The Tax Court stated that the Commissioner’s interpretation of 

§ 6751(b)(1) is “contradict[ed]” by the Second Circuit’s opinion in Chai. 

We disagree. The Chai court held that “§ 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.” Chai, 851 F.3d at 221. The court 

reasoned that “[i]f supervisory approval is to be required at all, it must 

be the case that the approval is obtained when the supervisor has the 

discretion to give or withhold it.” Id. at 220. Because the penalty at 

issue in Chai was subject to the Code’s deficiency regime, “the last 
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 13

Taxpayer defends the Tax Court’s ruling that 

§ 6751(b)(1) requires supervisory approval before the IRS 

formally communicates a proposed penalty to a taxpayer. 

The problem with Taxpayer’s and the Tax Court’s 

interpretation is that it has no basis in the text of the statute. 

Section 6751(b)(1) “contains no express requirement that 

the written approval be obtained at any particular time prior 

to assessment.” Chai, 851 F.3d at 218. The statute does not 

make any reference to the communication of a proposed 

penalty to the taxpayer, much less a “formal” 

communication.

Taxpayer quotes a portion of the Tax Court’s opinion,

which may be construed as a textual argument relying on the 

word “initial”:

[I]f the initial determination of penalty 

liability is made and formally communicated 

before the notice of deficiency, and if that 

liability is ultimately included in the notice of 

deficiency, then supervisory approval right 

before issuance of the notice of deficiency 

may be too late . . . because at that point [the 

supervisor] is approving not the ‘initial

moment the approval of the initial determination actually matters is 

immediately before the taxpayer files suit (or penalties are asserted in a 

Tax Court proceeding),” id. at 221, because, as discussed in footnote 4, 

supra, after that point the IRS loses discretion whether to assess a 

penalty. The court ultimately concluded that “because a taxpayer can 

file a tax court petition at any time after receiving a notice of deficiency, 

the truly consequential moment of approval is the IRS’s issuance of the 

notice of deficiency (or the filing of an answer or amended answer 

asserting penalties).” Id. But the § 6707A penalty at issue here is not 

subject to the I.R.C.’s deficiency regime.
14 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

determination’ but something more like a 

final determination.

However, the language of the statute provides no reason 

to conclude that an “initial determination” is transformed 

into “something more like a final determination” simply 

because the revenue agent who made the initial 

determination subsequently mailed a letter to the taxpayer 

describing it. We think “initial,” as used in § 6751(b)(1)’s 

phrase “initial determination,” more naturally indicates that 

a subordinate’s determination to assert a penalty lacks the 

imprimatur of having received supervisory approval, rather 

than that the determination has not yet been formally 

communicated to the taxpayer. Moreover, Taxpayer does 

not argue that the “determination” that Supervisor Korzec 

approved differed in any way from RA Czora’s initial 

determination to assert the § 6707A penalty. Finally, this 

case does not involve a notice of deficiency, which, as 

discussed above, could limit a supervisor’s discretion to 

prevent the assessment of a penalty.6

6 Ordinarily, when we interpret a statute as imposing a particular 

rule, we locate the key terms of that rule in the statute’s text. The 

dissenting opinion interprets § 6751(b)(1) as imposing a rule that 

supervisory approval must precede the first communication made to a 

taxpayer that “purport[s] to impose a penalty unless objected to.” 

Dissent op. 21, 23 n.3. But this rule is made up of key terms or 

requirements that cannot be found anywhere in the language of the 

statute: (1) a communication to a taxpayer, (2) the content of that 

communication that a penalty “will go into effect unless objected to,” 

and (3) the requirement that approval must come before the

communication is made. At best, the dissent appears to treat the phrase 

“initial determination of [an] assessment” as though it simply means the 

government’s “opening bid” to a taxpayer that an “assessment [is] to go 

into effect automatically . . . unless contested by the taxpayer.” See 

Dissent op. 21. But a determination that a penalty should be assessed 
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 15

Taxpayer also argues that the legislative history of 

§ 6751(b)(1) supports its interpretation because the Chai 

court found that “[t]he statute was meant to prevent IRS 

agents from threatening unjustified penalties to encourage 

taxpayers to settle.” 851 F.3d at 219; see also S. Rep. 

No. 105-174, at 65 (1998) (“The Committee believes that 

penalties should only be imposed where appropriate and not 

as a bargaining chip.”).

We are troubled by the language of the letter and the 

attachments Taxpayer received, which include the 

statements that (1) if Taxpayer took no action by the 30-day 

response date “we will assess the penalty and begin 

collection procedures,” (2) that it is the “government’s 

position” that “[t]he Taxpayer is subject to the penalty under 

section 6707A,” and (3) that the “Taxpayer is liable for the 

penalty under section 6707A in the amount of $96,900.00.”7 

A natural interpretation of the letter is that, in absence of 

action from Taxpayer, “we [the IRS] will [ineluctably] 

assess the penalty.” As it turns out, the letter’s threat was 

premature because a supervisor had not yet approved the 

initial determination.8

 But the recipient would not know this 

and a communication to a taxpayer threatening the automatic assessment 

of a penalty are two different things, and the statute addresses only the 

former.

7 We note that the IRS’s “30-day letter is a form letter,” 26 C.F.R. 

§ 601.105(d)(1)(iv), and therefore that the threatening language in the 

letter Taxpayer received was probably standardized and not initially 

authored by the revenue agent in this case.

8 The dissent misstates the majority’s position as requiring that the 

30-day letter “essentially . . . lied to the taxpayer” on the grounds that 

“despite, what the letter said, the subordinate who signed the letter had 

no authority to make a tentative determination that would become 

effective unless objected to by the taxpayer, whether the determination 
16 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

from what was written in the letter. And a taxpayer in a 

similar position that received such a letter might be misled 

about the probability of the assessment of the penalty as 

calculated in the letter and, for this reason, more inclined to 

settle. We agree with Taxpayer that a law that prevented a 

non-supervisor revenue agent from formally communicating 

a proposed penalty to a taxpayer without first receiving 

supervisory approval would probably reduce the likelihood 

of a revenue agent threatening an unjustified penalty to 

secure a settlement.

However, we “undertake to apply the law as it is written, 

not to devise alternative language that might accomplish 

Congress’s asserted purpose more effectively. ‘Our task is 

to apply the text, not to improve upon it.’” Salisbury v. City 

of Santa Monica, 998 F.3d 852, 859 (9th Cir. 2021) (quoting 

Pavelic & LeFlore v. Marvel Ent. Grp., 493 U.S. 120, 126 

was in fact approved by a supervisor or not.” Dissent op. 19. We agree 

with the dissent that if the supervisor had approved the initial 

determination before the letter was sent, the letter would not have made 

a threat that was premature in light of § 6751(b)(1).

The dissent relies upon the terms of the 30-day letter as “indicative” 

of “the agency’s actual practice.” Dissent op. 20, 24. But, like the 

majority, the dissent is committed to the view that the letter was incorrect 

because it stated that absent action from Taxpayer the penalty would be 

validly assessed. At any rate, the best indication of the agency’s actual 

practice is what the agency did, not what it said in a recycled form letter. 

And, here, the supervisor approved the penalty determination and then 

forwarded the case to the Appeals Office while noting the receipt of the 

Taxpayer’s “written protest” in response to the 30-day letter, all without 

any indication that it would be unusual for the supervisor’s approval to 

come about a month after a written protest challenging a 30-day letter.
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 17

(1989)). And, here, the language of § 6751(b)(1) does not 

support Taxpayer’s interpretation of the statute.9

Accordingly, we hold that § 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. Since, here, 

Supervisor Korzec gave written approval of the initial 

penalty determination before the penalty was assessed and 

while she had discretion to withhold approval, the IRS 

satisfied § 6751(b)(1).

IV. CONCLUSION

For the reasons stated above, the Tax Court’s grant of 

Taxpayer’s motion for summary judgment is REVERSED 

9 Moreover, the Commissioner’s interpretation appears to be at least 

consistent with the legislative history of this statute because ensuring that 

no penalties determined by a subordinate official can be assessed without 

the supervisor’s approval—not even as part of an administrative 

settlement—furthers to some extent the purpose Taxpayer attributes to 

the law: that penalties not be used improperly as leverage for settlement.

The dissent raises further questions about why Congress would 

“invoke the concept of approval,” rather than simply providing that only 

a supervisor may make a determination to assess a penalty. Dissent 

op. 22. The Civil Penalty Approval Form in the record provides some 

answers. This document reveals that, before approving the penalty 

determination, the supervisor reviewed the revenue agent’s calculations 

of the amount of the penalty and attested in a written document to the 

reasons and statutory basis for asserting the penalty. It may be a virtue 

of the supervisory approval requirement, and not a vice of our 

interpretation as the dissent suggests (see Dissent op. at 21), that a 

revenue agent is tasked with building a case for asserting a penalty, 

which a supervisor only approves or disapproves.
18 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

and REMANDED for proceedings consistent with this 

opinion.

BERZON, Circuit Judge, dissenting:

I respectfully dissent. I would affirm the judgment of the 

Tax Court, although my reasoning is somewhat different 

from that of the Tax Court.

The factual context here is informative regarding what 

the statute we must interpret means. The taxpayer in this case 

received a letter signed by a subordinate Internal Revenue 

Agent, presenting the “government’s position” that the 

“Taxpayer is subject to the penalty under section 6707A,” 

and stating that the “Taxpayer is liable for the penalty under 

section 6707A in the amount of $96,900.” The letter 

presented the taxpayer with three options: (1) “agree to the 

assessment” and pay the penalty, (2) “request a conference

with our Appeals Office” by forwarding a “written protest,” 

or (3) “do nothing” by the 30-day response date, in which 

case “we will assess the penalty and begin collection 

procedures.”

The penalty determination was, according to the letter, a 

conditionally operative one that, the letter reported, would 

become automatically effective unless the taxpayer objected 

to it. The letter presented the taxpayer with options carrying 

potentially irreversible consequences: if the taxpayer 

acceded to the penalty or did nothing, any right to challenge 

the penalty would be lost.

The statutory provision at issue in this case, section 

6751(b)(1), instructs that “[n]o penalty . . . shall be assessed 

unless the initial determination of such assessment is 
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 19

personally approved (in writing) by the immediate 

supervisor of the individual making such determination 

. . . .” 26 U.S.C. § 6751(b)(1). Here, although the penalty 

determination of $96,900 was announced in the letter to be 

operative in the sense I have described, it is undisputed that 

the subordinate agent’s supervisor had not approved the 

determination before the subordinate sent the 30-day letter 

to the taxpayer.

The majority and the government read section 

6751(b)(1) as unambiguously allowing this gap, by 

permitting the required supervisory approval of an initial 

penalty determination to come after the taxpayer is told that 

the determination has become conditionally operative. To 

accommodate this view, the majority treats the 30-day letter 

sent in this case as essentially having lied to the taxpayer. On 

the majority’s view, despite what the letter said, the 

subordinate who signed the letter had no authority to make a 

tentative determination that would become effective unless 

objected to by the taxpayer, whether the determination was 

in fact approved by a supervisor or not.1 Majority op. 15–16,

17.

1 The majority notes that it “agree[s] with the dissent that if the 

supervisor had approved the initial determination before the letter was 

sent, the letter would not have made a threat that was premature in light 

of § 6751(b)(1).” Majority op. 15 n.8. But the majority’s position is that, 

in the circumstances of this case, the supervisor had the authority to 

approve or disapprove of the penalty determination until the “moment of 

assessment.” Id. at 11–12, 17. Under that view, the determination 

conveyed in the letter could not have been operative—even if approved 

by a supervisor—because the supervisor retained the authority to change 

the determination until the penalty was formally assessed by recording it 

on the tax rolls. See n.2, infra.
20 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

It is to me substantially more likely that the form letter 

used in this case is indicative of how the Internal Revenue 

Service actually operates. That is, the agency does treat 

initial determinations such as the one presented in the 30-day 

letter as automatically effective unless objected to. The 

agency’s practice thus informs the meaning of the statute, 

which, carefully read, does not clearly have the unlikely 

meaning the majority adopts.

In my view, there are several reasons the majority’s 

reading of the statute must be incorrect and why, properly 

read, the statute requires supervisory approval before an 

initial determination can be communicated to the taxpayer as 

operative in the sense I have described. I begin with what the 

statute does not say. It does not say that no penalty shall be 

assessed until the initial determination of such assessment is 

personally approved by a supervisor. It says “[n]o penalty 

. . . shall be assessed unless the initial determination of such 

assessment is personally approved (in writing)” by a 

supervisor. 26 U.S.C. § 6751(b)(1) (emphasis added). 

Unlike the word “until,” the word “unless” is not a temporal 

limitation but a substantive one; it tells us that A may not 

happen “unless” B happens. Here A is the assessment of 

penalties and B is personal approval by a supervisor of an 

initial determination by a subordinate. So section 6751(b)(1) 

provides a remedy for the taxpayer if the rule requiring 

approval as a condition of an enforceable initial

determination is not followed, even if the supervisory 

approval of a later, final determination (e.g., pursuant to the 

letter received by the taxpayer in this case, a determination 

following an objection by the taxpayer to the initial 

determination) occurs at a time when approval can still be 

withheld. That is, absent such approval of the initial 

determination, “[n]o penalty . . . shall be assessed.”
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 21

Nor does the statute say that the assessment must be 

personally approved2 or even that the determination of the 

assessment must be personally approved. It says the “initial 

determination” of such assessment by “the individual 

making such determination” must be personally approved in 

writing by a supervisor. Id. (emphasis added). “Such 

determination” refers back to the “initial determination.” So 

that determination, not the final determination, is what must 

be approved by a supervisor. The letter sent to the taxpayer 

in this case is illustrative of a “determination of [an] 

assessment” made by a subordinate, who signed the 

determination. And the determination was “initial” in the 

sense that it operated as an opening bid by the government; 

the assessment was to go into effect automatically—that is, 

be formally recorded on the tax rolls, see n.2, supra—unless 

contested by the taxpayer.

Congress must have used the phrase “initial

determination” for a reason. (Emphasis added.) The “canon 

against surplusage . . . requires a court, if possible, to give 

effect to each word and clause in a statute.” United States v. 

Lopez, 998 F.3d 431, 440 (9th Cir. 2021) (citing Chickasaw 

Nation v. United States, 534 U.S. 84, 94 (2001)). The 

majority proposes that the word “initial” “indicates that a 

subordinate’s determination to assert a penalty lacks the 

imprimatur of having received supervisory approval.” 

Majority op. 14. With respect, reading “initial” to mean “not 

yet approved” raises more questions than it answers.

According to the majority’s reading of the statute, 

approval is not required until the moment before the penalty 

2 As the majority explains, a penalty is “assessed” when it is 

formally recorded on the tax rolls. Majority op. 11 (citing Chai v. 

Commissioner, 851 F.3d 190, 218 (2d Cir. 2017)).
22 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

is finally assessed. In other words, the supervisor must 

approve the final penalty determination, here, one made after 

the taxpayer has had an opportunity to contest the initial 

determination. But why, then, does the statute refer to the 

“initial determination”? Why would Congress refer to “the 

individual making such determination,” if that individual 

was only making recommendations to a superior, not 

interacting with the taxpayer in a manner meant to have 

determinative consequences for the taxpayer? And why 

would Congress invoke the concept of approval? Surely it 

would be much simpler to say that an official in a 

supervisory role (or at a particular level) must make the 

determination to assess penalties—that is, to record the 

penalties on the tax rolls.

Moreover, if Congress’s concern really were that only a 

supervisor should make a final assessment determination, 

then why would Congress care whether that final 

determination took the form of an approval of a 

subordinate’s initial determination? What if the supervisor 

disagreed with the initial determination and wanted to 

impose a different penalty? Why would Congress have 

specified how a supervisor ought to reach such a final 

determination? The reason for these provisions is opaque 

under the majority’s reading of the statute but evident once 

it is understood that an “initial determination” may be 

communicated to the taxpayer as generating an obligation to 

pay the penalty absent objection—as the 30-day letter in this 

case made quite explicit.

In my view, then, the statute means what it says: a 

supervisor must personally approve the “initial 

determination” of a penalty by a subordinate, or else no 

penalty can be assessed based on that determination, whether 

the proposed penalty is objected to or not. 26 U.S.C. 
LAIDLAW’S HARLEY DAVIDSON SALES V. CIR 23

§ 6751(b)(1). That meaning is consistent with Congress’s 

purpose of preventing threatened penalties never approved 

by supervisory personnel from being used as a “bargaining 

chip” by lower-level staff, S. Rep. No. 105-174, at 65 

(1998); see Chai v. Commissioner, 851 F.3d 190, 219 (2d 

Cir. 2017), which is exactly what happened here.

Here, the initial determination conveyed in the 30-day 

letter was meant to be an operative one for the several 

reasons explained by the majority: the letter said “that (1) if 

Taxpayer took no action by the 30-day response date ‘we 

will assess the penalty and begin collection procedures,’ 

(2) that it is the ‘government’s position’ that ‘[t]he Taxpayer 

is subject to the penalty under section 6707A,’ and (3) that 

the ‘Taxpayer is liable for the penalty under section 6707A 

in the amount of $96,900.00.’” Majority op. 15. Because the 

letter made clear that the initial determination would have 

operative effect unless objected to, supervisory approval was 

required at a time when it would be meaningful—before the 

letter was sent.3

In contrast, the reading of the statute advanced by the 

government and adopted by the majority would in many 

instances make the approval requirement a mere formality. 

That interpretation would, in normal circumstances, allow 

the penalty determination to be approved or disapproved 

until the moment it was assessed (i.e., recorded on the tax 

3 I note that, in this respect, my interpretation differs from the Tax 

Court’s understanding. In my view, approval is not required before there 

is any communication to the taxpayer but before there is an operative 

decision—one that will go into effect unless objected to. So, for example, 

were a letter sent to a taxpayer that set out a proposed assessment but did 

not purport to impose a penalty unless objected to, there would not, in 

my view, be the sort of “initial determination” of a penalty requiring 

prior supervisory approval.
24 LAIDLAW’S HARLEY DAVIDSON SALES V. CIR

rolls),4 even after the Appeals Office had held a conference 

to resolve any protest—and perhaps even if the Appeals 

Office disagreed with the initial determination, as the 

government acknowledged at oral argument. If the approval 

requirement for the “initial determination” really could be 

satisfied so late in the game, it would be either a pointless 

requirement or a perverse one. Rather than interpret the 

statute as senseless, I would interpret it in the way that 

accords with its language, the agency’s actual practice, as 

described above, and Congress’s purpose in enacting the 

requirement. I therefore respectfully dissent.

4 The majority acknowledges that “an earlier deadline for 

supervisory approval might be required when the penalty at issue is 

subject to the [Internal Revenue Code]’s deficiency regime,” apparently 

because under that regime the Code prescribes that a proposed 

“deficiency . . . shall be assessed” if the taxpayer does not timely object 

to it, relieving “an IRS supervisor [of] discretion to approve or 

disapprove of the assessment.” Majority op. 12 & n.4 (quoting 26 U.S.C. 

§ 6213(c)). But the “penalty at issue in this case is not subject to the 

[Code]’s deficiency procedures.” Id. at 12.