1 4 9 T.C. No . 2 3

UNITED STATES TAX COURT

LAW RENCE G. GRAEV AND LORNA GRAEV, Pet i t i o ners v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t *

Do ck etNo . 3 0 6 38 -0 8
. Fi l edDecem b er 2 0 , 2 01 7
. In a p ro p o s ed no t i ce o f d efi ci en cy fo r 2 0 04 an d2 0 05 , R’ s ex am i n i n g ag en t p ro p o s ed4 0 % g ro s s v al u at i o n m i s s t at em en t p en al t i es u nd er I.R.C. s ec. 6 6 6 2 (h ) wi th res pect t o th e p ro p o s ed d i s al l o w an ce o f Ps ’ n o n cas h ch ari t ab l e co n tri b u t i o n d edu ct i o n an d carry o v er d edu ct i o n . Duri n g m an dat o ry rev i ew o f t h e p ro p o sed n o t i ce, R’ s co u n s el reco m m en d ed , as an al t ern at i v e p o si t io n , th at2 0% accu racy -rel at edp en al ti es b e d et erm i n ed u n d er I.R.C. s ec. 6 6 6 2 (a) wi th res p ectt o th es e s am e i t em s . R’ s co u n s el ’ s reco m m en d at i o n was ap p ro v edi n wri ti n g b y

h i s i m m ed iat e s up erv i s o r an d ad d edt o t h e n o t i ce o f d efi ci en cy . Aft er t h e p et i t io n an dth e an s wer were fi l ed , R co n ced edth e 4 0 % g ro s s v al u at i o n m i s s t at em en tp en al ti es an dam en d ed h i s an s wer t o reas s ertth e 2 0 % p en al t i es wi th res p ectt o th e n on cas h ch ari t ab l e co n tri b u t i o n d edu ct i o n s . Th e am en d m en tt o an s w er al so as s ert edfo r

* Th i s Op i n i o n s up p l em en t s o u r p rev i ou s l y fi l edOp i n i o n , Graev v . Co m m i s s i o n er (Graev II), 1 4 7 T.C. _

_ _ (No v . 3 0 , 2 0 16 ).- 2
-

th e fi rs tt i m e 2 0 % accu racy -rel at edp en al t i es wi th res p ectt o th e p ro p o s ed d i s al l o wan ce o f a cas h ch ari t ab l e co n tri b u t i o n d edu ct i o n an dcarry o v er d edu ct io n . Th e p en al t ies as s ert ed i n th e am en d m en tt o an s wer were ap p ro v edi n wri t i n g b y th e ap pro p ri at e i m

m ed i at e s up erv i s o r. Ps co n t en dth atR i s b arred fro m as s es s i n g th e p en al ti es ati s s u e b ecau s e R fai l edt o co m

pl y wi th I.R.C. s ec. 6 7 5 1(b )(1 ), wh i ch req u ires th atth e “ i n i t i al d et erm i n at i o n o f * * * [t h e] as s es sm en t ” o f th e p en al ty

b e “ p ers o n al l y

ap p ro v ed (i n wri t i n g) b y th e i m m ed iat e s up erv i s o r * * * o r s uch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i gn at e.” In Graev v . Co m

m i s s i o n er (Graev II), 1 4 7 T.C. _

_ _ (No v . 3 0, 2 0 1 6 ), we s u st ai n edth e 2 0 % p en al ti es ati s s u e, h o l d i n g i n p artth at Ps ’ arg u m en tth at R fai l edt o co m pl y wi th I.R.C. s ec. 6 7 5 1(b )(1 ) was p rem atu re i n thi s p reas s es s m en td efi ci en cy p ro ceed i n g. Subs equ en t l y , th e Co u rto f Ap p eal s fo r t h e Seco n d Ci rcu i t i s s u edi t s o p i n i o n i n Ch ai v . Co m

m i s s i o n er, 8 5 1 F.3 d1 9 0 (2 d Ci r. 2 0 1 7 ), aff’ g i n p art , rev ’ g i n p artT.C. M em o . 2 01 5 -4 2 , h o l d i n g that“ th e wri t t en ap p ro v al req u i rem en to f * * * [I.R.C. s ec.] 6 7 5 1 (b )(1 ) i s ap pro p ri at el y v i ewedas an el em en to f a p en al ty cl ai m ”, i d . at2 2 2 , an d thatI.R.C. s ec. “ 6 7 51 (b )(1 ) req u i res wri t t en ap p ro v al o f t h e i ni t i al p en al ty d et erm i nat i o n n o l at er t h an th e d at e t h e IRS i s s ues th e n o t i ce o f d efi ci en cy

(o r fi l es an an s wer o r am en d edan swer) as s ert i n g s u ch p en al ty ”, i d . at 2 2 1
. Becau s e t h i s cas e i s ap p eal ab l e t o th e Co u rto f Ap p eal s fo r t h e Seco n dCi rcu i t , we v acat edo u r d eci s i o n i n Graev II. Hel d : Ps ’ arg u m en tth atR fai l edt o co m p l y wi th I.R.C. s ec. 6 7 5 1 (b )(1 ) i s ap pro pri at el y co n s i d eredi n th is d efi ci en cy p ro ceed i n g ; Graev II i s o verru l edi n p art
. Hel d , fu rt h er, a s h o wi n g thatth e wri t ten ap p ro v al req ui rem en t o f I.R.C. s ec. 6 7 5 1 (b ) i s s at i s fi edi s p arto f R’ s b u rd en o f p ro du ct i o n u n d er I.R.C. s ec. 7 4 9 1 (c).- 3
- Hel d , fu rt h er, R h as s h o wnco m p l i an ce wi th th e wri tt en ap p ro v al req u i rem en to f I.R.C. s ec. 6 75 1 (b ) fo r t h e p en al ti es ati s s u e. Hel d , fu rt h er, Ps are l i ab l e fo r 2 0% accu racy -rel at edp en al t i es wi th res p ectt o th ei r d i sal l o wedd edu ct i o n s fo r b o th th e cas h an d n o n cas h ch ari t ab l e co n tri b u t i on s . Fran kAg os t in o, Bri an D. Bu rt o n, J erem y M
. Kl au sn er, an d Lawren ce A. San ni can dro , fo r p et i t i o ners . Sh awn a A. Earl y , fo r res p o n d en t.

SUPPLEM EN TAL OPINION THORNTON, Jud g e: By n o t ice o f d efi ci en cy

i s s u edp u rs uan tt o s ect i o n 6 2 1 2 (a), res p o n d en t d et erm i nedd efi ci en ci es i n p et i t i on ers ’ i n co m e t ax o f $ 2 3 7 ,4 8 1 fo r 2 0 0 4 an d$ 4 1 2,6 2 0 fo r 2 0 0 5
. 1 Th e d efi ci en ci es res u l t edfro m
res p o n d en t’ s d i s al l o wan ce o f b o t h cas h an dn o n cas h ch ari t ab l e co n tri b u ti o n d educt i o n s cl ai m edb y

p et i t i on ers . OnJ u n e 2 4 , 2 0 1 3, the Co urti s su edan Op i n i o n
s u s t ai n i n g res p o n d en t ’ s d i s al l o wan ce o f b o th the cas h an dn o n cas h ch ari t ab l e
co n tri b u t i o n d edu ct i o n s . Graev v . Co m m i s si o n er (Graev I), 1 4 0 T.C. 3 7 7 (2 0 1 3 ).

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de (Co d e) o f 1 9 8 6 as am en ded , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 4
-

In th e n ot ice o f d efi ci en cy res p o nd en t al s o d et erm i n edth atfo r 2 0 0 4 an d 2 0 0 5 p et i t i o n ers are l i ab l e fo r s ect io n 6 66 2 (a) accu racy -rel at edp en al t i es o n t h e
u n d erp aym en t s o f t ax at tri b u t ab l e t o d i s al l o wan ce o f t h e n o n cas h ch ari t ab l e
co n tri b u t i o n d edu ct i o n s . Ad d i t i o n al l y , i n an am en d m en tt o an s w er res p o n d en t al s o as s ert eds ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ti es fo r 2 0 0 4 an d2 0 0 5 o n th e
u n d erp aym en t s at tri b u t ab le t o d i s al l o wan ce o f t h e cas h ch ari t ab l e co n tri bu t i o n d educt i o n s . Pet i t io n ers co n t en dth atal l th es e p en al t i es are b arred b y s ect i o n 6 7 5 1 (b )(1 ), wh i ch p ro v i des : “No p en al ty u n d er t h i s t i t l e s h al l b e as s es s edu n l es s th e i n i ti al d et erm in at i o n o f s uch as s es s m en ti s p ers o n al l y ap pro v ed(i n wri t i n g ) b y th e i m m ed i at e s up erv i s o r o f t h e i n di v i du al m ak i ng s u ch d et erm i n at i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i g n at e.” OnNo vem

b er 3 0, 2 0 1 6 , th e Co u rt i s su edan Op i n i o n h o ld i n g th at p et i t i o n ers ’ ch al l en g e p u rs u an tt o s ect i o n 6 7 5 1 (b ) i s p rem atu re i n th i s p reas s es s m en t d efi ci en cy p ro ceed i n g; we s us t ai n ed accu racy -rel at edp en al ti es , co m p u t edatth e 2 0 % rat e u n d er s ect i o n 6 6 6 2(a), o n the u n d erp aym en t s at tri b u t ab l e t o d is al l o wan ce o f t h e cas h an d n o n cas h ch ari t ab l e co n tri b u t i o n d educt i o n s . Graev v . Co m m i s s i o n er (Graev II), 1 4 7 T.C. _

_ _ (No v . 3 0 , 2 01 6 ). On M arch 7 , 2 0 1 7 , we en t ered o u r d eci s i o n.- 5
-

OnM arch 2 0 , 2 0 1 7 , th e Co u rt o f Ap peal s fo r t h e Seco ndCi rcu i t i ss u edi t s
o p i n i o n i n Ch ai v . Co m

m is s i o n er (Ch ai ), 8 5 1 F.3 d1 9 0 (2 dCi r. 2 0 1 7 ), aff’ g i n p art , rev ’ g i n p art T.C. M em o . 2 0 1 5 -4 2 . Ch ai co n s i d eredth e s am e s ect i o n 6 7 5 1 (b )(1 ) i s s ue we h adad dres s edi n Graev II b u t cam e t o a d i fferen tco ncl u s i o n , h o l d i n g th at“ th e wri t t en -ap p ro v al req u i rem en to f * * * [s ect i o n ] 6 7 5 1 (b )(1 ) i s ap p ro p ri at el y

v i ewedas an el em en to f a p en al ty cl ai m ”, i d . at2 2 2 , an dth ats ect i on

“ 6 7 5 1 (b )(1 ) req ui res wri t t en ap p ro v al o f t h e i n i t i al p en al ty d et erm i n at i o n n o l at er th an th e d at e t h e IRS [In t ern al Rev en u e Serv i ce] i s s u es th e n o t i ce o f d efi ci en cy (o r fi les an an s wer o r am en d edan s wer) as s ert in g s uch p en al ty ”, i d . at2 2 1. Becau s e th e i n s t an tcas e i s ap p eal ab l e t o t h e Co u rto f Ap p eal s fo r t h e Seco n dCi rcu i t , we
v acat edo u r M arch 7 , 2 0 1 7, d eci s i o n an d g ran t edth e p art i es ’ req u es t fo r ad d i t i o n al b ri efi n g . As d es cri b edm o re fu l l y b el o w, aft er t ak i n g Ch ai i nt o acco u n t , we co n cl u de th ats ect i o n 6 7 5 1(b ) d o es n o t b ar as s es s m en to f t h e d i s p u t eds ect i o n 6 6 6 2 (a)
accu racy -rel at edp en al ti es . Back gro u n d Th e p art i es s ubm it t edth e p en al ty i s s u es fu l l y

s t i pu l at ed p u rs u an tt o Ru l e 1 2 2 , refl ect i ng th ei r ag reem en tth at the rel ev an tfact s co u l d b e p res en t ed wi th o u ta t ri al . Our Op i n i o n i n Graev I p ro v i d es fact u al b ack g ro u n d wi th res p ect- 6
-

t o p et i ti o n ers ’ cas h an dn on cas h co n tri b u t i o n s t o th e Nat i o n al Arch it ectu ral Tru st (NAT), an do u r Op in i o n i n Graev II p ro v i d es fu rt h er fact ual b ack g ro un drel at i n g t o the p en al ty

i s s u es . W e i n co rp o rat e h erei n t h e fact u al b ack g ro un d o f Graev I
an d Graev II, b u twe cl ari fy an d am en d i tas fo l l o w s t o refl ect cert ai n u nd i s p u t ed p o i n t s h i g h l i g h t edi n the p art i es ’ s up p l em en tal b ri efs fo l l o wi ng Ch ai
. Onth ei r 2 0 0 4 Fo rm

1 0 4 0, U.S. In di v i du al In co m e Tax Retu rn , p et i ti o n ers cl ai m edch ari t ab l e co n tri b u t i on d edu ct i o ns o f $ 9 9 ,0 00 fo r a cas h co n tri b u ti o n an d $ 9 9 0 ,0 0 0 fo r a facad e eas em en tg i v en t o NAT. Onth ei r 2 0 0 5 Fo rm 1 0 4 0 , p et i t i o n ers cl ai m eda $ 4 4 5,5 5 1 carry o v er ch ari t ab l e co n tri b u t i o n d edu ct i o n rel at i n g t o th e 2 0 0 4 co n tri b u t i on s . Du ri n g ex am i n at i o n o f p et i t i o n ers ’ 2 0 0 4 an d2 0 0 5 t ax retu rn s , Rev en u e Ag en tSt ep h enI. Fel d (RA Fel d ) p ro p o s edd i s al l o wi n g b o th th e cas h an d n o n cas h ch ari t ab le co n tri b u t i on d educt i o n s p et i ti o n ers h adcl ai m edfo r t h ei r co n tri b u t i o n s t o NAT. RA Fel dal s o p ro po s edth ataccu racy -rel at edp en al t i es u n d er s ect io n 6 6 6 2 (a), as i ncreas edu n d er s ect i o n 6 6 62 (h ) t o th e 4 0% rat e, b e ap p l i edt o th e p o rt i on s o f t h e 2 0 0 4 an d2 0 0 5 u n d erp aym en t s at tri b u t ab le t o d i sal l o wan ce o f p et i t i o n ers ’ n o ncas h ch ari tab l e co n tri b u t i o n d edu ct i o n , o n th e b as i s th atth e v al u e
o f t h e n o n cas h co nt ri bu t i o n h adb een g ro ss l y m is s t at ed(we s o m et i m es refer t o- 7
-

th es e p ro p o s ed4 0 % p en al t ies as th e p ri m ary n on cas h co n tri b u t i o n p en al t i es ). 2 RA Fel dd idn o tp ro p os e an y

accu racy -rel at edp en al ty co m p u tedatth e 2 0 % rat e, n o r d i dh e p ro p o s e an y

p en al ty wi th res p ectt o th e p o rt i o n o f each u n d erp aym en t at tri b u t ab l e t o d is al l o wan ce o f t h e cas h co nt ri bu t i on d edu ct i o n. RA Fel d’ s i m m ed i at e s up erv i s o r, Gro up M an ag er J oh n Po s t(GM Po s t ), ap p ro v edRA Fel d ’ s p en al ty p ro p o s al i n wri t in g o n a “ Pen al ty Ap p ro v al Fo rm ”. 3 Aft er ap p ro v al o f h is p en al ty reco m m en d at i o n was s ecu red , RA Fel d
co m p l et edh i s ex am i nat i o n an dfo rward edth e ad m i n i s trat i v e fi l e t o the IRS Tech n i cal Serv i ces Un i t fo r rev i ew an dp rep arat io n o f t h e n o t i ce o f d efi ci en cy . 4 A

2 Th e n o ti ce o f d efi ci en cy l i s t s th e am ou n ts o f t h e p ri m ary n o n cas h co n tri b u t i o n p en al t ies as $ 76 , 0 8 4 .8 0 an d$ 6 2 , 3 77 .2 0 fo r 2 0 0 4 an d2 0 0 5, res p ect i vel y .

3 Th e p en al ty

ap p ro v al fo rm

s h o ws an “ X ” i n t h e b o x fo r as s ert i o n o f
“ 6 6 6 2 (h ) Gro s s Val u at i o n M i s s t at em en t ”, a ch ecki n the b o x fo r “ Ap p ro v ed ”, an d GM Po s t ’ s i n i t i al s i n th e b o x m ark ed“ Gro up M an ag er In i t i al s ”. No o th er m ark s ap p ear.

4 Fo rward in g th e cas e t o th e Tech n i cal Serv ices Un i t acco rd s wi th p ro cedures s p eci fi edi n t h e In t ern al Rev enu e M an u al (IRM ) p t. 4
. 8 .1 .1 .1 (Oct . 1 , 2 0 0 3 ): (1 ) Tech n i cal Serv i ces (Ex am ) wi ll s up po rtEx am i n at i o n ’ s o b ject i v e t o co n du ct , o n a t i m el y

b as i s , qu al i ty

ex am i n at i o n s o f each s el ect ed t ax retu rn t o d et erm i n e t h e co rrect t ax l i ab il i ty b y :
* * * * * * * (co n ti n u ed ...)- 8
-

Tech n i cal Serv i ces em

p lo y ee rev i ewedth e cas e an dp rep areda p ro p o s edn o t i ce o f d efi ci en cy , wh i ch was th en fo rward edt o th e o ffi ce o f t h e M an h at t anArea Co u n s el , i n th e Offi ce o f Ch i ef Co u ns el , fo r rev i ew. 5 Gen eral At t o rn ey

GerardM ack ey

(GA M ack ey ), an Area Co u n sel d o ck et at t o rn ey , rev i ewedth e p ro p os edn o t i ce o f d efi ci en cy . Ina m em oran du m , GA

4 (...co n t in u ed ) (e.) t im el y

an daccu rat el y

co m p l et i n g p os t -ex am i n at i o n cas e req u irem en ts s u ch as i s s u an ce o f St atu t ory No t i ces o f Defi ci en cy , p rep arat i o n o f TEFRA l et t er p ack ag es an d co n s i d erat i o n o f i n t eres tab at em en tcl ai m s ; (f.) s erv in g as a l i ai s o n fo r Co u n s el an dAp p eal s , * * * In p art i cu l ar, Tech n i cal Serv ices “ [r] ev i ewers are res p o n s i b le fo r t he rev i ew o f s el ect edex am i n at io n s co n duct edb y ex am i n ers wi th i n th e Ex am i n at i o n fu n ct i o n * * *. As s i g n m en t s al s o i n cl ud e * * * p rep ari n g s t atu t ory n o t i ces o f d efi ci en cy ”. Id . p t . 4 .8 .1 .4
. In Graev v . Co m

m i s s i on er (Graev II), 1 4 7 T.C. _

_ _ , _

_ _ (s li p o p . at1 7 ) (No v. 3 0 , 2 0 1 6), we s ai dth atRA Fel dh adp rep aredth e fi rs tp ro p o s edn o t i ce o f d efi ci en cy . Inacco rd w it h t he p art i es ’ ag reedcl ari fi cat i o ns , we n o w co rrect th i s earl ier fi nd i n g : Tech n i cal Serv i ces , an dn o tRA Fel d, p rep aredth e fi rs t p ro p o s ed n o t i ce o f d efi ci en cy .

5 Th i s p ro ces s acco rd s wi th th e IRM req u i rem en tth atcas es m eet i n g cert ai n cri t eri a b e rev iewedb y

Area Co u n s el b efo re t he n o t ice o f d efi ci en cy i s s en to u t. In p art i cu l ar, i f th e s u m

o f t h e d efi ci en cy

an dp en al t i es fo r an y y ear i s o v er $ 2 5 0 ,0 0 0 , Area Co u ns el ’ s rev i ew i s m an d at ory . IRM p t . 4 .8 .9 .7 .1 (6 ) (Dec. 1 , 2 0 0 6 ). Becau s e t h e s u m

o f t h e d efi ci en cy an d p en al t i es co m pu t ed i n t h e Graev s ’ p ro p os edn o t i ce o f d efi ci en cy was o v er $ 2 50 ,0 0 0 fo r b o th 2 0 0 4 an d2 0 05 , rev i ew o f t h ei r cas e b y

Area Co u n sel w as req u ired
.- 9
-

M ack ey ap p ro v edth e p ro p o s edn o t i ce o f d efi ci en cy b u td irect edth atan al t ern at i v e p en al ty p o s i ti o n b e ad d ed , n am el y , s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ti es
co m p u t edatth e 2 0 % rat e an dap p l i edt o the p o rt i o ns o f t h e 2 0 04 an d2 0 0 5
u n d erp aym en t s at tri b u t ab le t o d i s al l o wan ce o f p et i ti o n ers ’ n o n cas h ch ari t ab l e
co n tri b u t i o n d edu ct i o n an dcarry o v er d edu ct i o n (al t ern at i v e n o n cas h co n tri b u t i on p en al t i es ). 6 GA M ack ey ’ s m em o ran du m was ap p ro v edi n wri t i n g b y h i s i m m ed i at e s up erv i s o r, As s o ci at e Area Co u n s el Ro bert Bax er (AAC Bax er). 7 Aft er AAC Bax er ap pro vedth e al t ern at iv e p en al ty p o si t io n , GA M ack ey ’ s
m em o ran du m

was s en tt o M an h at t anTech n i cal Serv i ces , wh ere a Tech n i cal

6 As d i s cu s s edi n Graev II, t he n o t i ce o f d efi ci en cy s h o ws zero am o u n t s fo r th e al t ern at i ve n on cas h co n tri b u t i o n p en al t i es b ecau s e t h ey were an al t ern at i v e p o s i t i on t o th e p ri m ary

n o n cas h co n tri b u t io n p en al t i es . 7 Sup p lem en t al s t i pu l at i on o f fact s No . 1 0 4 s tat es : “ Th e Area Co un s el M em oran du m

i s n o ts i g n edb y

GerardM ack ey ’ s i m

m ed i at e s up erv is or.” Th e i m m ed i at el y fo l l o wi n g s t ip ul at i o n s , h o wev er, cl ari fy res p o n d en t ’ s p o s i t i o n th at GA M ack ey ’ s i m

m ed i at e s up erv i s o r, AAC Bax er, g av e h i s wri t t en ap p ro v al b y i n i t i al i n g (rat h er th an b y

s i g n i n g ) GA M ack ey ’ s Area Co u ns el M em oran du m , p u rs u an t t o p ro cedu res s p eci fi edi n cert ai n ad m i n is trat i v e o rd ers . Co n s i s ten twi t h th i s p o s i t i o n , i n h is o p en i ng b ri ef fi l edM arch 3 1 , 2 01 5 , res p o n d en tp ro p o s edas fi nd i ng s o f fact th at(1 ) fo r p u rp o s es o f s ec. 6 7 5 1 (b ), AAC Bax er was GA M ack ey ’ s i m

m ed i at e s up erv i s o r an d(2 ) AAC Bax er ap p ro v ed th e as sert i o n o f t h e al t ern at i v e n o n cas h co n tri b u ti o n p en al ty b y i n i ti al i n g GA M ack ey ’ s m em oran du m . In th ei r res po n s iv e b ri efs p et it i o n ers h av e n o td i sp u tedth e fi rs tp o i n t ; th ey s t at e th atth ey d o n o t o b

jectt o th e s eco n dp o i nt . W e t h erefo re fi n dthatfo r p u rp o s es o f s ec. 6 7 51 (b ) AAC Bax er was GA M ack ey ’ s i m m ed i at e s up erv i s or an d g av e h i s wri t ten ap p ro v al o f GA M ack ey ’ s d i rect i o n reg ard in g th e al t ern at i v e n on cas h co n tri b u t i o n p en al ty

b y i n i t ial i n g GA M ack ey ’ s Area Co u n s el M em o ran du m .- 1 0 -

Serv i ces em

p l o y ee ad d edthe ch an g es p ro p o s edb y GA M ack ey

t o th e n o t i ce o f d efi ci en cy . 8 Th i s p ro cedu re was co n s i s ten t wi th In t ern al Rev en ue M an u al (IRM ) p t . 4 .8
. 9.7 .2 (Oct . 3 0, 2 0 0 4 ), wh i ch s t at es : (1 ) If Area Co u n s el s ug g es t s ch an g es t o th e p ro p o s edn o ti ce, t h e fo l l o wi ng act i on s wi l l b e t ak en . (1 .) Area Co u n s el wi l l p ro v i d e wri t ten d i rect i on s an dg u i d an ce o n h o wt o p erfect th e n o t i ce. (2 .) Ex am i n at i on [ 9 ] wi l l co ns i d er Area Co u n s el ’ s p ro p o s ed ch an g es an d m o d ify th e n o ti ce as d i rect ed , i f i n ag reem en t. (3 .) Di s ag reem en t s wi l l b e i ni t ial l y d i s cu s s edb et ween th e Area Co u n s el at t orn ey

p ro v i d i n g ad vi ce an dth e Tech n ical Serv i ces Gro up M an ag er.

8 In Graev II, 1 4 7 T .C. at

_ _ (s l i p o p. at 1 8), we s ai dthatGA M ack ey ’ s p ro p os edch an ges were s en t backt o RA Fel d
. W e n o w rev i s e o u r fact u al fi n d i n g t o acco rdwi th cl ari fi cat io n fro m th e p art i es . W e fi n dth atGA M ack ey ’ s p ro p o s ed ch an ges were n o ts en t b ackt o RA Fel d ; i .e., th ey were n o t s en t b ackt o th e o ri g i n al ex am i n at i o n u n it . Th ey were s en tb ackt o Tech n i cal Serv ices
.

9 W e n ot e thatth i s p as s ag e fro m IRM p t . 4 .8 .9 .7 .2 (Oct . 3 0, 2 0 04 ) i n d i cat es th ats u g g es t ed ch an g es are t o b e co n s i d eredb y “ Ex am i nat i o n ”. Th e IRM i n cl u d es Tech n i cal Serv i ces u nd er Part 4 , “ Ex am i ni n g Pro ces s ”, ev en th o u g h s o m e o f t h e fu n ct i o n s i tcarri es o utare d es cri b edas “po s t-ex am in at io n ”. See, e.g ., i d . p t
. 4 .8
. 1.4 (1 ) (Oct . 1 , 2 0 03 ). In an y ev en t , the p art i es ag ree t h atth e ch an g es p ro p o s ed b y GA M ack ey

were ad dedt o t h e p ro p o s edn o t i ce o f d efi ci en cy b y a Tech ni cal Serv i ces em

p l o y ee, an dn ot h i n g i n the reco rds u gg es t s o th erwi s e. M oreo v er, t h e cu rren tv ers i o n o f t h e IRM cl ari fi es th ats u g g es t edch an g es t o th e p ro po s edn o t i ce are co n s i d eredb y

a Tech n i cal Serv i ces rev i ewer an d n o tb y the rev enu e ag en twh o i n i t i al l y co n du ct edth e ex am i n at i on . Id . p t . 4 .8 .9
. 9 .2 .2 (J u l y 9 , 2 0 13 ).- 1 1 - (4 .) Ano v erri d e o f Area Co u n s el ’ s ad v i ce m u s tb e d o n e i n wri t i n g by

m ean s o f an Area Di rect o r m em o ran du m o ut l i n i n g th e reas o n s fo r n o tfo l l o wi n g Area Co u n s el ’ s reco m m en d at i o ns . (2 ) Al l wri t t en co m

m u n icat i o n s t o/ fro m

Area Co u n s el s h o u l db e k ep t i n th e cas e fi l e. Aft er t h e s u g g es t edch an g es were ad d edb y a Tech n i cal Serv i ces em p l o y ee, th e n o ti ce o f d efi ci en cy

was s i g n edb y

Tech n i cal Serv i ces Terri t o ry M an ag er Deb orah Ben n et tan ds en t t o p et i t i o n ers . Th e n o t i ce o f d efi ci en cy i n cl u d edb o t h th e p ri m ary

n o n cas h co n tri b u t i o n p en al t i es fi rs tp ro p o s edb y RA Fel d (wh i ch
res p o n d en t h as s i n ce co nced ed ) an dth e al t ern at i v e n o n cas h co n tri b u t io n p en al t i es fi rs tp ro p o s edb y

GA M ack ey , al l rel at i n g t o d i sal l o wan ce o f t h e n o n cas h ch ari t ab le co n tri b u t i on d educt i o n . Th e n o ti ce o f d efi ci en cy l is t edn o p en al t i es wi th res p ect t o d i s al l o wan ce o f t h e cas h ch ari t ab l e co n tri b ut i o n d edu ct i o n . OnOct o b er 6 , 2 0 14 , aft er Graev I h adb een rel eas ed , res p on d en t ’ s at t o rn ey , Sh awn a A. Earl y , fi l edan am en d m en tt o an s w er, as s ert in g s ect i o n 6 6 6 2 (a)
accu racy -rel at edp en al ti es fo r 2 0 0 4 an d 2 0 0 5 , as co m p u t edatth e 2 0 % rat e. 1 0 Th e

1 0 Onb ri ef res p o n den tex p l ai n s th at h e h ado ri g i n al l y i n t en d edt o rai s e t h e p en al ty i n an am en d m en tt o an swer o n l y i f t h e Co u rtg ran t edp et i t i o n ers ’ m o t i o n fo r p art i al s u m

m ary ju d g m en t, fi l edAp ri l 1 4 , 2 0 1 4, i n wh i ch p et it i on ers s o u g h ta ru l i n g t h atth e s ec. 6 66 2 (a) p en al t i es are b arred b y s ec. 6 75 1 (b ). Aft er res p o n d en t m ad e t h is p l an kn o wn , h o wev er, o n Au gu s t1 2 , 2 0 1 4 , th e Co u rto rd eredth atan y p art y i n t en d i n g to m o v e fo r l eav e t o am en di t s p l ead in g s h o u ldd o s o fo rt hwi th (co n ti n u ed ...)- 1 2 -

am en d m en tt o an s wer b ot h reas s ert edth e al t ern at i v e n o n cas h co n tri b ut i o n p en al t i es i n cl u d edi n th e n o t i ce o f d efi ci en cy an das s ert ed fo r t h e fi rs t t i m e s ect i o n 6 6 6 2 (a) p en al t ies , co m

p u t ed atth e 2 0 % rat e, wi th res p ectt o th e cas h ch ari t ab l e
co n tri b u t i o n d edu ct i o n an dcarry o v er d edu ct i o n (we wi l l refer t o th e l at t er p en al t i es as the cas h co n tri b u t i o n p en al t ies ). 1 1 Inth e am en d m en tt o an s wer,
res p o n d en t al l eg es (wi th res p ectt o b o th th e al t ern at i v e n o n cas h co n tri b u t i o n p en al t i es an d t h e cas h co n tri b u t i o n p en al t ies ) t h atth e 2 00 4 an d2 00 5
u n d erp aym en t s are at tri b ut ab l e t o n eg l ig en ce o r d i s reg ardo f ru l es o r reg u l at i o n s , s ee s ec. 6 6 6 2 (b )(1 ), (c), an dt o s ubs t an t i al u n d ers t at em en t s o f i n co m e t ax , s ee s ec. 6 6 6 2 (b )(2 ), (d ). 1 2 Th e p art i es ag ree t h atM s . Earl y m ad e t h e i n i t ial d et erm i n at i o n

1 0 (...co n t i nu ed ) wi th o u tawai t i ng th e Co urt ’ s ru l i n g o n p et it i on ers ’ m o t i o n fo r p art i al s u m m ary ju d g m en t
.

1 1 Cu ri o u s l y , th e am en d edan s wer as s ert s thatth e u n derp aym en t s at tri b u t ab l e t o d i s al l o wan ce o f b o th th e cas h an dn o n cas h ch ari t ab l e co n tri b u t i o n d edu ct i o n s are $ 1 9 0 ,2 12 an d$ 15 5 ,9 4 3 fo r 2 0 0 4 an d 2 0 0 5 , res p ect i vel y --th e s am e am o u n t s th atwere u s ed t o co m

p u t e t h e n o n cas h co n tri b u t i o n p en al t i es i n th e n ot i ce o f d efi ci en cy . Th e reco rdd o es n otcl ari fy th is ap p aren tan o m al y . Inan y ev en t , n ei th er p art y

h as arg u edth atth e am o u n t s o f t h e 2 0 0 4 an d 2 0 0 5 u nd erp aym en t s as as s ert ed i n th e am en d edan swer are i n co rrect , an dwe d eem b ot h p art i es t o h av e wai v ed o r co n ced edan y

arg um en t s t o th e co n trary . M o reo v er, i n the Ru le 1 5 5 co m p u t at i o n s we wi l l ex p ect th e 2 0 % p en al t i es t o b e co m p u t edi n a m an n er t h ati s co n si s t en twi th th e am ou n t s l i s t edi n th e am en d edan s wer.

1 2 Li k e t h e am en dedan s wer, t h e n o t ice o f d efi ci en cy al s o l i s t edn eg l i g en ce

(co n ti n u ed ...)- 1 3 -

o f t h e cas h co n tri b u t io n p en al t i es an dth atthe am en d m en tt o an s wer was ap p ro v ed i n wri t i n g b y

h er i m m ed i at e s uperv i s o r, As s o ci at e Area Co un s el Ly d i a A. Bran ch e. Di s cu ss i o n As n o ted , res p o nd en th as co n ced ed thatp et i t i o n ers are n o tl i ab l e fo r 4 0 % g ro s s v al u at i o n m i s s t at em en tp en al t i es u n d er s ect i o n 6 6 6 2 (h ). Res p o nd en t
m ai n t ai n s , h o wev er, t h ats ect io n 6 66 2 (a) accu racy -rel at edp en al t i es as co m p u t edat th e 2 0 % rat e ap p l y t o the p ort i on s o f p et i t i o n ers ’ 2 0 0 4 an d2 0 0 5 u n d erp aym en t s at tri b u t ab l e t o d is al l o wan ce o f b o th th e n on cas h an dcas h ch ari t ab l e co n tri bu t i o n d educt i o n s . Pet i t io n ers as s ertth atas s es s m en to f t h es e accu racy -rel at edp en al t i es i s b arred b ecau s e res p on d en th as fai l edt o co m p l y wi th th e s up erv is o ry

ap p ro v al req u i rem en t s o f s ect i o n 6 7 5 1 (b ), wh i ch p ro v i d es : “No p en al ty u nd er t h i s t i t l e
s h al l b e as ses s edu n l es s the i n it i al d et erm i nat i o n o f s u ch as s es sm en ti s p ers o n al l y ap p ro v ed(i n wri t i n g) b y

th e i m m ed i at e s uperv i s o r o f th e i n d i v i dual m ak i n g s u ch d et erm i n at i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i g n at e.”

1 2 (...co n t i nu ed ) o r d i s reg ard o f ru les o r reg u lat io n s an d s ub s tan t i al u n d ers tat em en t s o f i n co m e t ax as g ro u n d s fo r t h e al t ern at i v e n o n cas h co n tri b u t io n p en al t i es .- 1 4 -

I. Sect i o n 6 7 5 1 (b ) i n Defi ci en cy Cas es Hav i n g co n s i d eredth e o p i n i o n o f t h e Co urto f Ap p eal s fo r t he Seco n d Ci rcu i ti n Ch ai , an di n th e i nt eres to f rep o s e an du n ifo rm i ty o n an i s s u e th at t o u ch es m an y

cas es b efo re u s , we rev ers e t h o s e p o rt i o n s o f Graev II wh ich h el d th ati twas p rem atu re t o co n s i d er s ect i o n 6 7 5 1 (b ) i s s u es i n th i s d efi ci en cy p ro ceed in g . Acco rd i n g l y , i n th i s Op in i on we co ns i d er th e m eri t s o f p et i ti o n ers ’
s ect i on 6 7 5 1 (b ) arg um en t
. 1 3 Un d er s ect i o n 7 49 1 (c) t h e Co m m i s s io n er b ears th e b u rd eno f p ro du ct i o n wi th res p ect t o th e l i ab i l i ty o f an i n d i v i dual fo r an y

p en al ty . To s at i s fy

th i s b u rd en th e Co m m i s s i o n er m

u stp res en ts u ffi ci en tev i d en ce t o s h o w th at i t i s ap p ro p ri at e t o i m p o s e t h e p en al ty

i n th e ab s en ce o f av ai l ab l e d efen s es . See Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 0 0 1). In th e l i g h to f o ur h o l d i ng th atco m pl i an ce wi th s ect i o n 6 7 51 (b ) i s p ro p erl y ati ss u e i n th i s d efi ci en cy cas e, we al s o h o ldth ats u ch co m p l i an ce i s p ro p erl y

a p arto f res p o n d en t ’ s b u rd en o f p ro du ct i o n u n d er s ect i on 7 4 9 1 (c). 1 4 Fo r t h e reas o n s

1 3 In Graev II we d i dn o tco n s i der t he s ec. 6 7 5 1(b ) i ss ues we ad dres s i n th i s Op i ni o n , b utwe h el dfo r res p o n d en to n al l o th er i ss u es rel at in g t o the p en al t i es . W e i nco rp o rat e t h o s e h o l di ng s b y th i s referen ce. Acco rd i n g l y , th e o nl y i s s u e fo r d eci s i o n i n th i s Op i n io n i s wh eth er res p o nd en th as co m p li edwi th s ec. 6 7 5 1(b ).
1 4 In Ch ai v . Co m

m i s si o n er, 8 5 1 F.3 d1 9 0 (2 dCi r. 2 0 1 7 ), aff’ g i n p art , rev ’ g (co n ti n u ed ...)- 1 5 -

d i s cu s s edb el o w, we co ncl u d e o n th e b as i s o f a p rep o n d eran ce o f ev i den ce i n th e
reco rdth atres p o nd en th as s at i s fi edth e req u i rem en t s o f s ect i o n 6 7 5 1 (b ). II. Al t ern at i v e No n cas h Co n tri b u t i o n Pen al t i es Res p o n d en targ u es th atth e req u i rem en to f s ect io n 6 7 5 1 (b )(1 ) h as b een m et wi th res p ect t o th e al t ern at i v e n o n cas h co n tri b u ti o n p en al t ies b ecau s e GA M ack ey

1 4 (...co n t i nu ed ) i n p art T.C. M em o. 2 01 5 -4 2 , th e Co u rto f Ap p eal s fo r th e Seco n dCi rcu i t s u g g es t edth at th e Co m

m i s s i on er al s o b ears th e b u rd en o f p ro of, i n ad d i t i o n t o th e b u rd eno f p ro du ct i o n , wi th res p ectt o s ec. 6 7 5 1 (b ) i ss u es . Th e co u rts ai d : “ co m p l i an ce wi th § 6 7 5 1 (b ) i s p arto f t h e Co m m i s s i o n er’ s b u rd eno f p ro du ct i o n an d p ro o f”. Id . at2 2 1 . As s up p o rtfo r t h i s s t at em en tth e co u rtp oi n t edt o s ec. 7 4 9 1 (c), wh i ch p l aces o n res p o n d en tth e b u rd en o f p ro du ct i on (rat h er t h an th e b u rd eno f p ro of) fo r an y p en al ty u n d er t h e Co d e. Th en Ch ai s ay s : “ Iti s i n cu m ben to n th e Co m

m i s s i o n er, i n o rd er t o m eeth i s b u rd en o f p ro du ct i o n , t o ‘ co m e fo rward wi th s u ffi ci en t ev i d en ce i n d i cat i n g th at i ti s ap p ro p ri at e t o i m p o s e th e rel ev an tp en al ty .’ ” Id
. at 2 2 2 (em p h as i s ad d ed ) (qu ot i n g Hi gb ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 0 0 1)). Sub s equ en t l y , h o wev er, Ch ai s t at es th at“ § 6 7 5 1 (b )(1 ) wri tt en ap p ro v al i s an el em en to f a p en al ty cl ai m an dth erefo re th e Co m m i s s i o n er’ s b urd ent o p ro v e”. Id . at2 22
. W e are l eft i n so m e d o ubtwh et h er Ch ai m ean tt o i m p o s e up o n t h e Co m m i s s i o n er t he b u rd en o f p ro o f o r ju s t --as p ro v i dedi n s ec. 7 4 9 1 (c)--t h e b u rd en o f p ro du ct i o n . Inan y

ev en t, b ecau s e we co n cl u de t h atres p o n d en t s at i s fi edth e s ec. 6 7 51 (b ) req u irem en to n t h e b as i s o f t h e p rep o n d eran ce o f ev i d en ce an d wi th o u treferen ce t o th e p l acem en to f t h e b urd en o f p ro o f, we n eedn o t an dd o n o t d eci d e i n thi s cas e th e p reci s e co n t o u rs o f Ch ai ’ s h o l d i n g i n t h i s reg ardo r t h e ex t en tt o wh i ch we s h o u l dfo l l o w i ti n cas es ap p eal ab l e t o o th er Co u rt s o f Ap p eal s .- 1 6 -

m ad e t h e i n i t i al d et erm i n at i o n , wh i ch was ap p ro v edi n wri t i n g b y h i s i m m ed i at e
s up erv i s o r, AAC Bax er. 1 5 W e ag ree. GA M ack ey

was th e fi rs tp ers o n t o reco m m en do r d i recti ncl u s io n o f th e al t ern at i v e n o n cas h co n tri b u ti o n p en al ti es , an das d es cri bedm o re fu l l y b el o w, h e h ad th e au th o ri ty

t o d o s o . GA M ack ey ’ s reco m m en d at i o n as t o the al tern at i v e
n o n cas h co n tri bu t i o n p en al ti es (l i k e RA Fel d’ s reco m m en d at i o n as t o th e p ri m ary
n o n cas h co n tri bu t i o n p en al ti es ) was rev i ewedb y h i s i m m ed i at e s up erv i s or, ap p ro v ed , an dfo rward ed t o Tech n i cal Serv i ces . Tech ni cal Serv i ces rev i ewedGA M ack ey ’ s reco m

m en d at i o n an dad d edh i s reco m m en d at i o n t o t h e n o t i ce o f d efi ci en cy . Nei ther p art y

h as arg u edth atan y o ne o th er t h an GA M ack ey m ad e th e i n it i al d et erm i n at i o n o f t h e al t ern at iv e n o n cas h co n tri b ut i o n p en al t i es , n o r d o es th e
reco rds up p o rt s uch a fi n d i n g . 1 6 Th erefo re, we co n cl u d e t h at GA M ack ey ’ s

1 5 Res p o nd en tal s o rai s es two al t ern at i v e arg u m en t s , n am el y (1 ) th at ap p ro v al o f t he p ri m ary n o n cas h co n tri b u t io n p en al t i es i n th e n o t i ce o f d efi ci en cy s u ffi ced as ap p ro v al o f t h e al t ern at i v e n o n cas h co n tri b u t i o n p en al t i es ; an d(2 ) t h at ev en if t h e al t ern at i v e n o n cas h co n tri b u t i o n p en al ti es as i n cl u d ed i n th e n o t i ce o f d efi ci en cy

were n o tp ro p erl y

ap p ro v ed , th ey

were p ro perl y

rai s edan ew i n h i s am en d m en tt o an s wer. Becau s e we h o ldfo r res p o n d en to n th e arg u m en td es cri b ed ab o ve, we n eedn otan d d o n o tad dres s t h es e al t ern at iv e arg u m en t s .

1 6 Nei th er p art y

h as arg u edth atth e Tech n i cal Serv ices rev i ewer m ad e t h e i n i t i al d et erm i n at i o n o f t h e al t ern at i v e n o n cas h co n tri b u t i o n p en al t i es , an d th e (co n ti n u ed ...)- 1 7 -

reco m m en d at i o n was th e i n i t i al d et erm i n at i o n o f t h e al t ern at iv e n o n cas h
co n tri b u t i o n p en al t ies fo r 2 0 0 4 an d 2 0 05 . Th e p art i es ag ree t h atGA M ack ey ’ s
reco m m en d at i o n was ap p ro v edi n wri t i n g b y h i s i m m ed iat e s up erv i s o r. Co n s equ en t l y , th e req ui rem en to f s ect i o n 6 7 5 1(b ) i s s at is fi edwi th res p ectt o th e al t ern at i v e n o n cas h co n tri b u ti o n p en al ti es fo r 2 0 04 an d2 0 05
. Pet i t i o ners ’ arg u m en t s ag ai n stth is co n cl u s i o n al l rel at e t o wh et h er GA M ack ey h adth e au th o ri ty t o m ak e an i ni t i al d et erm i n at i o n . Al th o u g h p et i t i o n ers
co n ced e t h atat t o rn ey s i n th e Offi ce o f Ch i ef Co un s el can s o m et i m es m ak e an i n i t i al d et erm i n at i o n o f p en al t i es , th ey co n t en dthatat t o rn ey s i n th e Offi ce o f Ch i ef Co u n s el n ev er h av e au th o ri ty t o m ak e th e i ni t i al d et erm in at i o n o f a p en al ty i f i t i s i n cl u d edi n a n o t i ce o f d efi ci en cy . As s up p o rtfo r th i s co n cl u s io n , p et i t i o n ers p o i n t t o a s t at em en t i n Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 dat2 2 1, th ats ect i o n 6 7 5 1 (b )(1 ) “ req u ires wri t t en ap p ro v al
o f t h e i n i t i al p en al ty

d et erm i n at i o n n o l at er t han th e d at e t h e IRS i s su es th e n o t i ce
o f d efi ci en cy (o r fi les an an s w er o r am en d ed an s wer) as s ert i n g s u ch p en al ty .”

1 6 (...co n t i nu ed ) reco rdd o es n o ts up p o rtan y s u ch fi n d i ng . Si m i l arl y , n ei th er p art y h as ex p res s l y arg u ed th atRA Fel d--o r an y o th er ex am in at i o n ag en t --m ad e t h e i n i t i al d et erm i n at i o n o f t h e al t ern at iv e n o n cas h co n tri b ut i o n p en al t i es , n o r d o es th e reco rds up p o rt an y

s u ch fi n d in g . As p rev i o u s l y n o t ed , GA M ack ey ’ s reco m m en d at i o n o f t h e al t ern at i v e n o n cas h co nt ri bu t i o n p en al ti es was n ev er retu rn edt o res p o n d en t ’ s Ex am i n at i o n Di v i s io n .- 1 8 -

Pet i t io n ers co n s tru e t h is s t at em en tt o m ean th at “p en al ti es can b e i n i t i al ly d et erm i n edb y

the Co m m is s i o n er i n a n o ti ce o f d efi ci en cy , o r b y IRS Ch i ef Co u n s el * * * i f t h e p en al ti es are n o ti n cl u dedi n th e n o t i ce o f d efi ci en cy ”. Pet i t io n ers co n cl u d e t h atb ecau s e t h e al t ern at i ve n o n cas h co n tri b u t i o n p en al t i es ap p earedi n th e n o ti ce o f d efi ci en cy , GA M ack ey l ack edth e au tho ri ty

t o m ak e t he i n i t i al d et erm i n at i o n o f t h o se p en al t ies
. W e d i s ag ree. Fi rs t , al th o u g h o u r an al y s i s d o es n o t tu rn o n th e ex act
m ean i n g o f t h e s en ten ce ju stqu o t edfro m Ch ai , we u n d ers tan di tt o b e ad dres s ed t o the t i m i n g o f s up erv i s o ry ap p ro v al rat h er t h an t o the m an n er i n wh i ch , o r b y wh o m , an i n i t i al d et erm i n at i o n m i g h tb e m ad e. Seco n d , n o th i ng i n th e t ex to r l eg i s lat i v e h i s to ry o f s ect i o n 6 7 5 1 (b ) s u g g es t s th ati den t i fi cat i o n o f t h e p ers o n wh o
m ad e t h e i n i t i al d et erm i n at i o n o f a p en al ty s ho u l dtu rn up o n th e p en al ty ’ s i n cl u s i o n o r n o n i n cl u s i o n i n a n o t i ce o f a d efi ci en cy . 1 7 Pet i t i o ners as s ertfu rt h er t h at(1 ) t h e Offi ce o f Ch i ef Co u n s el m ay s erv e o n l y i n an ad vi s o ry

cap aci ty u n t il s u ch t i m e as p ro ceed i n g s are co m m en cedi n th i s Co u rt ; an dth at(2 ) ani n it i al d et erm i n at i on can n o t t ak e th e fo rm o f ad v i ce.

1 7 By i t s t erm s s ec. 6 7 5 1 (b ) ap p l i es t o th e as s es s m en to f al l p en al t i es u n d er “ th is t i t l e”--i .e., t i t l e 2 6 , th e In t ern al Rev en u e Co d e. Th is en co m p as ses n o to n l y p en al t i es s ub

jectt o d efi ci en cy p ro cedures b u ta g reatm an y s o -cal l edas s es s ab l e p en al t i es i n s ub ch . B o f ch . 6 8 , s ecs . 6 6 71 th ro u g h 6 7 25 , wh i ch are g en eral l y n o t s ub jectt o d efi ci en cy p ro cedu res .- 1 9 -

Ag ai n , we d i s ag ree. Sect i o n 7 80 3 (b )(2 ) p ro v i d es thatth e “ Ch i ef Co u n s el
s h al l b e t h e ch ief l aw o ffi cer fo r t he In tern al Rev en u e Serv i ce an ds h al l p erfo rm
s u ch du t i es as m ay

b e p res cri b edb y

th e Secret ary , i n cl u d i n g * * * [a l is to f du t i es ]
. ” Sect i o n 7 7 01 (c) s p eci fi es th at“ [t ] h e t erm s ‘ i ncl u d es ’ an d ‘ i n cl u di n g ’ wh en u s edi n a d efi n i t i o n co n t ai n edi n th is t i tl e s h al l n o tb e d eem edt o ex cl u d e
o th er t hi n g s o th erwi s e wi th i n th e m ean in g o f t h e t erm d efi n ed .” Acco rd i n g l y , th e Secret ary m ay as s i g n du t i es t o t h e Offi ce o f Ch ief Co u n s el th atare n o ti ncl u d edo n th e s ect i o n 7 8 0 3 (b )(2 ) l i s t , i n cl u d i ng th e du ty t o rev i ew p ro p o s edn ot i ces o f d efi ci en cy

an ds u gg es tch an g es . As d es cri b edab o v e, IRS p ro cedu res cl earl y
as s i g n rev i ew o f cert ai n p ro p o s ed n o t i ces o f d efi ci en cy , i ncl u d i n g th e o n e i n th i s
cas e, t o the Offi ce o f Ch i ef Co u n s el . See IRM p t. 4
. 8 .9 .7 .1 (6 ) (Dec. 1 , 2 0 0 6 ). W e al s o d i s ag ree wi th p et i t i o n ers ’ co n t en t io n th atan i n i ti al d et erm i n at i o n
can n ott ak e t he fo rm

o f ad v i ce. 1 8 Th e d i s t i n ct i o n p et i t i o n ers s eekt o draw b et ween

“ ad v i ce” an d an “ i n i ti al d et erm i n at i o n ” l ack s an y fi rm b as i s i n th e s t atu t e. An y

“ i n it i al d et erm i n at i on ” g o v ern edb y s ect i o n 6 7 51 (b ), wh et h er m ad e b y an
ex am i n i n g ag en t o r a ch i ef co u n s el at to rn ey , i s m ere ad v i ce u n t i l i t recei v es th e

1 8 Al th o u g h we d o n otv i ew th e p art i es ’ t erm i n o l o gy as d i s p o s i t i v e i n th i s reg ard , we n o t e t h atth e p art i es h av e s t i p u l at edth atGA M ack ey , i n h i s Sep t em b er 1 2 , 2 0 0 8 , Area Co u n s el M em o ran du m , “ d i rect ed ”--rat h er t h anm erel y reco m m en d edo r ad v i s ed --th atth e al t ern at i v e n o n cas h co n tri b u ti o n p en al ty b e ad d edt o th e n o t i ce o f d efi ci en cy .- 2 0 -

req u i s i t e s up erv i s ory ap p ro v al an di s fi n al i zedb y th e Co m m i s si on er o r o n e o f h i s ag en ts . Th e wo rd “ i ni ti al ” co n n o t es as m u ch
. It is tru e th atTech n i cal Serv i ces rev i ewedGA M ack ey ’ s reco m m en d at i o n
o f t h e al t ern at i v e n o n cas h co n tri b u t io n p en al ti es . Bu tTech n i cal Serv i ces al s o
rev i ewedRA Fel d ’ s reco m m en d at i o n o f t h e p ri m ary n o n cas h co n tri b u ti o n p en al t i es . Th e rev i ew b y Tech n i cal Serv i ces n o m o re d im i n i s h edthe s t atu s o f GA M ack ey ’ s reco m

m en d at i o n as th e i n i t i al d et erm i nat i on o f t h e al t ern at i v e n o n cas h
co n tri b u t i o n p en al t ies th an i td im i n i s h edth e s t atu s o f RA Fel d ’ s reco m m en d at i o n
as th e i n i t i al d et erm i n at i o n o f t h e p ri m ary n o n cas h co n tri b u ti o n p en al t ies . To th e
co n trary , th e Co m

m i ss i o n er’ s es t ab l i s h edp ro cedures s u g ges tthati ti s m o re d i ffi cu l tfo r Tech ni cal Serv i ces t o o v erri d e Area Co un s el reco m m en d at i o n s t h an i t
wo u l db e t o o v erri de an y i n i ti al d et erm i n at i on m ad e b y an ex am in i n g ag en t
. 1 9 Pet i t i o ners s u g g es tth atat t o rn ey s i n t h e Offi ce o f Ch ief Co u n s el can n o tb e
as s i g n edt o rev i ew p ro p o s edn o t i ces o f d efi ci en cy b ecau s e th atm i g h tl eadt o a

1 9 Wh ereas a Tech n ical Serv i ces m an ag er can o v erri d e t h e i n i t i al d et erm i n at i o n s o f an ex am i n i n g ag en tb y retu rn in g th e cas e t o ex am i n at i o n , s ee IRM p t . 4 .8 .2 .9 (1 )(e) (Oct . 1 , 2 0 0 3 ) (req u i ri n g o n l y m an ag er ap p ro val t o retu rn a cas e t o ex am i n at i on ), th e IRM s p eci fi es th atan y o verri d e o f Area Co u n s el ’ s reco m m en d at i o n m

u s tb e i n wri t i n g i n an area d i rect o r m em o ran du m (i .e., an o ffi ci al ab o v e t h e m an ag er l ev el ), s ee i d
. p t
. 4 .8 .9 .7 .2 (Oct . 3 0 , 2 00 4 ). Th e reco rd co n tai n s n o s uch area d i rect o r m em o ran du m o r o ther i n d i cat i o n th atTech n i cal Serv i ces s o u g h tt o o v erri d e GA M ack ey ’ s reco m m en d at i o n .- 2 1 -

s i tu at i o n i n wh i ch th e l awy er rep res en t i n g th e Co m m is s i o n er b efo re t h i s Co u rt
wo u l dh av e t o wi th draw i n o rd er t o t es t i fy as a wi tn es s wi th res p ectt o s ect i o n 6 7 5 1 (b ) i s s u es . Pet i t i o n ers ’ p rem i s e ap p ears t o b e t h atth e Ch i ef Co u ns el at t o rn ey wh o m ak es th e i n i t ial d et erm i n at i o n wi l l al s o rep res en t the Co m m i s s i on er i n a rel at ed p ro ceed i n g b efo re t h i s Co u rt . Res p o n d en t co un t ers th atth i s p rem i s e i s n o t
o n l y u n tru e g en eral l y

b u ti s al s o u n tru e i n th i s cas e, s i n ce t h e at t o rn ey wh o
rev i ewedth e n o t i ce o f d efi ci en cy , GA M ack ey , i s n o tth e s am e at to rn ey rep res en t i n g res p on d en t i n th i s cas e. In an y ev en t, we ag ree wi th res po n den tth at th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re, l i k e t h e ABA M o d el Ru l es o f Pro fes s i on al Co n du ct , p ro v i d e a s o lu t io n fo r an y s u ch p o t en ti al co n fl i ct ; th e at t o rn ey co u l dwi th draw o r t ak e o th er n eces s ary s t ep s t o o b v i at e an y co nfl i cto f i n t eres t . See Ru l e 2 4 (g ). Pet i t i o ners al s o p o s i tthat“ [i ] f t h i s Co u rtreco g n i zes Ch i ef Co u n s el at t o rn ey s as au th o ri zedt o m ak e th e i n i t i al d et erm i n at i o n t o as s erta p en al ty i n a
n o t i ce o f d efi ci en cy , th e Co u rtwo u l d i nv i t e d i s co veryd i s p ut es an d m o ti o n s t o
co m p el s eek i ng t o d i s co v er h i s t o ri cal l y p ri v i leg edco m

m u n i cat i o n s b et ween th e Co m m i s s i o n er, t h e Ch i ef Co u n s el , an dth ei r res pect i v e d el eg at es .” As th i s cas e p res en t s n o p ri v i l eg e i s s u e, we d ecl i n e t o o p i n e o n an y s u ch m at t er. W e n o t e,- 2 2 -

h o wev er, t h ati t i s res p o nd en t ’ s at t o rn ey -cl i en t p ri v il eg e t h atp et i t i o n ers as s ertwe
o u g h tt o p ro t ect , an d res po n d en th as n o t rai s eda s i m i l ar co n cern . Fo r t h e reas o n s d es cri b edab o v e, we fi n dth atGA M ack ey ’ s
reco m m en d at i o n was th e i n i t i al d et erm i n at i o n t o as s es s th e al t ern at i v e n on cas h
co n tri b u t i o n p en al t ies . Th e p art i es ag ree t h ath is reco m m en d at i o n was ap p ro v ed i n wri t i n g b y

h i s i m m ed i at e s uperv i s o r. Acco rd i ng l y , we h o ldth atres po n d en th as
m eth i s b u rd en t o s h ow t h atth e req u i rem en to f s ect i o n 6 7 51 (b ) was m etwi th
res p ectt o t h e al t ern at i v e n o n cas h co n tri b u t i o n p en al t ies
. III. Cas h Co n tri b ut i o n Pen al t i es Th e p art i es ag ree, as d es cri b edab o v e, t h at th e cas h co n tri b ut io n p en al t i es were i n i t ial l y

d et erm i n edb y

Sh awn a A. Earl y

an dap p ro v edi n wri ti n g b y h er i m m ed i at e s up erv i s o r, As s o ci at e Area Co u n s el Ly di a A. Bran ch e. Acco rd in g l y , res p o n d en t h as m eth i s b u rd en t o s h o w th atth e req u i rem en to f s ect i o n 6 7 51 (b )
was m etwi th res p ectt o th e cas h co n tri b ut i o n p en al t i es . 2 0

2 0 On ce t h e Co m

m i s s io ner’ s b u rd eno f p ro duct i o n i s m et , th e t ax p ay er h as th e b u rd en o f p ro o f wi th res pect t o d efen s es , Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. at 4 4 6 , ex cep t th ati f t h e Co m m i s s i o n er p l ead s a n ew m at t er, an i n creas e i n d efi ci en cy , o r an affi rm at iv e d efen s e i n the an s wer, t he b u rd en o f p ro o f i s o n th e Co m m i s s i o n er, Ru le 1 4 2(a). As n o t ed , s ee s up ra n o t e 1 3 , we d o n o treco n s i d er d efen s es i n th i s Op i n io n . W e d o , h o wev er, cl ari fy th e b u rd en o f p ro of ap p l i edi n Graev II wi th res p ectt o th e cas h co n tri bu t io n p en al t i es , fo r t h e s ak e o f co m p l et en es s . (co n ti n u ed ...)- 2 3 -

IV. Co n cl u s i o n W e h o ldth atres p o n d en t h as m eth i s b u rd en t o s h o wth at s ect io n 6 7 5 1 (b ) i s
s at i s fi edwi th res p ectt o th e 2 0 % accu racy -rel at edp en al t i es as as s ert edi n th e
n o t i ce o f d efi ci en cy

an di n th e am en d edan s wer. In Graev II we h el d fo r
res p o n d en t o n al l o th er i s s u es rel at i n g t o th es e p en al t ies . Pet i t i o n ers are t h erefo re l i ab l e fo r accu racy -rel at edp en al t i es u n d er s ect i o n 6 6 6 2 (a) fo r 2 00 4 an d 2 00 5

2 0 (...co n t i nu ed ) Res p o n d en tp l ead edth e cas h co nt ri bu t i o n p en al ti es fo r t h e fi rs t t i m e i n th e am en d edan s w er. As n o t eds up ra n o t e 1 1 , th e u n derp aym en t s l i s t edi n th e am en d edan s w er are eq u al t o th e u n d erp aym en t s i n th e n o t i ce o f d efi ci en cy , m ean i n g th atres p o n den t ’ s am en d edan swer i n creas es n ei th er t h e d efi ci en cy n o r th e 2 0 % p en al t i es . Co n seq uen t l y , th e b u rd en o f p ro o f res t s o n res p on d en to n l y i f th e cas h co n tri b u t i o n p en al ty th eo ry i s a n ew m at t er.

“ Th e as sert i o n o f a n ew th eo ry wh i ch m erel y

cl ari fi es o r d ev el o p s the o ri g i nal d et erm i nat i o n wi th o u tb ei n g i n co n s i s t en to r i n creas i n g th e am o un to f t h e d efi ci en cy

i s n o ta n ew m at t er req u i ri n g th e s h i ft i n g o f t h e b u rd en o f p ro o f.” Ach iro v . Co m

m i s s i o n er, 7 7 T.C. 8 8 1 , 8 9 0 (1 9 8 1). Befo re Graev II, p et it i on ers co n ten d ed th at “ [r] es po n d en tp res en t s n o n ew th eo ry reg ard i n g th e accu racy rel at ed p en al t i es real l eg edi n t h e am en d m en tt o an s w er t h atm i g h tqu al i fy as a n ew m at t er.” Accep t i ng p et i ti o n ers ’ arg u m en t , we d eem p et i t i o n ers t o h av e wai v edo r co n ced edan y

arg u m en tth atth e am en d ed an s wer p res en t eda n ew m at t er. Nei t h er p art y h as u rg eda d i fferen tap p ro ach i n fi v e ro u n d s o f b ri efi n g . In an y ev en t , th e n o t i ce o f d efi ci en cy p ro vi d edn o t i ce o f al l i s su es rel ev an t t o the p en al t i es as as s ert edi n th e am en d ed an s wer. An dan y d efen s es t o th e cas h co n tri b u t i o n p en al t ies req u i redn o ad d i t i on al ev i d en ce b ey o n d wh atwas req u i red t o d efen dag ai n s tth e n on cas h co n tri b u t i on p en al t i es b ecau s e t h e cas h an dn o n cas h co n tri b u t i o n s were p arto f t h e s am e t ran s act io n . Th erefo re, we co n cl u d e t h atev en i f p et it i o n ers h adn o t co n ced edth e i s s u e, t he am en d ed an s wer rai s ed n o n ew m at t er.- 2 4 -

equ al t o 2 0 % o f t he u n d erp aym en t s at tri b ut ab l e t o d is al lo wan ce o f b o th th e cas h
an d n o n cas h ch ari t ab l e co n tri b u t i o n d edu ct io n s , as d es cri b edab o v e. To refl ectthe fo reg o i n g an d th e h o ld in g s i n Graev I an d Graev II n o t
s p eci fi cal l y

rev ers edi n th i s Op i n i o n , Deci s i o n wi ll b e en t ered
u n der Ru l e 1 5 5
. Rev i ewedb y

the Co u rt
. M ARVEL, GALE, PARIS, KERRIGAN, LAUBER, NEGA, PUGH, an d ASHFORD, J J ., ag ree wi th th i s o p i n i o n o f t h e Co u rt
.- 2 5 -

LAUBER, J ., co n cu rri n g : I jo i n th e o p in i o n o f t h e Co urtwi th o u tres erv at i on . I wri t e s ep arat el y

i n res p o n s e t o J u d g e Bu ch ’ s d i s s en ti n p art
. Fi rs t , I th in k J u d g e Bu ch errs i n fo cu si n g o n th e s co p e o f au th ori ty p o s s es s edb y th e IRS o ffi ci al wh o fi rs tp ro p o s es th at a p en al ty b e as s ert ed
. As th e Co u rto f Ap p eal s fo r t h e Seco n dCi rcu i tex p lai n edi n Ch ai v . Co m m i s si o n er, 8 5 1 F.3 d1 9 0 , 2 1 9 (2 dCi r. 2 0 17 ), aff’ g i n p art , rev ’ g i n p artT.C. M em o . 2 0 1 5 -4 2 , Co n g res s ’ p u rp o s e i n en act in g s ect i o n 6 7 5 1 (b )(1 ) was t o h el p en s u re “ th atp en al

t i es [w] o ul do nl y

b e i m p o s edwh ere ap p ro pri at e an dn o t as a b arg ai n i n g ch i p .” W e
s h o u ldco n s tru e t h e p h ras e “ i n i t i al d et erm i nat i o n o f s u ch as s es sm en t ” i n l i g h to f th atp u rp o s e. As J u d g e Ho l m es o b s erv es i n h i s co n cu rren ce, s ee Ho lm es o p . p . 3 1 , th e p h ras e “ i n i t i al d et erm in at i o n o f * * * [an ] as ses s m en t ” ap p ears n o p l ace el se i n the Co d e. It i s wh ats ch o l ars o f an ci en tGreekcal l a “ h ap ax l eg o m en o n ,” a wo rdo r p h ras e t h ato ccu rs o n l y

o n ce i n a d o cu m en t o r co rp u s . See h t tp s : //en .wi k i p ed i a.
o rg /wi k i/ Hap ax

_ l eg o m en o n. Th i s p h ras e i s s u rel y am b i g u ou s , as th e Co u rto f Ap p eal s fo u nd . See Ch ai , 8 5 1 F.3 dat2 1 8 . Bu tI th i n k i ti s wo rs e t h an am b i g u o u s ; i t i s an o x ym oro n, b ecau s e wh i l e “ o n e can d et erm i n e a d efi ci en cy * * * an d wh et h er t o m ak e an as s es s m en t , * * * o n e can n o t‘ d et erm i ne’ an ‘ as s es s m en t .’ ”- 2 6 -

Id . at2 1 8 -2 1 9 (quo ti n g Graev v . Co m m i s s io n er, 1 4 7 T.C. _

_ , _

_ (s l i p o p . at8 5 ) (No v. 3 0 , 2 0 1 6) (Gu s t afs on , J ., d i s s en t i n g )). Wh en d eal i n g wi th an o xym o ro n , res o rt i n g t o h ig h l y t ech n ical d i s t i nct i o n s i s u n l i kel y

t o b e t h e ri g h tp at h . Ju d g e Bu ch i n s i s t s , s ee Bu ch o p . p p . 7 5 , 7 6 , 7 8 , th atan IRS o ffi cer can n otm ak e t h e i n i t i al d et erm i n at i o n o f an as s es s m en tu n l es s h e o r s h e h as th e t ech n i cal au th o ri ty “ t o m ak e a p en al ty

d et erm i n at i o n ” o r t o “ i s su e
a n o t i ce o f d efi ci en cy .” Bu tn ei th er s ect i o n 6 75 1 (b ) n o r i t s l eg i s l at i v e h i st o ryrefers t o th e t ech n i cal s co p e o f au th ori ty p o s s es s edb y

th e p ers on wh o fi rs tp ro p o s es a p en al ty . Co n g res s was co n cern edab o u tthe b i g g er p ictu re: Itd es i redt o p rev en t
ro g u e IRS p ers o n n el fro m u s i n g p en al t i es as l ev erag e t o ex tract co nces s i o n s fro m t ax p ay ers . Need l es s t o s ay , a ro g u e IRS em p l o y ee can u s e p en al ti es as l ev erag e t o ex tract co n ces s i o n s fro m

t ax p ay ers reg ard les s o f wh et h er h e o r s h e h as th e t ech n i cal
au th o ri ty t o “ m ak e a p en al ty

d et erm i n at i o n ” o r t o “ i s s u e a n o ti ce o f d efi ci en cy .” By en g ag i n g i n an i n ves t i gat i o n o f At t orn ey M ack ey ’ s au tho ri ty , J ud g e Bu ch d i s s erv es Co n g res s’ p u rp os e. Un d er J u d g e Bu ch ’ s ap p ro ach , an IRS o ffi ci al wo u ld b e free t o u s e p en al t i es as a b at t eri n g ram ag ai ns tt ax p ay ers , wi th o u to b t ai ni n g
s up erv i s o ry

ap p ro v al u n d er s ect i o n 6 7 5 1 (b ), s o l o n g as h e l ack edau th ori ty t o d o- 2 7 -

wh ath e was d o i n g . Hav i n g ex p res s edco n cern ab o u tIRS p ers on n el “ g o i n g
ro g u e,” Co n g res s i s u n l i k el y t o h av e i n t en d edth e s t atu t e t o b e ap p l i ed i n th i s way . Th e Co u rtad o pt s a m ore s en s i bl e ap p ro ach . Ittreat s th e “ in i t i al d et erm i n at i on o f s u ch as ses s m en t ” as referri n g t o th e act i on o f t h e IRS o ffi ci al wh o fi rs tp ro p o s es th ata p en al ty

b e as s ert ed . Th i s i s a reas o n ab l e co n s tru ct i o n o f t h e s t atu t e, g i v i n g p ri m acy

t o th e wo rd “ i n i t i al ” (a t erm th atap p ears i n th e s t atu t e) rat h er t h an t o the p en al ty -as s ert er’ s s co p e o f au tho ri ty (a t erm th at d oes n o tap p ear). An db y req u i ri n g s up erv i s o ry

ap p ro v al th e fi rs tt im e an IRS o ffi ci al i n tro du ces the p en al t y i n t o th e co n v ers at i o n , th e Co u rt ’ s i n t erp ret at i o n i s fai th fu l t o Co ng res s ’ p u rp o s e b y affo rd i ng m ax i m

u m p ro t ect i o n t o t ax p ay ers ag ai n st th e i m pro p er wi el di n g o f p en al t i es as b arg ai n in g ch i p s . Seco n d , t o th e ex ten tAt t o rn ey M ack ey ’ s au th o ri ty

i s rel ev an t, I th i n kh e h ad th e req u i s i t e au th o ri ty . As th e Co u rtex p lai n s , s ee o p . Ct . p . 1 9 , Ch i ef Co u n s el at t o rn ey s h av e au th o ri ty

t o rev i ew draftn ot i ces o f d efi ci en cy an dreco m

m en d ch an ges . Th e p art i es h av e s t i p u l at ed th atAt t o rn ey M ack ey “ d i rect ed ” t h atth e 2 0 % n o n cas h p en al ty

b e ad d edt o th e n o t ice o f d efi ci en cy . J u d g e Bu ch d oes n o tad equ at el y ex p lai n wh y

a reco m m en d at i o n o r d i rect i o n
o f t h i s s ortcan n o t s erv e as “ th e i n i t i al d et erm i n at i o n ” o f t h e as s es s m en t o f a p en al

ty . Att o rn ey

M ack ey t o okth e fi rs ts t ep th at co u l du l t i m at el y l eadt o as s es s m en to f- 2 8 -

th e p en al ty ; b u tfo r h i s act i o n , i ti s qu i te p os s i b l e th atth e p en al ty wo u ldn ev er b e
as s es s ed . Its eem s p erfect l y n atu ral t o co n cl ud e t h ath is act i o n, al th o u g h n o tfi n al , co n st i tu t ed“ th e i n i t i al d et erm i n at i o n ” wi th res p ectt o th i s p en al ty . J u d g e Bu ch n ot es th at“ d et erm i n e” i s d efi nedt o m ean “ fi x co n cl u si v el y o r
au th o ri t at i v el y ” o r “ t o s et tl e o r d eci d e [a q u es t i o n ] b y an au th o ri t at i v e o r co n cl us i ve d eci s i o n .” Bu th e l o ses s i g h to f t h e s t atut o ry l an g u ag e, wh i ch refers t o an i n i t i al d et erm i n at i o n th ati s s ub jectt o s up erv i so ry ap p ro v al . Need l es s t o s ay , an i n i t i al act i o n th ati s s ub

ject t o ap p ro v al b y

o th ers can n o t b e an “ au th o ri tat i ve o r
co n cl u s i v e d eci s i o n .” Rat h er, an “ i n it i al d et erm in at i o n ” i s l og i cal l y read t o m ean a p rel i m i naryo r t en t at i v e d eci si o n , wh ich i s ex act l y wh atAt t o rn ey

M ack ey m ad e wh en h e reco m

m en d edo r d i rect edthatth e p en al ty b e ad d edt o the n o t i ce o f d efi

ci en cy . Treat i n g A tt orn ey M ack ey ’ s reco m

m en d at io n o r adv i ce as “ the i ni t i al d et erm i n at i o n ” co n cern i ng as s es s m en to f t h e p en al ty i s p erfect l y

co n s i s t en twi th th e
s t atu te. 1

1 It i s tru e t h atth e Tech n ical Serv i ces p ers o n wh o p ro ces s edth e n ot i ce o f d efi ci en cy

co u l dh av e reject edAt t o rn ey M ack ey ’ s reco m

m en d at i o n . Bu tth e s am e i s tru e wh en an y

IRS o ffi cer p ro p o s es a p en al ty , b ecau s e t h atp rel i m i naryd eci s i o n m u strecei ve s up erv i so ry

ap p ro v al u n d er s ect i o n 6 7 5 1 (b ). Th e n o nfi n al n atu re o f At t o rn ey M ack ey ’ s reco m

m en d at i o n s up p o rt s i t s ch aract er as an “ i ni t i al d et erm i n at i o n .”- 2 9 -

Reject i n g th atco m

m o n s en s e co n s tru ct i o n , J u d ge Bu ch wo u l dap p aren t l y reg ardth e “ i n i t i al d et erm i n at io n o f * * * [t h e] as s es s m en t ” t o h av e b een m ad e h ere b y th e IRS p ers o n i n Tech n i cal Serv i ces wh o h ad th e au th o ri ty t o i s s u e (an dd i di s s u e) t h e n o t i ce o f d efi ci en cy . Bu tth e n o t i ce o f d efi ci en cy rep res en t ed th e fi n al IRS d eci si o n t o as s ertth e p en al ty . Un l es s th e i n i ti al an dfi n al d eci s i o n s t o as s ert th e p en al ty

are t h o u g h tt o b e i d en t ical , s om eo ne el se m us th av e m ad e t h e “ i n i t i al d et erm i n at i o n . ” Th e m o s t l o g ical can d id at e fo r t h e l at t er ro l e wo ul ds eem t o b e At t o rn ey M ack ey . Fi n al l y , co n s i d er J u d g e Bu ch ’ s p ro p o s edco ns tru ct i o n fro m th e s tan dp o i n t
o f Co ng res s ’ p u rp o s e. Req u i ri n g s up erv i s o ry ap pro v al atth e en d o f th e IRS ex am i n at i o n , wh en th e n ot i ce o f d efi ci en cy i s i s s u ed , wi l l acco m

pl i s h n o th i n g i f i m

p ro p er l ev erag e h as al read y

b een ap p l i ed . Th e Co u rtwi s el y av o i d s t h i s ri s kb y

i n s i s t i n g th ats up erv i s o ry

ap p ro v al b e s ecu redearl i er, v i z., atthe t i m e wh en an IRS o ffi cer p ro po s es fo r th e fi rs tt im e t h ata p en al ty b e as s ert ed . Th i s co n s tru ct i on o f
s ect i on 6 7 5 1 (b ) i s fai th fu l t o th e s t atu t e an dt o th e i nt en to f th e Co n g res s t h aten act edi t
. M ARVEL, THORNTON, PUGH, an dASHFORD, J J ., ag ree wi th th i s co n cu rri n g o p in i o n .- 3 0 -

HOLM ES, J ., co n cu rri n g i n th e res u l to nl y : Ou r Co u rth as fo r d ecad es h ad th e p o w er, wh en we h av e ju ri s d i ct i o n o v er a p art i cu l ar t ax p ay er fo r a p art i cu l ar t ax y ear, t o d et erm i n e o r red et erm i n e t h e co rrect am o u nto f h i s d efi ci en cy --i n cl u d i n g
an y p en al t i es . See s ec. 6 2 1 4 (a). Th e p art icu l ar p en al t i es we d et erm i n e are al m os t al way s th o s e rai s edi n a n o t i ce o f d efi ci en cy o r th e p art i es ’ p l ead i n g s , b u twe
o u rs el v es can i m

p o s e a p en al ty

o n a m is b eh av i n g t ax p ay er su a s po n te . See s ec. 6 6 7 3 (a). Th i s cas e i s ab o u tthe effect o f a d ifferen tCo de s ect io n o n cas es wi thi n o u r juri s d i ct i o n . Here’ s s ect i o n 6 7 5 1 (b )(1 ): No p en al ty

u n der t h i s t i tl e s h al l b e as s es s edu n l es s th e i n i t i al d et erm i nat i o n o f s u ch as s es s m en ti s p ers o nal l y ap p ro v ed(i n wri t i n g ) b y th e i m m ed iat e s up erv i s o r o f th e i n d i vi du al m ak i n g s uch d et erm i nat i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i gn at e. An dthe h o l d i n g o f t h e Seco n d Ci rcu iti n Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 d1 9 0 , 2 2 1 (2 d Ci r. 2 01 7 ), aff’ g i n p art , rev ’ g i n p artT.C. M em o. 2 0 1 5 -4 2 , th atwe m o re
o r l es s ad o ptt od ay : [W ] e h o l dth at § 6 7 5 1 (b )(1 ) req u i res wri t t en ap p ro v al o f t h e i n i t i al p en al ty d et erm i n at i on n o l at er t h an th e d at e th e IRS i s s ues th e n o t i ce o f d efi ci en cy (o r fi les an an s wer o r am en d ed an s wer) as s ert i n g s u ch p en al ty .- 3 1 -

Inth atv ei n , we fu rth er h o l dth atco m p l i an ce wi th § 6 7 5 1 (b ) i s p art o f t h e Co m

m is s i o n er’ s b u rd en o f p ro du ct io n an dp ro o f i n a d efi ci en cy cas e i n wh i ch a p en al ty

i s as s ert ed
. Sect io n 6 7 5 1 h as b een i n th e Co d e fo r n earl y twen ty y ears . Ad o p t i n g th i s read i n g as o u r o wn , an dro ll i ng i to u tn at i o n w i d e, am o u nt s t o s ay i n g th atwe h av e b een im po s i n g p en al t i es u n lawfu l l y o n th e t en s o f t h o u s an d s --p erh ap s h u n dred s o f th o u s an ds --o f t ax pay ers wh o h av e ap p eared b efo re u s i n th att im e. Iti s qui t e a
co u nt eri n tu i t iv e res u l tt o th o se wi th a wo rk i n g kn o wl ed g e o f t ax v o cab u laryan d p ro cedure; i t wi ll h av e u n in t en d edan d i rrat i o nal co n s equen ces u n l es s co rrect edb y ad d it i o n al ap p el l at e rev i ew o r cl ari fy i ng l eg i sl at io n ; i ti s co n traryt o th e t ex to f t h e Co d e, wh et h er v i ewedb y i ts el f o r i n l i gh t o f a s eem i n g l y ap p l i cab l e can o n o f
co n st ru ct i o n --an dI p red i cti twi l l ev en en dup h arm i n g t ax p ay ers u n in t en t i o n al l y . I. Ev ery on e can ag ree t h ats ect i o n 6 75 1 (b )(1 )’ s wo rd i n g i s u n us u al ; th e p h ras e

“ i n it i al d et erm i n at i on o f s u ch as s es s m en t ” ap p ears n o p l ace el s e i n t h e Co d e. Th e Seco n dCi rcu i t th o ug h tth e l an g u ag e was am b i g u o u s , an d s o co n s tru edi t t o ad v an ce wh ati tfo u n dt o b e i t s p u r p o se --“ th atp en al t i es s h ou l do n l y b e i m p o s ed wh ere ap p ro p ri at e an dn o tas a b arg ai n i ng ch i p .” See Ch ai , 8 51 F.3 d at2 1 8 -1 9 (qu o ti n g S. Rep t . No . 1 0 5 -1 7 4 , at6 5 (1 99 8 ), 1 9 9 8 -3 C.B. 5 3 7 , 6 0 1 ). Th is th en l ed t o i ts h o l di n g : “ [I] n i t i al d et erm i n at i o n o f s u ch as ses s m en t ” wi l l n o w m ean i n i t i al- 3 2 -

p en al ty d et erm i n at i on th ati s i ncl u d edi n th e n o t i ce o f d efi ci en cy (o r an an s wer o r
am en d edan s w er). Id . at2 2 0
. Becau s e t hi s cas e i s ap p eal ab l e t o th e Seco ndCi rcu i t , we’ re b o u ndb y i t s d eci s i o n i n Ch ai
. See Go l s en v . Co m m i ss i o n er, 5 4 T.C. 7 4 2 , 7 5 7 (1 9 7 0 ), aff’ d , 4 4 5 F.2 d9 8 5 (1 0t h Ci r. 1 9 71 ). Th at ’ s al l we n eedt o s ay . In s t ead , “ in th e i n t eres t
o f rep o s e an du n i fo rm it y ,” we’ v e d eci d ed t o ad o p t th i s read i ng as o u r o wn . Becau s e t he m ajo ri ty

o p i n i o n s p ri n gs fro m

Ch ai , I b eg i n wi th a cl o s er l o o k atthe Seco n dCi rcu i t ’ s an al y s i s , an dm y co n cern s ab o u ti t s u s e o f t ax t erm i n o l o gy . I wi l l th enwarn ab o u ts o m e fo res eeab l e p ro b l em s th att o day ’ s Op i n i on wi l l cau s e
an d p ro ceed t o an al y ze t he t ex to f t h e Co d e, b y i t sel f an d wi th a t rad it i on al can o n
o f co n st ru ct io n , t o s u g ges ta s o l u t i o n t o th es e p ro b l em s . A. In Ch ai , as h ere, t h e IRS d et erm in edan accu racy -rel at edp en al ty . See 8 5 1 F.3 dat 1 94 . Th e cas e p ro ceed edt o o u r Co urt , wh ere Ch ai arg u edi n p o s t tri al b ri efi n g th atth e Co m

m i s s i o n er h adfai l edt o s at i s fy h i s b u rd en o f p ro du ct i o n o n th e p en al ty

u n d er s ect io n 7 4 9 1 (c) b ecau s e h e h ad n’ t i nt ro du cedev i d en ce attri al o f h i s co m pl i an ce wi th s ect i o n 6 7 5 1 (b )(1 ). Id . at1 9 5 , 2 1 5 . W e s ai dth i s arg u m en t
was n’ tt i m el y --t h e t ri al was o v er. See i d
. at1 9 5 , 2 1 6. Ch ai ap p eal edt o the Seco n dCi rcu i t. See i d
.- 3 3 -

Th e Co m m is s i o n er arg u edfo r t h e fi rs tt i m e o n ap p eal th ati twas p rem atu re t o co n si d er co m

p l i an ce wi th s ect i o n 6 7 5 1 (b )(1 ) b ecau s e t he p en al ty h adn o ty et b een as s es s ed . Id . at 2 1 6
. Th e Seco n dCi rcu i tth erefo re n eed edt o d eci d e wh en th e Co m m i s s i o n er i s o bl i g ed t o co m p l y wi th th e wri t t en -ap p ro v al req u i rem en t s o f
s ect i on 6 7 5 1 (b )(1 ). Id
. Ital s o as k edwh eth er t h e Co m m i s s i o n er m

us ts h ow t h at h e co m p l i edwi th s ect i o n 6 7 5 1 (b )(1 ) t o m eet h is b u rd eno f p ro du ct i o n u n d er
s ect i on 7 4 9 1 (c). Id . at2 1 7
. Th atco u rtb eg an wi th th e t ex to f s ect i o n 6 7 5 1 (b )(1 ). Id
. at2 1 7-1 8 . It
co n si d eredth e Co d e’ s d efi n it i on s o f “ as s es s m en t ” (“ th e fo rm al reco rd in g o f a t ax p ay er’ s t ax l i ab i l i ty

o n the t ax ro l l s ”) an d“ d efi ci en cy ” (“ a t ax l i ab i li ty g reat er th an wh atth e t ax p ay er rep o rt edo n h i s retu rn ”). Id . at2 18 . An di treas o n edth at th e m i s m at ch o f v erb an dn ou n m ad e s ect i o n 6 7 5 1 (b )(1 ) “ u n wo rk ab l e: [O] n e can d et erm i n e a d efi ci en cy

* * * an dwh et h er t o m ak e an as s es s m en t , b u to n e can n o t d et erm i n e an as s es s m en t .” Id . at2 1 8 -1 9 (i n t ern al ci tat i o n s o m i tt ed ) (i n t ern al qu o t at i o n s o m it t ed ). Un l i ke t h e m ajo ri ty

o f t h e Co u rti n Graev v . Co m m i ss i o ner, 1 4 7 T.C. , (No v. 3 0 , 2 0 1 6) (Graev II) (s l i p o p . at2 7-2 9 ), i tth erefo re co n cl u d edth at the p h ras e “ i n i t i al d et erm in at i o n o f s u ch as s es s m en t ” was am b i g u o u s . Ch ai , 8 5 1 F.3 d at2 1 8
. Faced wi th am

b i g u it y , th e Ch ai Co u rtreach edfo r t h e l eg i s l at i v e h i s t o ry- 3 4 -

“ t o d i scern Co n g res s ’ s mea n i n g .” Id . at2 1 9 (qu o ti n g Un i tedSt at es v . Gay l e, 3 4 2 F.3 d8 9 , 9 3 (2 dCi r. 2 0 0 3 )) (em p h as i s ad d ed ). Bu tth e co u rtd i dn’ tm ean

“ m ean i n g ” i n th e s en s e o f t h e d efi n i t i o n o f a wo rd , b u ti n s t eadi n the s en s e o f d i s cern i ng Co ng res s ’ s “pu rp o s e” an d“ i n t en t ”. See i d. Itfo u n dwh ati twas l o o k i n g fo r i n th e Sen at e Fi nan ce Co m m i t t ee rep o rt : “ ‘ [P] en al t i es s h o u l do n l y b e i m p o s edwh ere ap p ro p ri at e an dn o tas a b arg ai n i ng ch i p .’ ” Id . (qu o t i n g S. Rep t
. No . 1 0 5 -1 7 4 , at6 5 (1 9 9 8 ), 1 99 8 -3 C.B. 5 3 7 , 6 0 1 ). Ital s o l o o k edt o th e h eari n g s th atp reced eden act m en t: Th es e s h o wedth at the “ s t atu te was m ean tt o p rev en t IRS ag en t s fro m

th reat en i ng u nju s t ifi edp en al ti es t o en co u rag e t ax p ay ers t o s et t l e.” Id . (ci t i n g IRS Res tru ctu ri n g : Heari n g s o n H.R. 2 6 7 6 Befo re t he S. Co m m . o n Fi n an ce, 1 0 5 th Co ng . 9 2 (1 9 9 8 ) (s t at em en to f St efan F. Tu ck er, Ch ai r-El ect , Sect i o n o f Tax at i on , Am eri can Bar As so ci at i o n )). Our co n s tru ct i o n o f t h e s t atu t e i n Graev II, t h e Seco n d Ci rcu i t th ou g h t , fru s trat edth at p u rp o se b ecau s e i t“ wo u l d d o n o thi n g t o s t em

the ab u s es § 6 7 5 1 (b )(1 ) was m ean tt o p rev en t.” Id . Th i s i s tru e, t h e co u rtreas o n ed , d es p i t e t h e s afeg u ardth atwe i d en t i fi ed wi th res p ectt o th e p en al t i es ati s s u e--t h at Tax Co u rt ’ s p reas s es s m en trev i ew p ro tect edag ai n s tth es e p en al t i es b ei n g u s edas b arg ai n i n g ch i p s . Id
. Th e co u rts ai d : “ T ax Co u rtrev i ew d o es no ts o l v e t h e p ro b l em
– p en al ti es co u l ds t il l b e u s ed as b arg ai ni n g ch i p s t o- 3 5 -

p ro m p t set t l em en tn eg o ti at i o n s an d , i f s u cces s fu l , the Tax Co u rtwo ul d b e n o n e th e wi s er.” Id
. at 2 1 9 -2 0
. Becau s e s ect io n 6 2 15 (a) req u i res th e IRS t o as s es s an y d efi ci en cy red et erm i n edb y

th e Tax Co u rt , th e Ch ai Co u rtal s o reas on edth atfo r s ect i o n 6 7 5 1 (b )(1 ) t o h av e an y

t eet h, s up erv i so ry

ap p ro v al fo r p en al t i es m u s t b e o b t ai n ed b efo re t h e Tax Co u rt ’ s d eci si o n b eco m es fi n al . Id
. at2 2 0 . Bu tev en th at i sn ’ t
en o ug h , b ecau s e s ect i o n 6 7 5 1(b )(1 ) refers t o “ th e i n i t i a l d et erm i n at i o n o f s u ch
as s es s m en t .” Id
. Th atcan ’ t b e aft er o u r Co u rt ’ s d et erm in at io n , s o “ the l as t
m o m en tth e ap p ro v al o f t he i n i t i al d et erm i n at io n actu al l y m at t ers i s i m

m ed i at el y b efo re t h e t ax p ay er fi l es s u it(o r p en al t i es are as s ert edi n a Tax Co u rt p ro ceed in g ).” Id . at2 2 1 . To ach i ev e i t s u n ders t an d i n g o f t he co n g res s i o n al p u rp os e fo r t he s ect i on , th e co u rth el dth at“ i n i t i al d et erm i n at i o n o f s u ch
as s es s m en t ” i n s ect i o n 6 7 5 1 (b )(1 ) real l y m ean s the i ni t i al p en al ty d et erm i nat i o n th ati s i n cl u d edi n the n ot ice o f d efi ci en cy (o r anan s w er o r am en d edan s wer). See i d . It al s o h el dth at p ro o f o f co m p l i an ce wi th s ect i o n 6 7 5 1 (b )(1 ) “ i s p arto f t h e Co m m i s s i o n er’ s b u rd en o f p ro du ct i o n a nd p r oo f i n a d efi ci en cy

cas e i n wh i ch a p en al ty i s as s ert ed .” Id . (em p h as i s ad d ed ). Becau s e t he Co m

m is s i o n er h adth e b u rd en t o p ro v e t h at h e co m p l i edwi t h
s ect i on 6 7 5 1 (b ) as p arto f h is “ p r i ma f a ci e p en al ty

cas e,” i twas ap p ro p ri at e fo r- 3 6 -

Ch ai to arg u e ev en aft er t h e t ri al th atth e Co m m i s s io n er h adfai l edt o m eetth at b u rd en , b ecau se wh et h er a p art y h as fai ledt o m ak e o u t a p r i ma f a ci e cas e i s a qu es ti o n o f l aw. Id . at 2 2 2
. Th e reco rds h o wedn o ev i d en ce t h atth e Co m m i s s i o n er co m

p l i edwi th s ect i o n 6 7 5 1 (b ), wh i ch m ean tth atthe co u rtwo u l d
n o ts u s t ai n th e p en al t i es . Id . at2 2 3. B. I ag ree t h at u n d ers t an di ng s ect i o n 6 7 5 1 “ req u i res p ro fi ci en cy wi th t h e d efi ci en cy

p ro ces s .” Id
. at2 1 8 . An dwh i l e Ch ai co rrect ly d efi n edth e rel ev an t t erm s , i tl at er m is u sed th em . An“ as s es s m en t ” i s th e fo rm al reco rd i ng o f a t ax l i ab i l i ty i n the reco rd s o f th e IRS. Sec. 6 2 0 3 . Th e t ax thati s “ as s es s ed ” m i g h th av e b een s el f-rep o rt edo n a t ax return , s ee s ec. 6 2 0 1 (a)(1 ), o r i tm i g ht res u ltfro m th e d et erm i n at i o n b y

th e Co m m i s s i o n er o f a “ defi ci en cy ,” s ee s ecs . 6 2 1 3, 6 2 1 5 . “ Li ab i l i ty ” fo r a t ax o r p en al ty , h o wev er, h as n o th i n g t o d o wi th IRS reco rd s --i ti s fi x edb y th e Co d e
s ect i on s th ati m

p o s e the t ax o r p en al ty . See, e.g ., Un i t edSt at es v . Kel l ey , 5 3 9 F.2 d1 1 9 9 , 1 2 0 3 (9 th Ci r. 1 9 7 6 ). A “ d efi ci en cy ” i s t h e am ou n tb y wh i ch a t ax p ay er’ s tru e t ax l i ab i l i ty u n der t h e Co d e ex ceed s the t ax l i ab i l i ty th ath e rep o rt edo n h i s retu rn . See s ec. 6 21 1 (a). So , t o p u t i tal l t o g eth er, t h e Co d e i m p o s es a “ l iab i l i ty ” fo r a t ax o r p en al ty ; a t ax p ay er creat es a “ d efi ci en cy ” i f h e- 3 7 -

rep o rt s l es s th an h i s “ l iab i l i ty ” o n h i s retu rn ; an dth e Co m m i s s io n er can “ as s es s ” a l i ab i l i ty great er t h an a t ax p ay er rep o rt edo n h i s return i f t h ere i s a “ d efi ci en cy ”. Th at“ as s es s m en t ” i s th e acto f reco rd i n g th e “ l i ab i l it y ” i n th e IRS’ s reco rd s . Th e Tax Co u rt h as juri s di ct i o n t o red et erm i n e so me p en al ti es thatare p arto f a d efi ci en cy --an d i n s o m e cas es , ev en b efo re t h e IRS can as s es s th em . See s ecs . 6 2 1 3 (a), 6 6 6 5. Bu t o n e t h i n g th ati s m i ss i n g fro m Ch ai ’ s an al y si s i s t h ata l arg e
m ajo ri ty o f p en al t i es i n th e Co d e can b e d et erm i n ed a n d as s es s edb y th e IRS wi th o u tTax Co u rtrev i ew--an dwi tho u t an y p reas ses s m en tco u rtrev i ew wh at s o ev er. See, e.g ., s ecs . 6 6 7 2 -6 7 2 5 (i m po s i ng “ as s es s ab l e” p en al t ies fo r wh i ch th ere are, wi th l i m i t edex cep t i o n s , n o p reas s es s m en tco u rtrev i ew); s ee al so Sm i t h
v . Co m m i s s i o n er, 1 3 3 T.C. 4 24 , 4 2 8 -3 0 (2 0 09 ) (d i s cu ss i n g th e Tax Co u rt ’ s l i m i t ed juri s d i ct i o n t o rev i ew “ as s es sab l e” p en al ty d et erm i n at i o ns ). An dev en wh en th e IRS d et erm i n es p en al t i es at tri b u t ab l e t o a d efi ci en cy --s u ch as the accu racy -rel at ed p en al t i es ati s s u e i n Ch ai an dh ere--i tcan as s es s th o s e p en al t i es wi th ou tTax Co u rt
rev i ew i f t h e t ax p ay er d eci d es n o tt o l i t i g at e. See s ec. 6 21 3 (a) (al lo wi n g
as s es s m en taft er 9 0 o r 1 5 0 d ay s i f n o Tax Co u rtp et i t i o n i s fi l ed ). I ag ree t h at th e IRS’ s d et erm i n at i o n o f p en al ti es th ato u r Co u rt d oes n o t
rev i ew is effect i v el y a d et erm i n at io n t o as s es s th em ; a p l ai n read in g o f s ect i o n 6 7 5 1 (b ) wo u l dcert ai n l y

req u i re s up erv i s o ry

ap pro v al o f th os e p en al ty- 3 8 -

a s s es s men ts . Bu t th at d o es n ’ t m ak e t h em al l u n rev i ewab l e. Th e Co d e g i v es co u rt s juri s d i ct i o n t o rev i ew s o m e o f t h es e p en al t i es aft er as s es s m en t . W e o u rs el v es h av e juri s d i ct i o n t o rev i ew t h e v al i d i ty o f as s es s m en t s i n co l l ect i o n du e p ro ces s cas es , s ee s ec. 6 3 3 0 (c)(1 ), (d )(1 ), an dth e Di s tri ctCo u rt s an dCo u rto f Fed eral Cl ai m s h av e juri sd i ct i o n t o rev i ew p en al t i es aft er t h e IRS as s es s es th em i f a t ax p ay er p ay s
up an ds u es fo r a refu n d , s ee s ec. 7 4 2 2(a). Bu td efi ci en cy

cas es th atco m e t o u s are d ifferen t b ecau s e t h ere h as b een n o
as s es s m en t
. 1 Th e o n l y

way t o m ak e s ect i o n 6 7 5 1 ap p l i cab l e t o t h es e cas es i s t o
co n fu s e t h e t erm s “ d efi ci en cy ” an d“ as s es sm en t ”. In th is cas e, as i n Ch ai , th e IRS d et erm i n eda d efi ci en cy , an d th en we g o tth e cas e b ecau s e t h e t ax pay er fi l eda t i m el y pet i ti o n . Atth i s p o i nt --o n ce we h av e juri s di ct i o n --t h e d et erm i n at i o ns o f t h e IRS l arg el y

m el t away
. W

e are t h e o n es wh o d et erm i n e wh at th e l iab i li ty o f a p et i t i o n er i s u n d er t h e Co de; we are t h e o n es wh o d et erm i ne wh et h er t h ere i s a d efi ci en cy ; an d we are t h e o n es wh o d et erm i n e wh atp en al t i es , i f an y , a p et i t i o n er
o wes . See s ec. 6 2 1 4 (a). W e can ev en d eci d e t h ata p et i t i o n er o ver p ai dh i s t ax l i ab i l i ty an d o rd er th e Co m m i s s i o n er t o refu n dth e d i fferen ce. See s ec. 6 5 1 2 (b )(1 ).

1 Th ere i s a l i m i t edex cep t i o n fo r “ jeo p ard y as s es s m en t s .” See s ec. 6 8 6 1 . If th e Co m m i s s i o n er b el i ev es as s es s m en to f a d efi ci en cy wi l l b e jeo p ard izedb y d el ay , h e i s au th o ri zedt o as s es s b efo re h e ev en i s s ues a n o ti ce o f d efi ci en cy . See i d
.- 3 9 -

Th e Co d e s ay s thatthe Co m m i s s i o n er h as t o as s es s wh at we d et erm i n e, n o twh at h e as s ert s we s h ou l dd et erm i n e atth e b eg i nn i ng o f a cas e. See s ec. 6 2 1 5 (a). An d th e IRS i s n ’ tal l o wedt o as s es s u n t i l o u r d eci s i o n i s fi n al . Sec. 6 2 1 3 (a). Th i s al l m ean s th at wh en we g eta cas e, t ax p ay ers g eta n ew d eal an dth ei r ab i l i ty t o rai s e an y

an dal l d i s p u t es ab o utth ei r l i ab i li ty fo r a p art i cu l ar t ax y ear b efo re u s effect i v el y d ev al u es an y b arg ai n i ng ch i p s th e IRS t h i n k s i tm i g h t h av e. An di f th e IRS l ay s d o wn an y m eri t l es s ch i p , we can an dwi l l m ak e t h e Co m m i s s i o n er an t e up at t orn ey s ’ fees an dco s t s . See s ec. 7 4 3 0. On e can al s o s ee t h e p ro b l em s i n Ch ai ’ s i m po rt an t s eco n dh o l d i ng --t h atth e Co m m i s s i o n er’ s o b l i g at i o n t o p ro du ce wri t t enev i d en ce o f s up erv i s o ry ap pro v al t o
as s es s i s req u i redt o m eeth i s b u rd en u n der s ect i o n 7 4 9 1 (c). See 8 5 1 F.3 dat2 2 1
. Th ats ect i o n b y

i t s t erm s d oes n ’ th av e an yth i n g t o s ay ab o u t p en al t i es th atth e Co m m i s s i o n er as ses s es wi tho u tl i t i g at i o n . Its ay s th atth e Co m m i s s io n er h as th e

“ b u rd en o f p ro du ct i o n i n an y co u r t p ro ceed i n g wi th res p ectt o th e l i a b i l i t y o f an y i n d i v i du al fo r an y

p en al ty , ad d i t i on t o t ax , o r ad d i t i o n al am o u n t i m p o s ed b y th i s t i tl e.” Sec. 7 4 9 1(c) (em

p has es ad d ed ). An d h ere i s wh ere a cl os er read i n g o f th e t ex t an da b ro ad er u n d ers t an d i n g
o f t ax l i ti g at i o n o u g h tt o m ak e a d i fferen ce. As th e m ajo ri ty an dCh ai i m

p l i ci t l y ack n owl ed ge, l i ab i l i ty fo r p en al t i es --i n d eed , l i ab i l i ty fo r t ax o f an y

k i n d --i s fi x ed- 4 0 -

b y th e Co d e s ect i o n s i m

po s in g p en al t i es an d t ax . See Ch ai , 8 5 1 F.3 dat2 1 7 (ex p l ai n i n g th atp en al ty

“ ari s [es ] u n d er [s ect i o n] 6 6 6 2 (a)”). “ As s es s m en t ” i s ju s ta
reco rd i n g o f t he l i ab il i ty . See Hi b b s v . W i n n , 5 4 2 U.S. 8 8 , 1 0 0 (2 0 0 4 ); Un i t ed St at es v . Gal l et t i , 5 4 1 U
. S. 1 14 , 1 2 2 (2 0 0 4 ) (as s es s m en ti s “ l i t t l e m o re t h an th e cal cu l at io n o r reco rd i n g o f a t ax l i ab i l i ty ”). Li ab il i ty “ ari s es an dp ers i s t s wh et h er vel n o n th att ax i s as ses s ed .” Pri n ci p al Li fe In s . Co . v . Un i t edSt at es , 9 5 Fed . Cl
. 7 8 6 , 7 9 0 -9 1 (2 0 1 0); s ee al s o Kel l ey , 5 3 9 F.2 dat1 2 0 3 (“ l i ab i li ty i s i m p o s edb y
s t atu te i n d ep en d en to f an y ad m i n i s trat i v e as s es s m en t ”).

“ As s es s m en t ” i s n o tth e s am e as th e d et erm i n at io n o f a “ d efi ci en cy ”. Iti s ak i n t o th e reco rd in g o f a ju d g m en t --i tem p o w ers th e IRS t o s tartco l l ect i o n u s i n g ad m i n is trat i v e t oo l s l i k e l i en s an dl ev i es . Bu t th e Co d e em p owers th e Co m m i s s i o n er--l i ke an y

o th er cred i t o r--t o co l lect t ax es b y s ui t , an dh e d o es n o t
n eed to as s es s an y

l i ab i l i ty b efo re h e co m es t o co u rt . See s ec. 6 50 1 (a) (referri n g t o

“p ro ceed i n g i n co u rtwi th ou tas s es s m en t fo r th e co l lect i o n o f s u ch t ax ”). Th e b en efi t s o f ad m i n is trat i ve co l l ect i o n an dthe t en -y ear s t atu t e fo r co l lect i n g
as s es s edt ax es m ak e t h e as s es s m en tro u t e t h e i nt ers t at e h i g h w ay o f rev en ue rai s in g ; b u tth o u g h i t ’ s d i v ert edal m o s t al l th e t raffi c, i th as n ’ ts h u t d o wn the p o s s i b i l i ty

o f m o s ey i ng al on g th e fo o tp ath o f l aws u i twi th o utas s es s m en t
.- 4 1 -

To s h o w h o w Ch ai co n fl at es l i ab i l i ty an das ses s m en t , i m ag i n e a ci v i l act i o n
u n d er s ect i o n 6 5 0 1 (a) fo r t h e p en al ty i n th i s cas e. Th e Go v ern m en two u ldh av e th e b u rd en o f p ro du ct i o n u n d er s ect i o n 7 4 9 1 (c), b u ti f a t ax p ay er s ai d “ Y ep , I was
n eg li g en t ; b u t y o un ev er g o ta s eco n ds i g n atu re o n th e fo rm ; y o ul o s e,” wo u l dn ’ t th e p l ai n l an g u ag e o f s ect i o n 6 7 5 1 (b ) m ak e a ju d g e ru l e ag ai n sth i m (“No , yo u l o s e, I d o n ’ tn eedan a s s es s men t t o en ter a ju d g m en tfo r t h e Go vern m en to n th e l i ab i li t y ”)? See Pri n ci p al Li fe In s . Co ., 9 5 Fed . Cl
. at8 0 6 (“ To p u ti t b l u n t l y , * * * [t he t ax p ay er] ei th er o wes th e t ax es i n qu es ti o n o r d oes n o t --t h e IRS’ s fai l u re t o
as s es s th em

t i m el y d oes n o tch an g e t h atfact ”). W el l , s ect i on 6 7 5 1(b ) wi l l n o w fo rce t h e ju d g e t o ru le fo r t h at t ax p ay er--a p ro cedu ral res tri ct i o n o n as s es sm en th as b een tran s fo rm edi n t o a p ro t ect i o n i n d efi ci en cy cas es ag ai n s tl i ab i l i ty fo r a p en al ty i m

po s edb y the Co d e. Th atb ri n gs m e t o m

y n ex tco n cern : Ch ai wi l l cau se s ig n i fi can tco n fu s i o n ab o utth e Co m

m i s s i o n er’ s b u rd en o n p en al ti es , b ecau s e i t h o l d s thatco m p l i an ce wi th s ect i o n 6 7 5 1 (b ) “ is p art o f t h e Co m m i s s i o ner’ s b u rd en o f p ro du ct i o n a n d p r o o f i n a d efi ci en cy

cas e i n wh i ch a p en al ty

i s as s ert ed .” Ch ai , 8 5 1 F.3 dat2 2 1 (em p h as i s ad ded ). Th i s ap p aren t l y fo l l o wedi ts read in g o f s ect i o n 7 4 9 1 (c), s ee i d ., b u ti td i ffers i n a v i t al res pect --wh ich co u l d affect l at er cas es --b y ad d i ng th e b u rd eno f p r o o

f t o th e b urd eno f p ro d

uct i o n .- 4 2 -

It ’ s n o t u n co m

m o n fo r co u rt s t o u s e “b u rd en o f p ro o f” t o d es cri b e o ne o r b o th o f th e ev i den t i ary

b u rd en s o f p ro du ct i o n an dp ers u as i o n . Oth er ci rcu i tco u rt s h av e d o n e ju s tth ati n n o np reced en t i al o p i n i o n s t h at t ou ch edo n s ect i o n 7 4 9 1 (c). See W i l li am s v . Co m

m i s s i o n er, 1 2 0 F. Ap p ’ x 2 89 , 2 95 (1 0 th Ci r. 2 00 5 ) (d es cri bi n g th e b u rd en i m p os edb y s ect i o n 7 4 9 1 (c) as th e “ bu rd en o f p ro o f”), aff’ g T.C. M em o . 2 00 3 -9 7 ; Rh o d es v . Co m m is s i o n er, 1 5 2 F. Ap p ’ x 3 4 0, 3 4 2 (5 th Ci r. 2 0 0 5 ) (s t at i n g th at , u n d er s ect io n 7 4 9 1 (c), “ th e Co m m i s s i on er b ears th e b u rd en o f p ro o f fo r s ho wi n g t h atad d i t i on al t ax es are ap pro p ri at e”), aff’ g T.C. M em o . 2 0 03
- 1 3 3 . Bu t Ch ai actu al l y

h o l d s th ats ect i o n 7 49 1 (c) p l aces th e b u rd en o f p ro du ct i o n
a n d th e b u rd en o f p r o of o n th e Co m

m i ss i o n er. 8 5 1 F.3 d at2 2 1
.

“ Th e t erm

‘ b u rd en o f p ro o f’ i s o n e o f t h e ‘ s l i p p eri es t m em b er[s ] o f t h e fam i l y o f l eg al t erm s . ’ ” Sch affer ex rel
. Sch affer v . W eas t , 5 4 6 U.S. 4 9 , 5 6 (2 0 0 5 ) (qu o ti n g 2 J o h n W i l l i am

St ro n g etal ., M cCo rm i cko n Ev i d en ce s ec. 3 4 2 , at4 3 3 (5 th ed . 1 9 9 9)). Th e Sup rem e Co u rtex p l ai n s t h atthe co n fu s io n ari s es , i n p art , fro m th e fact th at“bu rd en o f p ro o f” h i s t o ri cal l y en co m p as s ed“b urd en o f p ro duct i o n ” an d“b u rd en o f p ers u as i o n .” Id . “ Bu rd en o f p ro du ct i o n”--t h e p h ras e i n s ect io n 7 4 9 1 (c)--d es cri b es “ wh i ch p art y b ears th e o b l ig at i o n t o co m e fo rward wi th th e ev i d en ce atd i fferen t p o i n t s i n th e p ro ceed i n g .” Id . “ Bu rd en o f p ers u as i o n ,” o n th e o th er h an d , d es cri b es “ wh i ch p art y l os es i f t h e ev i d en ce i s- 4 3 -

cl o s el y b al an ced .” Id . Co urt s are i n s tru ct ed , o f co u rs e, t o refer t o th e s t atu t e fi rs t wh en “ d et erm in i n g th e b u rd en o f p ro of u nd er a s tatu t o ry cau s e o f act io n .” Id
. Bu t , “ [a] bs en ts o m e reas o n t o b el i ev e t h atCo ng res s i n t en d edo th erwi s e,” co u rt s
s h o u ldco n cl u d e “ th atth e b u rd en o f p ers u as i o n l i es wh ere i tu s u al l y fal l s , up o n th e p art y s eek i n g rel i ef.” See i d. at5 7 -5 8
. Ch ai p l aces b o th th e b u rd en o f p ro du ct io n a nd th e b u rden o

f p er su a si o n o n th e Co m m i s s i o n er. See 8 5 1 F.3 dat2 2 1 . Th i s i s u n ten ab l e. In res p on s e t o a t ax p ay er’ s arg u m en tth atth e Co m m is s io n er “ fai l edt o s at i s fy * * * [h i s ] b u rd en o f p ro o f un d er s ect i o n 6 6 6 2,” t h e El ev en th Ci rcu i t ex p l ai n edi n Lo n gi no v . Co m m i s s i o n er, 5 9 3 F. Ap p ’ x 9 6 5 , 9 7 0 (1 1 th Ci r. 2 0 1 4 ) (ci t i ng Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 7 (2 0 0 1)), aff’ g T.C. M em o . 2 0 13 -8 0 , th at“ wh en th e Serv i ce as ses s es a p en al ty u n d er s ect io n 6 66 2 , i tb ears o n l y th e b u rd en o f p ro duct i o n ” an dth e t ax p ay er “ m u s t‘ co m e fo rward wi th ev i d en ce s uffi ci en tt o p ers u ad e a [c] ou rtth at th e [Serv i ce] ’ s d et erm i n at i on i s i n co rrect .’ ” Sh arp t ax l awy ers wi ll n o w t ak e ad v an t ag e o f t h i s co n s tru ct i o n . Th i s h o l d i n g i n Ch ai i s ev en l es s reas on ab l e t han i t s h o l d i n g thatth e i n i t i al d et erm i n at i o n o f as s es s m en tm ean s the i ni t i al d et erm i n at io n o f a d efi ci en cy , s ee 8 5 1 F.3 dat2 2 1 , b ecau s e t h ere i s a wel l -d ev el o pedb od y o f cas el aw fo r wh en th e Co m m i s s i o n er d

o es h av e b o th t h e b u rd en o f p ro du ct i o n an d t h e b u rd eno f- 4 4 -

p ers u as i o n fo r p en al t i es . Befo re t o d ay th e ru l e was th ath e h ad t o b ear b o th th es e b u rd en s ab o u t a p en al ty o n l y wh en h e rai s edi tas a “ n ew m at t er.” Ru l e 1 42 (a). An dwe h av e b efo re t o d ay al s o i n cl u d edas p arto f th e Co m m i s s i o n er’ s b u rd en o f p ers u as i o n (wh en h e h as i t ) t h e n eg at i o n o f an y as s ert i o n o f an y d efen s e t o a p en al ty , s u ch as a t ax p ay er’ s reas o n ab l e cau s e an d g o o dfai th . See, e.g ., M cM i l l an
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 5 -1 0 9 , at* 2 9 (“ Becau s e t h e accu racy -rel at ed p en al ty i s a n ew m at t er, res p on d en tm u s tp ro ve b o th the g ro u n d s fo r t h e p en al t y
an d th e ab s en ce o f reas o n ab l e cau s e o r l acko f g o o d fai th ”) (ci t i ng Ru l e 1 4 2 (a) an d San derl i n g , In c. v . Co m

m is s i o n er, 6 6 T.C. 7 4 3 , 7 5 7 (1 97 6 ), aff’ di n p art , rev ’ di n p arto n an o th er m at ter, 5 7 1 F.2 d1 7 4 (3 dCi r. 1 9 7 8 )). Ch ai ’ s b ro ad er an d
u n ex pl ai n edad d i t i o n o f t h e “b u rd en o f p ro o f” t o th e p h ras e “b u rd en o f p ro duct i o n ” i n s ect io n 7 4 91 (c), s ee 8 5 1 F.3 dat2 2 1 , m ay h av e a m o re p o werfu l effect o n p en al ty

cas es th an an y o n e real i zes : Do es th e Co m m i s s i o ner n o w n eedt o p ro v e th att ax p ay ers d o n ’ t h av e a v al i dd efen se t o p en al t i es (e.g ., reas o n ab l e
cau s e)? Th e m ajo ri ty

d o es n ’ t cl ari fy

th i s i n o u r Op i n i o n t o d ay . An d s t i rri n g up
ev en m o re co n fu s io n , th e Seco n dCi rcu i ts ai dth atth e “ wri t t en -ap pro v al req u i rem en t --as a m an d at ory , s t atu t o ry el em en to f a p en al ty

cl ai m --i s d i st i nctfro m affi rm at i v e d efen s es b as edo n ‘ reas o n ab l e cau s e, s ub st an t i al au th ori ty , o r a s i m i l ar p ro v is i o n ,’ wh i ch n eedb e rai s edb y th e t ax p ay er.” Id . at2 2 2 n . 2 6 . Do es th i s n o w- 4 5 -

m ean th atth e p h ras e “bu rd en o f p ro o f” m ean s s om et h i n g d i fferen ti n p en al ty cas es fro m wh ati t d o es i n cas es wh ere t h e Co m m i s s i o n er h as t o b ear i t b ecau s e h e rai s es
a n ew m at t er? An dwh atd o we n o w d o wh en th e Co m m i s s i o ner as k s fo r a p en al t y fo r t h e fi rs t t i m e aft er a cas e i s u n d er way b efo re u s --wh en the p en al ty i s a n ew
m at t er an ds ect i o n 6 7 5 1 n o w g o v ern s wh ath e h as t o s h o w ? II. In th e i n t eres to f “ rep o s e”, t h e m ajo ri ty h as n ev ert h el es s ad o p t edCh ai ’ s p u rp os i v is tco n s tru ct i o n o f s ect i o n 6 7 5 1 , an dl i k ewi se ad o p t edCh ai ’ s i d en t i fi cat i o n o f t h e rel ev an tp u rp o s e--n am el y , t o p rev en tthe IRS fro m u si n g th e th reat o f p en al t i es as b arg ai n i n g ch ip s . See 8 5 1 F.3 dat2 1 9
. Bu tth e rewri t t en t ex t wi l l n o tl etth i s Co d e s ect i o n res ti n p eace--i n s t ead i twi l l b eco m e “ [l ] i k e s o m e g h o u l i n a l at e-n i g h t h o rro r m o v i e t h at rep eat ed l y s i t s up i n i t s g rav e an d s hu ffl es ab ro ad , ” an dwi ll s erv e o nl y t o fri g h t en l i t t l e ch i l dren an dIRS l awy ers . Lam b ’ s Ch ap el v . Cen t er M o ri ch es Un i o n Free Sch
. Di st ., 5 08 U.S. 3 8 4, 3 9 8 (1 9 9 3 ) (Scal i a, J ., co n cu rri n g ). Co n si d er s o m e h y

p o th et ical s : 1
. Rev en u e Ag en t (RA) d et erm i n es a p en al ty ; Superv i s o r (S) d i s ag rees
an d d o es n ’ tap p ro v e. Th e cas e g o es t o l it i gat i o n . IRS Ch i ef Co u n sel (CC) l awy er
wan ts t o am en d h i s an s wer t o as s ert th e p en al ty ; h i s IRS Ch ief Co u n sel Sup erv i s o r- 4 6 -

(CCS) ag rees . W as th e “ i n i t ial d et erm i n at io n ” t h e o n e m ad e b y RA, wh i ch d i dn ’ t h av e s up erv is o ry

ap p ro v al ? Wh o kn o ws ? 2
. RA1 wo rk s o n the fi l e an dfi l l s o utth e p en al ty -ap p ro v al fo rm . He th en g oes o n l eav e an dthe cas e i s p as s edo n t o RA2 . RA2 d o es n ’ ts eekS’ s ap p ro v al an dd eci d es n o t t o d et erm i n e a p en al ty i n the n o t i ce o f d efi ci en cy . Th en , s am e as hy

p o th et i cal 1 , th e cas e g o es t o l i t i g at i o n . CC l awy er wan t s t o am en dh is
an s wer t o i n cl ud e t h e p en al ty , an d h i s CCS ag rees . Is RA1 ’ s d et erm i n at i o n th e

“ i n it i al d et erm i n at i on ,” an d , th erefo re, t h e o n l y o n e th at m at t ers ? Can th ere b e
m o re th an o ne “ i n i t i al ” d et erm i n at i o n ? Wh o kn o ws ? 3
. RA i s a t rai n ee o n p ro b at i o n . He was o u t th e d ay th e n ew RAs t o o ka cl as s o n p en al t i es . No t i ci n g t h atRA’ s draft n ot i ces o f d efi ci en cy n ev er i ncl u d e p en al t i es , S t ak es a cl o s er l o o kan di s h o rri fi ed t o s ee a d o zen n o ti ces fo r ab u s i v e t ax s h el t ers wi th n o p en al t i es . He t el l s RA t o s t arti n cl u d i ng th em . S d o es n’ tg et h i s o wns uperv i s o r t o ap p ro v e t h i s d eci si o n . RA red raft s t he n o t ices o n h i s d es kt o d et erm i n e p en al t i es , wh i ch S th en ap p ro v es . Is S’ s i ns tru ct i o n t h e “ i n i ti al d et erm i n at i o n ”? Wh o kn ows ? 4
. RA d et erm i n es an accu racy -rel at edp en al ty b ecau s e h e b el i ev es t ax p ay er’ s u n d erp aym en twas at tri b u t ab le t o “ n eg l i g en ce”; S ag rees , b u tt el l s RA t o i ncl ud e a fal l b ack p o s i t i o n th atth e u n d ers t at em en twas “ s ub s tan t i al ”. S d o es n’ t- 4 7 -

g eth i s o wns uperv i s or t o ap p ro v e t h i s d eci s i o n . Th en , s am e as h y p o th et ical 1 , th e
cas e g o es t o l i t i g at i o n . W e d et erm i n e t h att ax p ay er was n ’ tn eg l i g en t , b u th i s
u n d ers t at em en twas s ub st an t ial . Is S’ s i n s tru ct i on reg ard i n g t h e fal lb ackp en al t y p o s i t i on an “ i n i t ial d et erm i n at i o n ”? Who kn o w s ? 5
. CC l awy er reco m

m en d s a 4 0 % g ro ss -v al u at i o n p en al ty aft er t h at b l o wo u to f a d ep o s i t io n , b u th i s CCS s ay s : “ Yo u k il l edi t , g o fo r t h e 7 5 % frau d p en al ty , ” an dth enth e CCS’ s s up erv i s o r s ay s: “ Cal m d o wn , I o n l y

wan ty o ut o g o fo r t h e 2 0 % n eg li gen ce p en al ty .” Wh i ch o f t h es e i s t h e “ i n i t i al d et erm in at i o n ”? Wh o ’ s the s up erv i s o r wh o h as t o ap p ro ve t h atd et erm i nat i o n i n wri t i n g? Wh o kn o ws ? 6
. CC l awy er cro s s-ex am i n es th e p et i t io n er s o effect i v el y th ath e b l u rt s
o u t : “ So I co m

m it t edfrau d , wh at ’ re y o ug o in g t o d o ab o u ti t ? ” Our Ru l es al l o w fo r i s su es t o b e tri edb y

i m p l i edco n s en t , an dth o u g h th ey al lo w am en d m en t s t o p l ead i n g s t o co n fo rm

t o th e p ro o f, they

al s o s tat e t h at “ fai l u re t o am en dd o es n ot affect th e res u l to f th e t ri al o f t h es e i s su es .” Ru l e 4 1 (b ). Is o u r Op i n i o n t o d ay a
rev o cat i on o f t h i s p arto f t h e Ru l e? Wh o kno ws ? 7
. RA d et erm i n es a p en al ty ; we d o n’ tkn o w wh et h er S ap pro v ed
. Tax pay er recei v es a n o t i ce o f d efi ci en cy , b u t d eci des n o t t o l i t ig at e. Th e p en al t y i s
as s es s ed9 0 d ay s l at er, an d t h e IRS b eg i n s co ll ect i o n act i o n . Tax p ay er s t art s a- 4 8 -

co l l ect i o n du e p ro ces s h eari n g , wh ere t h e Ap p eal s o ffi cer refu s es t o co n s i d er wh et h er t h e p en al ty

was ap pro vedb y

a s up erv i so r b ecau s e t ax p ay er h ad a p ri o r
o p p o rtu ni ty

t o ch al l en ge t h e u n d erl y i n g l i ab i l i ty . Tax p ay er s ay s t h atth e Ap p eal s
o ffi cer s t i l l n eed s t o v eri fy th atreq u i rem en t s o f l aw an d ad m i ni s trat i v e p ro cedu re h av e b een m et
. Is co m

p l i an ce wi th s ect io n 6 75 1 p arto f t h e v eri fi cat i o n req u i rem en ti n s ect i o n 6 3 3 0 (c)(1 )? Or i s i tn o w p arto f an u n d erl y i n g -l iab i l i ty ch al l en g e an dth erefo re l im i t edt o o n e b i te atth e ap p l e u n d er s ect i o n 6 3 3 0 (c)(2 )(B)? Wh o kn o w s ? An d th es e qu es t io n s ju s t p ro du ce m o re q u es ti o n s: W h a t d o we d o wi th p en di n g

ca s es ? Ev ery

cas e i n wh i ch th e reco rdi s cl o s edb u tfo r wh ich we are wo rk i n g o n o pi n i o n s o r wai t i n g fo r co m p u t at i o n s
u n d er Ru l e 1 5 5 o r ev en i n wh i ch 9 0 d ay s h av en ’ tel ap s eds i n ce en try o f d eci s i o n
m ay b e s ub jectt o a m o t i o n t o reo p en th e reco rdo r v acat e t he d eci s i o n i f we d et erm i n eda p en al ty

i ss u e i n fav o r o f t h e IRS. Are we g o in g t o treat o u r Op i n i o n i n thi s cas e as th o u gh i t was an am en d m en t t o t h e Co d e wi th an effect i v e d at e o f wh en ev er i th i t s th e i n t ern et , o r wi l l we m ak e i tret ro act i v e, o n the t h eo ry thatth e l aw i s wh ati ti s , ev en i f we d i dn ’ tn ot i ce i tfo r t h e l as t twen ty y ears ? W h a t wi l l h a p pen t o Gr een b er

g ’s Exp r es s? “ As a g en eral ru l e, t hi s Co u rt wi l l n o tl o okb eh i n d a d efi ci en cy n o t ice t o ex am i n e t h e ev i d en ce u s ed o r t h e- 4 9 -

p ro p ri et y o f res p o n d en t ’ s m o t i v es o r o f th e a dmi n is tr a t i ve po l i cy o r p r o ced

u r e i n vo lved i n m ak i n g h i s d et erm i n at i o n s .” Green b erg ’ s Ex p res s , In c. v . Co m m i s s i o n er, 6 2 T.C. 3 24 , 3 2 7 (1 9 7 4 ) (em p h as es ad d ed ) (ci ti n g Hu m an En g ’ g In s t . v . Co m

m i s si o ner, 6 1 T.C. 6 1 , 6 6 (1 9 73 )). Im ag in e i f a t ax p ay er aft er read i n g th i s Op i n i o n wan t s t o kn o w wh atreal l y h ap p en edb eh i n dth e s cen es fo r t h e p en al ty t o h av e m ad e i t s way i n t o h i s n ot i ce o f d efi ci en cy . Ho w can we d en y h i m d i s co v ery ab o u tco m

m un i cat io n s b et ween th e au d i t o r an d the s up erv i so r n o w th at wh ath ap p en s b efo re t he Co m m i s si o n er i ss u es a n o t i ce o f d efi ci en cy i s a m at eri al fact ? Ho w ab o u tco m

m u ni cat i o n s b et ween au d i t or an ds up erv i s o r an dan y p ren o t i ce ad v i ce fro m

co u n s el ? W i l l i n t erro g at o ri es b e en o u g h o r wi l l we creat e
s o m e s o rto f t es ti m on i al p ri vi l eg e o r wi l l we ju s to v erturn th i s p arto f Green b erg ’ s Ex p res s? Wh o kn o ws ? W h a t wi l l we d o wi th the a t t or n ey-wi tn es s r u le? Anat t o rn ey g en eral l y i s n’ t
s up p os edt o try

a cas e i n wh i ch h e’ s a l i kel y wi tn es s . See Ru l es 2 4(g ), 2 01 (a); M o d el Ru l es o f Pro f’ l Co n du ctr. 3 .7 (Am . Bar As s ’ n 2 0 1 6 ). Th ere wi l l b e cas es , h o wev er, wh ere t h e p en al ty co m es up o n l y

i n l i t ig at i o n , b u twe’ l l h av e m ad e
co m m u n icat io ns b et ween tri al co u n s el an d s up erv i s o ry co u ns el p art o f
res p o n d en t’ s b u rd en o f p ro du ct i o n --an dp erh ap s p ro of--i n s u ch cas es . Perh ap s th e Co m m i s s i o n er wi ll h av e t o h av e a “ B t eam ” wai t in g i n res erv e wh enthe fi rs t- 5 0 -

l awy er an dh i s s up erv i s o r o n a cas e wh o reco m m en dan d“ ap p ro v e i n wri t i n g ” a p en al ty g ets ubp o en as t o t es t i fy ab o u twh ati s n o w a m at eri al p arto f t h e Co m m i s s i o n er’ s cas e i n ch i ef. Wh o kn ows ? W h a t ef f ect wi ll t o d a y’s Op i ni o n h a ve o n th e wo r k-p r o du ct p r ivi l eg e? W e’ re s up p o sed t o p ro tectag ai n s tth e “ d i scl o s u re o f m en t al i m p res s i o n s , co n cl u s i o n s , o p i n i o n s, o r l eg al th eo ri es o f a p art y ’ s co u n s el o r o th er rep res en t at i v e
co n cern in g th e l it i g at i on .” Ru le 7 0 (c)(3 )(B). If t h e p en al ty i s su e co m es up aft er l i ti g at i o n b eg i ns , h o wwi l l we d o th i s i f co m m un i cat i o n s b et ween a l i t i g at i n g at t o rn ey an dh is s uperv i so r b eco m e p arto f t h e Co m m is s i o n er’ s cas e? Wh o kn o ws ? M y p o in ti s thatthere wi l l b e n o rep os e. An dev en th es e h y p o th et i cal s an d qu es ti o n s are u n neces s ary t o p ro v e t h e p o i n t : Th e co n fu s i o n cau s edb y th i s
reco n s tru ct i o n o f s ect i on 6 75 1 (b ) al read y s h o ws up i n th e d eb at e b et ween th e
o p i n i o n o f t h e Co u rtan dth e p art i al d i s s en t
. Bo th ag ree t hatth e p u rp o s i v i s t ap p ro ach t o “ i ni t i al d et erm i n at i o n o f s u ch as s es s m en t” fro m Ch ai i s ap pro p ri at e, b u tth ey d i sag ree o n wh at“ i n i t i al d et erm in at i o n ” m ean s . Th e p art i al d i s s en t fo cu s es o n “ d et erm in at i o n ” an dwh o h as th e au th o ri ty t o m ak e o n e. Itl o o k s t o th e In t ern al Rev enu e M an u al (IRM ) an dco n cl u des th ata Ch i ef Co un s el l awy er can ’ t- 5 1 -

m ak e a “ d et erm i n at i o n ”. See Bu ch o p . p p . 7 4 -7 8
. 2 He can o n l y m ak e a
reco m m en d at i o n, an di t m

u s t b e s om e o th er IRS em p lo y ee wh o m ak es th e “ i n i t i al d et erm i n at i o n ” t o as serta p en al ty aft er h e ch o o s es wh et h er t o fo l l o w Ch i ef Co u n s el ’ s reco m

m en dat i o n . See i d . (It ’ s qu i t e u n cl ear wh o th atm i g htb e.) Th e
m ajo ri ty reas o ns th atCh i ef Co u n s el l awy ers wo rkfo r t h e IRS an d can th erefo re
m ak e--as a p ract i cal m at t er, i f n o t as a m at t er o f d el eg at edau th ori ty --“ i n i ti al d et erm i n at i o n s” t o as s ertp en al t i es ag ai n s t t ax p ay ers . See o p . Ct
. p p . 1 9 -2 2. Ho w d o ei ther o f t h es e fu rt her t h e p ur p os e o f th e s t atu te? As far as we kn o w, th e Ch i ef Co u ns el l awy er h ere--t h e o ne wh o m ad e t h e “ in i t i al d et erm i n at i o n ” t o i n cl u de t h e 2 0 % n o n cas h -co n tri b ut i o n p en al ty i n th e n ot i ce o f d efi ci en cy --n ev er co m

m u n i cat edwi th th e Graev s . Ho w co u l dh e h av e u s edth e th reat o f a l es s -t h an -4 0 % p en al ty as a b arg ai n i n g ch i p i f h e n ev er ev en t al k edt o th em ? An dthe p art i al d i s s en ts eem s t o dri ftev en fu rt h er awayfro m the pu r p o se
o f t h e s t atu t e--a l o g i cal ex t en s i o n o f t h e d i s s en ti s th atwe s ho u l dfo cu s o n an y

“ d et erm i nat i on ” m ad e b y s o m e o th er an o n ym ou s an du n kn o wnIRS em p l o y ee wh o h ad a u th o r i t

y t o i s s u e t h e n o t i ce o f d efi ci en cy . Bu tan o n ym o u s an du nkn o wnIRS
em pl o y ees rarel y

t al kt o t ax p ay ers , m

u ch l es s th reat en th em .

2 Th e d i s s en t ers ’ v i ew p res u m ab l y ch an g es o nce Ch i ef Co u n sel h as juri s d i ct i o n o v er a cas e (i .e., i t ’ s wi th u s ); o th erwi s e, t h ey wo u l dh av e d i s s en t ed fro m PartIII o f th e m ajo ri ty

o p i n i o n as wel l
.- 5 2 -

W i th th i s am o u n t o f co n fu s i o n l i kel y i f we fo l l o w th e p u r p o s i vis t ap p ro ach t o i nt erp ret i n g s ect i o n 6 7 5 1(b ), i s i tp os s i b l e t h ata t ext u a lis t ap p ro ach wo u l db e b et t er? III. Let ’ s l o o katth e t ex tag ai n . Sect i o n 6 7 51 (b )(1 ) s ay s : No p en al ty

u n der t h i s t i tl e s h al l b e as s es s edu n l es s th e i n i t i al d et erm i nat i o n o f s u ch as s es s m en ti s p ers o nal l y ap p ro v ed(i n wri t i n g ) b y th e i m m ed iat e s up erv i s o r o f th e i n d i vi du al m ak i n g s uch d et erm i nat i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i gn at e. Sect io n 6 7 5 1 (b )(1 ) i s a res tri ct i o n o n “ as s es s m en t ”. As th e Suprem e Co u rt h as s ai d , “ as s es s m en t ” i s reco rd i n g th e l iab i l i ty o f t he t ax p ay er. See Hi b b s , 5 4 2 U.S. at1 0 0 (“ Anas ses s m en ti s m ad e ‘ b y reco rd i n g t h e l i ab i l i ty

o f t h e t ax p ay er i n th e o ffi ce o f t h e Secret ary i n acco rd an ce wi th ru l es o r reg u l at i o n s p res cri b edb y th e Secret ary ’ ”); s ee al s o s ec. 6 2 0 3 . An d t h e Co d e s ay s o n ce th e cas e i s s t art edi n
o u r Co u rtan “ as s es sm en t ” o f th e p en al ti es can ’ to ccu r u n t i l o u r d eci s i o n b eco m es fi nal an du nap p eal ab l e. See s ecs . 6 2 1 3 (a), 6 6 6 5(a), 7 4 8 5
. I wo u l dth erefo re
co n ti n u e t o h ol d --i n cas es ap peal ab l e t o an y ci rcu itb utth e Seco n d --t h at- 5 3 -

co m p l ian ce wi th s ect io n 6 7 5 1 (b )(1 ) i s n o tri p e fo r rev i ew i n a d efi ci en cy s et t i n g b ecau s e th e p en al t i es h av e n oty etb een “ as s es sed ”. 3

3 M y p ro p o s edh o ld i n g i s b o l s t eredb y th e effect i v e d at e o f s ect i o n 6 7 5 1
. Th e l eg i s l at i o n res p ect in g thats ect i on s ay s i t“ s h al l ap pl y t o n o t ices i s s ued , an d p en al t i es as s es sed , aft er Decem b er 3 1 , 2 0 0 0 .” See Graev v . Co m m i s s io n er, 1 4 7 T.C. , (GraevII) (s l i p o p . at3 4 ) (No v . 3 0 , 2 0 1 6) (q uo t in g In t ern al Rev en u e Serv i ce Res tru ctu ri n g an dRefo rm Acto f 1 9 98 , Pub. L. No
. 1 0 5 -2 0 6 , s ec. 3 3 0 6 , 1 1 2 St at . at7 4 4 ). Becau s e “ no t i ce” ap p ears ex cl u s iv el y i n s ect i on 6 7 5 1(a), an d
“ as ses sm en t ” ap p ears ex cl u s i v el y i n s ect i o n 6 7 5 1 (b ), we s ai di n Graev II, 1 4 7 T.C. (s l ip o p . at3 5 ), th at“ s ect i on 6 7 51 (a) [was m ad e] effect i v e fo r ‘ n o t i ces i s s u ed ’ aft er Decem

b er 3 1 , 2 0 00 , wh il e s ect i o n 6 7 51 (b ) was m ad e effect i v e fo r ‘ p en al t i es as s es s ed ’ aft er” t h atd at e. W e co rrect l y

reas o n ed : “ As i trel at es t o s ect io n 6 75 1 (b ), th e effect i v e d at e p ro v is i o n (‘ p en al ti es as s es s ed ’ aft er t h e s p eci fi edd at e), l i k e t h e t i t l e o f s ect i o n 6 7 5 1 (b ) (‘ Ap p ro v al o f As s es sm en t ’ ), cl earl y i n d i cat es th at th e s t atut o ry p ro v i s i on i s fo cu s edo n as s es s m en trat h er t h an o n s om e earl i er ev en t .” Id
. at(s l ip o p . at 3 6 ). An dth i s “ h arm on i zes wi th o u r co ns tru ct i o n o f t h e s t atu t e--a p en al ty as s es s ed aft er t h e effect i v e d at e i s s ub jectt o th e req u irem en tth atwri t t en ap p ro v al b e i n p l ace a s o f the t i me o

f a s s es s men t , reg ard les s o f wh en th e ‘ i n i t i al d et erm i n at i o n o f * * * as s es s m en t ’ m i g h th av e o ccu rred
. ” Id . If s ect io n 6 7 5 1 (b ) ap p l i es atth e t i m e o f “ i n i t i al d et erm i n at io n ,” we s ai d , “ th e IRS wo u ldh av e b een req u i redt o p ro cu re th e wri t t enap p ro v al b y

th e t im e o f t h e ‘ i n i ti al d et erm i n at i o n ,’ ev en i f t he ‘ i n i t i al d et erm i n at i o n ’ o ccu rredb efo re t h e effect iv e d at e--o r ev enb efo re t h e en act m en t -- o f s ect i o n 6 7 51 (b ).” Id
. Ch ai co n s i d eredth is reas o n i n g o n l y i n a fo o tno t e. See Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 d1 9 0 , 2 2 1 n .2 5 (2 dCi r. 2 0 1 7 ), aff’ g i n p art , rev ’ g i n p art T.C. M em o . 2 01 5 -4 2 . Wh i l e i t fo u n do u r i n t erp ret at i o n reas o n ab l e an dth e arg u m en tp ers u as i v e, t h e co u rtd eci d edth ati td i dn’ t“ n eedt o g o t o s u ch l en g th s .” Id . Ev en cred it i n g o u r effect i v e-d at e an al y si s , th e Seco n dCi rcu i ts ai di td i d“ n o t b el i ev e t h atthi s am

b i g u ou s p ro v i si o n o verco m es th e l eg i s l at i v e h i s to ry an d req u i res th e i n co n g ru o u s effect s thatfl o w fro m th e m ajo ri ty ’ s (an dth e Co m m i s s i o n er’ s ) ap p ro ach .” Id
. (co n ti n u ed ...)- 5 4 -

I reco g n i ze t h ats o m e m i g h ts ay m y read i n g m ak es s ect i o n 6 7 5 1 (b ) i n effect i v e, u n ab le t o ach i ev e i t s p u rp o se o f s an i t i zi n g s om e o f t he IRS’ s m o re i l l

s m el l i n g “ b arg ai n i n g ch i p s .” Bu tth e fact i s th at th e Tax Co u rtd o es n ’ tg eta ch an ce t o rev i ew m o s t p en al ty d et erm i n at io n s b efo re as s es s m en t . M o s tp en al t i es th atare as s es s edeach y ear are “ s u m m ari l y as s es s ab l e”--g en eral l y m ean i ng n o p reas s es s m en t Tax Co u rtrev iew--o r are p en al t i es t o wh i ch s ect i on 6 7 5 1(b )(1 )
ex p res s l y d o es n o tap p l y . See s ec. 6 7 51 (b )(2 ). Co n si d er t h e fo l lo wi n g d at a fro m th e IRS’ s 2 0 1 6 fi s cal y ear fo r ex am p l e: 4

3 (...co n t in u ed ) Th e effect i v e d at e o f t h e s ect i o n m ig h tn o to v erco m e th e l eg is la t i ve h is t o r y o f s ect i o n 6 7 51 (b ), b u t i ti s co n s i s t en twi th t h e t ext o f s ect i o n 6 75 1 (b )--wh i ch was o u r p oi n ti n Graev II. Becau s e a p l ai n read in g o f s ect i o n 6 7 5 1 (b ) i s ap p ro p ri at e an d p o s s i b l e, t h e effect i v e-d at e an al y s i s co n t in u es t o l en ds upp o rtt o m y read i n g . Co u l d Co n g res s real l y

h av e ex p ect edth e IRS t o co m p l y wi th a n ew req ui rem en t b ef o r e th e l aw was en act ed ?
4 Th e d at a i n t h e t ab l e i s fro m In t ern al Rev en u e Serv i ce, 2 0 1 6 Dat a Bo o k 4 2 -4 3, Tb l
. 1 7 (2 0 1 7 ) (p ro vi di n g IRS d at a fo r i t s 2 0 1 6 fi s cal y ear).- 5 5 - Ty pe o f Ta xa nd Ty pe o f Pena lty Civ il Pena lties Assessed Num b er Am o u nt [ i n t h ou san d s of d ol l a rs] Ci vi l pe na l ti es, to ta l 3 9,5 73 ,5 6 1 2 7 ,3 4 6 ,0 3 6 Indi vi dua l a nd e sta te a nd tr ust i nc o m e ta xe s: Ci vi l pe na l ti es, to ta l 3 1,7 13 ,5 3 8 1 2 ,0 7 1 ,4 1 9 A c c u ra c y 4 99 ,1 9 0 1 ,0 4 7 ,1 8 5 B adc h e c k 5 71 ,2 4 0 5 9 ,7 5 1 De l i nq u e n c y 2 ,8 79 ,8 7 8 4 ,2 7 3 ,7 9 8 Est ima t e d t a x 1 0,0 63 ,9 8 9 1 ,3 3 4 ,5 9 8 F a i lu re t o p a y 1 7,6 91 ,0 3 3 4 ,9 1 7 ,7 4 4 F rau d 3 ,2 1 9 3 8 9 ,3 7 4 Ot h e r 4 ,9 8 9 4 8 ,9 7 0 B u si n e ss i nc o m e ta xe s: Ci vi l pe na l ti es, to ta l 9 78 ,5 6 4 2 ,1 8 3 ,9 0 2 A c c u ra c y 2 ,0 9 8 2 4 2 ,2 1 1 B adc h e c k 7 ,3 4 7 2 0 ,1 8 2 De l i nq u e n c y 4 58 ,1 8 6 8 5 1 ,1 1 3 Est ima t e d t a x 2 12 ,7 2 9 2 5 3 ,0 1 8 F a i lu re t o p a y 2 86 ,6 3 4 5 2 8 ,8 2 8 F rau d 2 0 5 1 9 ,6 5 5 S c orp ora ti on / Pa rt n e r sh i p i n forma t i on 1 1 ,2 7 9 5 4 ,1 7 1 Ot h e r 8 6 2 1 4 ,7 2 4 E m pl oy m ent ta xe s: Ci vi l pe na l ti es, to ta l 5 ,8 57 ,4 1 6 6 ,0 4 6 ,1 3 9 A c c u ra c y 1 ,8 9 2 3 ,4 0 9 B adc h e c k 2 62 ,5 3 2 5 9 ,5 1 8 De l i nq u e n c y 1 ,0 98 ,7 3 2 1 ,7 2 2 ,1 4 4 Est ima t e d t a x 8 ,2 9 8 2 1 ,5 8 5 F a i lu re t o p a y 3 ,1 44 ,6 2 3 1 ,1 4 7 ,9 5 4 F e d e ra l t a xd e p osi t s 1 ,3 40 ,9 2 8 3 ,0 8 6 ,4 0 2 F rau d 2 3 3 2 ,5 9 5 Ot h e r 1 7 8 2 ,5 3 3 E x c ise ta xe s: Ci vi l pe na l ti es, to ta l 6 2 9 ,4 2 8 3 7 1 ,3 8 1 A c c u ra c y 1 ,3 2 4 1 ,0 5 8 B adc h e c k 5 ,3 4 1 1 ,9 7 2 Da i l y d e l i nq u e n c y 5 7 ,8 4 3 1 7 9 ,6 4 4 De l i nq u e n c y 2 1 3 ,7 4 1 4 5 ,8 3 2 Est ima t e d t a x 1 0 ,8 3 8 1 ,9 9 9 F a i lu re t o p a y 3 1 9 ,0 3 1 2 3 ,4 5 1 F e d e ra l t a xd e p osi t s 5 ,3 1 5 3 9 ,3 2 0 F rau d 9 4 Ot h e r 1 5 ,9 8 6 7 8 ,1 0 1 E sta t e a n d g i f

t ta xe s: Ci vi l pe na l ti es, to ta l 6 ,0 7 8 1 9 9 ,7 7 9 A c c u ra c y 5 7 8 ,9 2 3 B adc h e c k 3 3 4 6 1 De l i nq u e n c y 2 ,1 3 9 1 1 2 ,6 5 5 F a i lu re t o p a y 3 ,7 1 6 7 3 ,5 8 4 F rau d 0 0 Ot h e r 1 3 3 4 ,1 5 7 No nr e tur n pe na l ti es 3 88 ,5 3 7 6 ,4 7 3 ,4 1 6- 5 6 -

Of th e $ 2 7 , 3 4 6 ,0 3 6 ,0 0 0 i n p en al t i es th atth e IRS as ses s edb et w een Oct o b er 1 , 2 01 5 , an dSep t em

b er 3 0 , 2 0 16 , o n l y

$ 1,9 7 5 ,1 9 9,0 0 0 5 (o r 7 .2 2 % 6 ) wo u l db e
s ub jectt o Ch ai ’ s s ect i on 6 75 1(b )(1 ) rev i ew i n o u r Co u rt . (Th i s i n cl u d es accu racy rel at ed p en al t i es --wh i ch were at i s s u e i n Ch ai --b u tal s o i n cl u d es frau dp en al t i es , an d I’ l l as s u m e i ti n cl u d es th e “ o th er” cat eg ory o f p en al t ies as wel l
. 7 ) Th e

5 Th e $ 1 ,9 7 5,1 9 9,0 0 0 i s equ al t o th e t o t al o f o n l y accu racy -rel at edp en al t i es , frau d p en al t ies , an d “ o th er” p en al t i es i n the t ab l e t h atth e Co m m i ss i o n er d et erm i n edo nl y

i n i n co m e, es tat e, an dg i ftt ax cas es --p en al t i es are s u m m ari l y as s es s edi n al l em

p lo ym en t t ax cas es an dm o s tex ci s e t ax cas es . See M ed ei ro s v . Co m m i s s i o n er, 7 7 T.C. 1 25 5 , 1 2 5 9 -6 0 (1 9 8 1); J u d dv . Co m m i s si o n er, 7 4 T.C. 6 5 1 , 6 5 3 (1 9 8 0). Th ere are $ 1,2 9 8,3 1 9 ,0 0 0 t o t al accu racy -rel at ed p en al t i es --$ 1 ,0 4 7,1 8 5 ,0 0 0 + $ 24 2 ,2 1 1 ,0 0 0 + $ 8 ,9 2 3 ,0 0 0
. Th ere are $ 40 9 ,0 2 9 ,0 0 0 t o tal frau d p en al t ies --$ 3 8 9,3 7 4 ,0 0 0 + 1 9 ,6 55 ,0 0 0
. Fi n al l y , th ere are $ 2 6 7 ,8 5 1 , 0 0 0 t o t al “ ot h er” p en al t i es --$ 4 8,9 7 0 ,0 0 0 + $ 2 1 4 ,7 2 4 ,0 0 0 + $ 4 ,1 57 ,0 00
. $ 1 ,2 9 8,3 1 9 ,0 0 0 + $ 4 09 ,0 2 9,0 0 0 + $ 2 6 7 ,8 51 ,0 0 0 = $ 1,9 7 5 ,1 9 9 ,0 0 0.
6 ($ 1 ,9 7 5 , 1 9 9 ,0 0 0 ÷ $ 2 7 ,3 4 6 ,0 3 6 ,0 00 ) x 1 0 0 = 7 .2 2 %.
7 Becau se t h e IRS’ s 2 0 1 6 Dat a Bo okd o es n ’ t d i st i ng u i s h “ as s es s ab l e” p en al t i es fro m

“ ot h er” p en al t i es , an d“ ot h er” p en al t i es fro m p en al t i es cal cu l at ed th ro u g h el ect ro n i c m ean s , o n e h as t o draw reas o n ab l e i nferen ces fro m th e d at a. Th e Seco n dCi rcu i t ’ s read i n g o f s ect io n 6 7 5 1 (b )(1 ) m i g h tactu al l y affect o n l y “ d et erm i nat i on s ” o f accu racy -rel at ed p en al t i es an dfrau d p en al t i es .- 5 7 -

rem ai n i n g $ 2 5 ,3 7 0,8 3 7,0 0 0 8 (o r 9 2 .7 8 % 9 ) was ei th er p en al t i es fo r wh i ch we h av e
n o p reas ses s m en tjuri s d i ct i o n o r p en al t i es th ats ect i o n 6 7 5 1 (b )(2 ) s peci fi cal l y
ex cl u d es fro m

s ect i o n 6 7 51 (b )(1 ). (Th i s i ncl u d es d el i n qu en cy p en al ti es , s ec. 6 6 5 1 (a)(1 ); es t i m at ed -t ax p en al t i es , s ecs . 6 6 5 4 (a), 6 6 5 5 (a); an dfai l u re-t o -p ay p en al t i es , s ec. 6 65 1 (a)(2 ); s ee s ec. 6 7 5 1 (b )(2 )(A). Bu t i tal s o i n cl u d es p art n ers h i p retu rn p en al ti es , s ec. 6 6 9 8 (a); b ad -ch eckp en al t i es , s ec. 6 6 5 7 ; fed eral -t ax -d ep o s i t p en al t i es , s ec. 6 65 6 (a); d ai ly -d el i n quen cy p en al t i es , s ec. 6 6 5 2 (c)(2 )(A) an d (B);
an d “ n o nret u rn ” p en al t i es , e.g ., s ecs . 6 67 2 (a), 6 7 0 2 (a), 6 7 1 5 (a), 6 72 2 (a), b ecau s e th es e p en al t ies are ei th er s u m m ari l y as s es sedo r “ au to m at i cal ly cal cu l at edth ro u g h el ect ro ni c m ean s ,” s ee s ec. 6 7 5 1 (b )(2 )(B).) Th e i l l s cu redb y th e m ajo ri ty

o p i n i o n
wo u l dth erefo re p o ten t i al ly ap pl y o n l y t o a s m al l p ercen tag e o f p en al t i es --7 .2 2 % t o b e ex act
. Th atp ercen t ag e s hri nk s ev en m o re i f we co n s id er t h e p ro p o rt i o n o f p en al t i es th att ax p ay ers actual l y co nt es ti n o u r Co u rt . Th ats p eci fi c d at a s eti s
u n av ai l ab l e, b u twe d o kn o w th atth e IRS au d it ed1 ,0 9 7,9 21 retu rn s duri n g th e 2 0 1 6 fi s cal y ear an d p ro p o sed an ad ju s t m en t t o 9 6 6 ,1 7 0 o f t ho s e retu rn s . See In t ern al Rev enu e Serv i ce, 2 0 1 6 Dat a Bo o k 2 3 -2 6 , Tb l . 9 a (2 0 1 7) (s ho wi n g th at

8 $ 2 7 ,3 4 6 ,0 3 6,0 0 0 - $ 1,9 7 5 , 1 9 9 ,0 0 0 = $ 2 5 , 3 7 0 ,8 3 7 , 0 0 0.
9 ($ 2 5 ,3 7 0,8 3 7 ,0 0 0 ÷ $ 2 7 ,3 4 6 ,0 3 6 ,0 0 0 ) x 1 00 = 9 2.7 8 %.- 5 8 -

1 ,0 97 ,9 2 1 i n co m e t ax , es t at e t ax , g i ftt ax , an d n o n t ax ab l e ret urn s were au d i t edan d
o n l y 1 2 % res u l t edi n “ n o ch an g e”). Du ri n g th att im e, t h ere were o n l y 2 9 ,7 4 8 Tax Co u rtcas es recei vedb y

IRS Ch i ef Co u ns el . See i d . at6 2, Tb l . 2 7 . Acco rd i n g l y , o n l y ab o ut3 % 1 0 o f p ro p os ed -as s es s m en tcas es en d edup i n Tax Co u rt --fu rt h er
n arro wi n g th e ci rcu m s t an ces wh ere Ch ai ’ s co ns tru ct i o n o f s ect i o n 6 75 1 (b )(1 )
m i g h tap pl y . Th es e s t at i s t i cs rai s e an i m p o rt an tques t i o n : W as Co n g res s real l y fo cu s ed
o n s u ch an i ns i g n ifi can tp ercen t ag e o f t h e p en al t i es as s es s edeach y ear wh en i t ad d eds ect i o n 6 75 1 (b ) t o th e Co d e? I d o n ’ tthi n ks o . Sect io n 6 7 5 1 (b ) cu rt ai l s IRS ab u s e fo r t he v as tm ajo ri ty o f p en al t i es th atare
as s es s edwi tho u tTax Co urtrev i ew. An dco n s i d eri n g t h e fact th at mo st p en al t i es
can b e as s es s edei th er b y a co m p u t er o r b y

an IRS ag en twi th o u t Tax Co u rt
rev i ew--a fact wh ich we can s afel y as s u m e Co n g res s kn ew--i ts eem s thats ect i o n 6 7 5 1 (b ) i s a co m

m an dfro m

Co n g res s t o the IRS d i rect l y fo r ad d it i on al
a d mi n is tr a t i ve s afeg u ard s ag ai n s t erro n eo u s as s es s m en tev en i f ju di ci al rev i ew an d
en fo rcem en twas u nav ai l ab le o r u n l i k el y . An d ev en i f t h e co m m an d were n o t

1 0 (2 9 ,7 4 8 ÷ 9 6 6 ,1 7 0) x 1 0 0 = 3 %.- 5 9 -

en fo rceab l e i n a d efi ci en cy cas e, t h e IRS h as s t il l t ak eni ts eri o us l y . Ith as g u i d el i n es th ati m

p lem en ts ect i o n 6 7 5 1 th ro u g h o u tth e IRM :
! M an ag eri al ap p ro v al i s req ui red fo r p en al ty as s es s m en t s . IRM p t
. 2 0.1 .1
. 2 .3 (Au g . 5 , 2 0 1 4 ).
! “ Anact in g m an ag er wi th an ap p ro v edd es i g nat i o n t o acti s co n s i d ered an i m m ed i at e s up erv i s o r fo r t he p u rp o s e o f” s ect i on 6 7 5 1(b )(1 ). IRM p t. 2 0.1 .5
. 1 .4 (1 )(b ) (Dec. 1 3, 2 0 16 ).
! Fo r s m al l -b u s i n es s / s el f-em pl o y edcas es , “ wri t t en m an ag eri al ap p ro v al an dn o n -as s ert io n s s h o u l db e d o cu m en t ed o n t h e 3 0 0 -Ci v i l Pen al ty Ap p ro v al Fo rm

l eads h eet .” IRM p t . 2 0 .1
. 5
. 1 .4 .1 (2 ) (Dec. 1 3, 2 0 1 6 ).
! Accu racy -rel at edan dci v i l -frau dp en al ty i s su es “ req u ire rev i ew an d m an ag eri al ap p ro v al p ri o r t o b ei n g as s ert ed .” IRM p t . 2 0 .1 .5 .2 .2 (3 ) (Dec. 2 3 , 2 0 1 6 ).
! M an ag eri al ap p ro v al i s req ui red t o as s ertaccu racy -rel at edp en al t i es i n au t om at edu n d errep o rt er cas es . IRM p t. 2 0.1 .5 .3
. 1 (3 ) (J an . 2 4 , 2 0 1 2 ).
! M an ag eri al ap p ro v al o f p en al t i es i s req u i redi n cas es wh ere p en al t i es aren ’ t s ub jectt o d efi ci en cy

p ro cedu res . IRM p t. 2 0.1 .5 .1 6 .5 (1 4 ) (Dec. 2 3 , 2 0 1 6 ). To reads ect i o n 6 7 5 1 t o h av e n o th i n g t o d o wi th o u r Co u rt ’ s d et erm i n at i o n
o f p en al t i es i n d efi ci en cy cas es b efo re u s wo u l dju s tm ak e i ts i m i l ar t o th e s o cal l edTenDead l y

Si n s p ro vi s io n s o f t h e 1 9 9 8 Act --wh i ch l i k ewi s e co n s trai n th e IRS (b y th reat en i ng th e l i v el i h o o d o f i t s em p l o y ees ), b u t wh i ch h av e n o effect i n a d efi ci en cy

cas e. See TIGTA, Sem i an n u al Rep o rt t o Co n g res s: Oct o b er 1 , 2 0 1 6 - M arch 3 1 , 2 0 1 7 , ap p . VI at9 7 (rep o rt i n g IRS en fo rcem en to f t he In t ern al Rev en u e- 6 0 -

Serv i ce Res tru ctu ri n g an dRefo rm Acto f 1 9 98 , Pub. L. No
. 1 0 5 -2 0 6 , s ec. 1 2 0 3 , 1 1 2 St at . at7 2 0 -2 2 , wh i ch res u l t edi n 1 3 0 s ub s t an t i at edal l eg at i o n s du ri n g a s i x m o nt h p eri o dan d rem o v al of 1 3 em p l o y ees ). W e s h o u l dn ’ tex t en d s ect i o n 6 7 5 1 (b )’ s reach t o Tax Co u rt rev i ew i n d efi ci en cy

cas es --wh ere i tm ak es l i t tl e s en s e an d th reat en s m uch co n fu s i o n ; an d
m o re i m p o rt an t l y , wh ere i treq u i res s u ch a t o rturedread i n g o f t h e t ex to f s ect i o n 6 7 5 1 (b ) an dwi l l o v ertu rns o m u ch p reced en t
. M y read i n g ach i ev es the s t at ed co n g res s i on al p u rp o s e fo r m o re t han 9 0 % o f p en al t i es . It ’ s th erefo re q ui t e p ract i cal . Bu tth ere’ s n o n eedt o rel y o n p rag m at i s m h ere. IV. Al m o st1 30 y ears ag o , th e Suprem e Co u rtrem i n d edu s th at [i ] ti s an o l dan dfam i l i ar ru l e t h at“ wh ere t h ere i s , i n th e s am e s t atu t e, a p art i cu l ar en act m en t , an dal s o a g en eral o n e, wh i ch , i n i t s m o s t co m p reh en s i v e s en se, wo u l di n cl u d e wh at i s em b raced i n the fo rm er, th e p art i cu l ar en act m en tm u s tb e o perat iv e, an dth e g en eral en act m en t m u s tb e t ak ent o affect o n l y s u ch cas es wi th i n i t s g en eral l an g u ag e as are n o twi thi n t he p ro v i s i o n s o f t h e p art i cu lar en act m en t .” * * * Un i ted St at es v . Ch as e, 1 3 5 U.S. 2 5 5, 2 6 0 (1 89 0 ). Th i s can o n o f co n s tru ct io n --fav o ri n g th e s p eci fi c o v er t he g en eral --rem ai n s rel ev an t
. In d eed , “ iti s a co m m o np l ace o f s t atut o ry

co n s tru ct i o n th atth e s peci fi c- 6 1 -

g o v ern s th e g en eral ,” M o ral es v . Tran s W o rl dAi rl i n es , In c., 5 0 4 U.S. 3 7 4 , 3 8 4 (1 9 9 2), wh i ch “ i s p art i cu l arl y tru e wh ere * * * ‘ Co n g res s h as en act eda
co m p reh en s i v e s ch em e an dh as d el i b erat el y t arg et eds p eci fi c p ro b lem s wi th
s p eci fi c s o l u t i o n s ,’ ” Rad LAX Gat eway Ho tel , LLC v . Am al g am at edBan k , 5 6 6 U.S. 6 3 9 , 6 4 5 (2 0 1 2 ) (qu ot in g Vari ty Co rp . v . Ho we, 5 1 6 U.S. 4 8 9 , 5 1 9 (1 9 9 6 ) (Th o m as , J ., d i s sen ti n g )). Th i s can o n i s “perh ap s m o s tfreq u en t l y ap p li edt o
s t atu tes i n wh i ch a g en eral p erm i s s i o n o r p ro h ib it i on i s co n trad i ct edb y a s p eci fi c p ro h ib i t i on o r p erm i s s i o n ”; “ [t ] o el im i n at e th e co n trad i ct i o n , th e s p eci fi c p ro v i s i o n i s co n s tru edas an ex cep t i o n t o th e g en eral o n e.” Id . Bu ti t al s o ap p l i es wh ere a

“ g en eral au th o ri zat io n [o r p ro h i b i t i o n ] an da m o re l i m i t ed , s peci fi c au th o ri zat i o n [o r p ro h i b i t i o n ] ex i s ts i d e-b y -s id e.” Id . Inthatcas e, “ th e can o n av o i d s n o t
co n trad i ct i o n b u t th e s uperfl u it y o f a s p eci fi c p ro v i s i o n th ati s s wal l o w edb y th e g en eral o n e, ‘ v i o l at [i n g ] th e card i n al ru l e t hat , i f p os s i b l e, effect s h al l b e g i v en t o
ev ery cl au se an dp arto f a s tatu t e.’ ” Id . (qu o t i ng D. Gi n s berg & So n s , In c. v . Po p k i n , 2 8 5 U.S. 2 0 4, 2 08 (1 9 3 2 )). On ce a p et i t i o n h as b een t i m el y fi l edi n Tax Co u rt an dwe thu s h av e juri s d i ct i o n o v er o n e o r m o re t ax y ears , we h av e ju ri s d i ct i o n t o “ red et erm i n e”--o r

“ d et erm i ne”, i f t h e s ect i o n h ead i n g i s t o b e b el iev ed --t h e co rrect am o un to f an y d efi ci en cy

i n a d e n o vo p ro ceed i n g , an dth e n ot i ce o f d efi ci en cy i s n o th i n g m o re- 6 2 -

th an p arto f th e p l ead i ng s . See s ec. 6 2 1 4 (a); Green b erg ’ s Ex pres s , 6 2 T.C. at3 2 8 (“ [T] ri al b efo re t h e Tax Co u rti s a p ro ceed i ng d e n o v o” an d“ ou r d et erm i n at i o n as t o a p et i ti o n er’ s t ax l i ab i l i ty m u s tb e b as edo n th e m eri t s o f t h e cas e an dn o tan y p rev i o u s reco rdd ev el o p edatth e ad m i n i s trat iv e l ev el ”). W e ev en h av e t h e p o wer t o i m p o s e p en al t i es o f o u r o wnu n d er s ect i on 6 6 7 3 o n t ax p ay ers wh o t ak e

“ fri v o l o u s o r g ro u n d l es s ” p os i ti o n s o r i n s t i tu t e p ro ceed in g s p ri m ari l y fo r d el ay , o r wh o h av e “ u n reas o n ab l y

fai l edt o p u rs u e av ai l ab l e ad m i n i s trat iv e rem ed i es .” Sec. 6 6 73 (a). Th i s p en al ty i s o n e i m p o sed“ u n d er thi s t i t l e,” t o qu ot e s ect i o n 6 7 5 1 , y eth o w can i tb e g ov ern edb y thats ect i o n ’ s g en eral ru l e t h at req u i res i t s p ers o n al ap p ro v al “ (i n wri t i n g ) b y th e i m m ed i at e s up erv i s o r o f t he i nd i vi du al
m ak i n g s u ch d et erm i n at io n o r s u ch h i g her l ev el o ffi ci al as th e Secret ary m ay d es i g n at e”? Do es a Tax Co u rtju d g e ev en h av e an i m m ed i at e s up erv i s o r? W e s h o u l d ju s t ap p ly

th e s p eci fi c-o v er-g en eral can o n o f co n s tru ct i o n . If we d i d , we wo u l dv i ew s ect i o n 6 7 5 1 (b )(1 ) as a g en eral ru l e t h at g o v ern s the
as s es s m en to f m o re t han 9 0 % o f t h e p en al t i es th e IRS d et erm i n es a nd as s es s es
an n ual l y --n am el y , p en al t i es wi th o u tan y p reas s es s m en tju d i ci al rev i ew. On e can th en s ee h o w s ect i o n s 6 2 1 4 an d6 6 7 3 are s p eci fi c ex cep t io n s t o t h i s g en eral ru l e-- b o th d efi n edan d l i m i t edb y wh o i s d et erm in i n g th e p en al ty th atwi l l b e as s es s ed ag ai n s ta t ax p ay er: Th e g en eral ru l e o f s ect i o n 6 7 5 1 ap p l i es t o th e p en al t i es- 6 3 -

d et erm i n edan das s es s edb y th e IRS i t s el f; th e m o re s p eci fi c ru l es o f s ect io n s 6 2 1 4
an d 6 6 7 3 ap p l y

t o th e p en al t i es d et erm i n edb y o ur Co u rtan das s es s edu n d er
s ect i on 6 2 1 5 . Sect i o n 6 2 1 4 em p o w ers o u r Co u rtt o i n dep en d en t l y d et erm i n e wh et h er a p en al ty i s ap p ro p ri at e reg ard l es s o f u n d erl y i n g ad m i n i s trat i v e d et erm i n at i o n s. Iti s i n i t s el f a p ro tect i o n fro m threat en i n g an d ev en erro n eo u s p en al t i es , an do n e h o p es i ti s ev en m o re effect i v e t h an th e g en eral res tri ct i o n i n
s ect i on 6 7 5 1 (b )(1 )--s i n ce i ti s a p ro t ect i o n th atfo cu s es o n the l ia b il i t yfo r a p en al ty , n o ti t s a s s es s men t . By i g n ori ng th i s can o n o f co n s tru ct i o n, an d i n s t eadco n st ru in g s ect i o n s 6 7 5 1 (b ) an d7 4 9 1 (c) as th e m ajo ri ty h as an das th e Ch ai co u rtd i d , we m ay i m p l i ci tl y rep eal s ect io n 6 6 7 3 --t h ati s , u n les s we fi g u re o utwh o o u r “ i m m ed i at e
s up erv i s o r” i s o r i nfl ictm o re t ortu re o n th e Co d e’ s l an g uag e t o s o m eh o w p res erv e i t
. W e co u l dav o i d al l th i s --al l th e fu tu re h y p o thet i cal s th atI p red i ctwi l l b eco m e real ; al l th e s tran g e-b u t -fo res eeab l e co ns equ en ces t o l o ng -es t ab l i s hedp ri n ci p l es l i ke t h e o n es em

bo d i edi n Green b erg ’ s Ex p res s , th e at t o rn ey -wi tn es s ru l e, an dth e
wo rk -p ro duct pri v i l eg e; an dal l th e wi n d fal l s t o t ax p ay ers wh o real ly are l iab l e fo r p en al t i es u n d er t h e Co d e b u t wh o wi l l fo r a t i m e es cap e t h em --b y ap p l y i n g th e
s p eci fi c-o v er-g en eral can o n o f co n s tru ct i o n. An dwe s h o u l d ’ v e wai tedfo r t h e ch an ce t o d o ju s tth ati n a cas e ap p eal ab l e t o a d i fferen tci rcu i t
.- 6 4 -

Befo re Ch ai an dth e m ajo ri ty ’ s h o l d i n g t o d ay , i t was wi d el y u n d ers t o o dth at
o u r Co u rtg av e t ax p ay ers p ro t ect i o n b y p ro v i d i ng an i n d ep en d en t d e n o vo rev i ew
o f a n yth i n g o v er wh i ch we ex erci s edo u r p reas s es s m en t , d efi ci en cy juri s d i ct i o n . See Cl ap p v . Co m

m is s io n er, 8 7 5 F.2 d1 3 9 6, 1 4 0 3 (9 th Ci r. 1 9 8 9 ) (n o t ice o f d efi ci en cy

i s n ’ tfi n al ; “ [i ] f t h e t ax p ay er fi les a p et i t i o n i n th e Tax Co u rt , l i ab i l i t y wi l l b e ad ju d i cat ed p ri o r t o p aym en t ,” an dth e “ Tax Co u rth as as i t s p u rp o s e t h e red et erm i n at i o n o f d efi ci en ci es , th ro u gh a t ri al o n th e m eri t s, fo l lo wi n g a t ax p ay er p et i t i o n ”); Rah eja v . Co m m i s s i o n er, 7 2 5 F.2 d 6 4 , 6 6 (7 th Ci r. 1 9 8 4 ) (Tax Co u rt d o es n’ tg en eral l y

l o o kb eh i n dth e n o t i ce o f d efi ci en cy t o ex am i n e t he Co m m i s s i o n er’ s m ot iv e o r p ro cedu re; “ [t ] h e rat i o n al e fo r t h i s ru l e i s thatth e Tax Co u rtp ro ceed in g i s de n o vo ”), aff’ g T.C. M em o . 1 98 1 -6 9 0 ; J on es v . Co m m i s s i o n er, 9 7 T.C. 7 , 1 7 (1 9 9 1 ) (“ Th e p u rp o s e o f a p ro ceed i n g b efo re * * * [t he Tax Co u rt ] i s t o d et erm i ne a t ax p ay er’ s co rrect t ax l i ab i l it y ”). Bu tI’ v e s h o wn th ats ect i o n 6 7 5 1 i s a res tri ct i o n o n th e IRS’ s ab il i ty t o “ as ses s ”, n o ta l i m i t at i o n
o n i t s ab i l i ty

t o d et erm i n e a “ d efi ci en cy ”. An do u r “ d efi ci en cy ” ju ri s d i ct i o n d o es n’ tal l o w u s t o res tri ct“ as s es sm en t ” u n l es s Co n g res s en ab les u s t o. See, e.g ., Ferg u s on v . Co m

m i s si o n er, 5 6 8 F.3 d 4 98 , 5 0 4 -0 5 (5 th Ci r. 2 00 9 ) (ex p l ai n i n g th at
o u r ab il i ty

t o res tri ctl at e “ as ses s m en t s ” t h atv i o l at e s ect i o n 6 5 0 1 (a) h adt o b e p ro v id edt o u s b y Co n gres s i n s ect i o n 7 4 5 9 (e), an dth ere i ti s co u ch edas a- 6 5 -

“ d efi ci en cy ” d et erm i nat i o n : “ [I] f t h e as ses s m en to r co l l ect i o n o f an y t ax i s b arred b y an y s t atu te o f l i m i t at i o n s , th e d eci s i o n o f t h e Tax Co u rtt o th ateffect s h a l l b e
co n si d er ed a s i t s d ecis i o n tha t

th er e is n o d

ef i ci en cy i n r es

pect o f s u ch tax .” (em p h as i s ad ded )), aff’ g T.C. M em o . 2 0 0 6-3 2
. V. Ou r Op i n io n t od ay

wi ll h av e co s t s . An dth o s e co s t s are fo res eeab l e. Here’ s a p red i ct i o n : If t he IRS i s cl ev er an dd o es n’ tcare t h att o d ay ’ s Op i ni o n wi l l l et
s o m e t ax p ay ers wh o real l y s h o u l db e p en al i zed o ff t h ei r wel l -d es erv edh o o k , i t wi l l acq u i es ce i n ou r d eci si o n. Itwi l l l o o katth e co s ts o f t o d ay ’ s Op i n i o n -- s at el li t e l i t i g at i o n ab o u t th e co n t i n u edv i t al i ty o f Green b erg ’ s Ex p res s , wo rk

p ro ductp ri v i l eg e, t h e at t o rn ey -wi tn es s ru le, an d al l th e co m pl i cat edqu es t io n s o f wh et h er t h ere can b e m

u l ti p l e “ i n i t i al d et erm in at io n s” o r wh o i s a s up erv is o r an d th e l i k e--an dd eci d e t o trai n rev en u e ag en ts an dth ei r s up erv is o rs ab o u tth e
co n seq u en ces o f n o ti n i t i al in g a p en al ty -reco m m en d at i o n m em o o r ch eck in g a b o x
o n a fo rm . Itwi l l rev i s e t h e IRM , cran k o u ta Ch i ef Co u n s el m em o ran du m o r t wo , an d m ay b e t weakth e p en al ty -ap p ro v al fo rm s . Th e co s to f s crawl i n g i n i t ial s o r ch eck i n g t h e b o x i s cl o s e t o n i l an dwi l l rem ai n s o ; l i t i g at i o n i s co s t l y an dwi l l
rem ai n s o . A rat i o n al rev en u e ag en tan d h i s s up erv i s or wi l l h av e ev ery i n cen t i v e t o reco m m en d an dap p ro v e p en al t i es i n m arg i n al cas es , an dd o i n g s o i n p ap er-- 6 6 -

p erfect fo rm

wi ll av o i dco s t l y

l i t i g at i o n l at er o n . M o re t ax p ay ers wi l l h av e m o re p en al t i es “ i n i t i al l y

d et erm i n ed ” ag ai n stth em . W e kn o w th atrel at i v el y few t ax p ay ers ev er ch al l en g e t h e res u l t s o f an IRS au d i ti n co u rt
. An dthu s a p ro v i s i o n
m ean tt o p ro t ectt ax p ay ers fro m u n ju s t i fi edp en al t i es wi l l l ead t o m ore t ax p ay ers b ei n g p en al i zedi n m o re m arg i n al cas es . I d o ub tth is wi ll fu rt h er wh at ev er p u rp os e Co n g res s h adi n m i n d . An d t o d ay ’ s Op i n io n --wi th i t s p ro m i s e o f a wi n d fal l t o ran d o m t ax p ay ers wh o wi l l b en efi tfro m

wh atam o u n t s t o a ju d g e-m ad e am en d m en tt o the Co de, wi th i t s acq u ies cen ce i n Ch ai ’ s m is co n s tru ct i o n o f t ax t erm s , an d wi th i t s s eed i n g o f fu tu re l i ti g at i o n h av i ng n ot hi n g t o d o wi th th e m eri ts o f th e d efi ci en cy cas es --wi ll h av e d o l efu l co n s equen ces fo r y ears t o co m e. Al l th is wo u l do rd i n ari l y

l eadt o a s t at em en tth atI res p ect fu ll y d i s s en t . Bu t th i s cas e i s ap p eal ab le t o th e ci rcu i tth ati s su edCh ai , an di ti s o u r o bl i g at i o n i n a h i erarch i cal s y s t em

t o o b ey tho s e wh o rev i ew u s wh en we en t er ju d gm en t s th ey
are em p owered t o rev i ew. 1 1 As tri al ju d g es , we m u s tl o o kt o Ho l m es the Great er:

1 1 See Ti g ers Ey e Trad i n g , LLC v . Co m m i ss i o ner, 1 38 T.C. 6 7 , 1 9 2 (2 0 1 2 ) (Ho lm es , J ., d is s en t i n g ) (cri t i ci zi n g refu s al t o fo l l o w b i n d in g ci rcu i tp reced en tas an u n s afe “ rev ers e b en ch s l ap ”), aff’ di n p art , rev ’ di n p art , an drem an d eds ub n o m . Lo g anTru s t v . Co m

m i s s i on er, 6 1 6 F. Ap p ’ x 4 2 6 (D.C. Ci r. 2 0 1 5 ); b u ts ee Wh i t eh ou s e Ho t el Lt d . P’ s h i p v . Co m m i s s i o n er, 7 5 5 F.3 d 2 3 6, 2 4 3 (5 th Ci r. 2 0 1 4 ) (rei t erat in g a d i s ag reem en twi th ci rcu i t co urto ki f i td oes n ’ taffect res u l t , b ecau s e (co n ti n u ed ...)- 6 7 -

“ Th e p ro p h eci es o f wh atth e co u rt s wi l l d o i n fact , an dn o th i n g m o re p ret en t i o u s , are wh atI m ean b y th e l aw.” Ol i v er W en d el l Ho l m es , J r., “ Th e Pat h o f t h e Law”, 1 0 Harv . L. Rev . 4 5 7 , 4 61 (1 8 9 7 ). Ev en a d i s s en t er fro m

th e wh o l e en t erp ri s e m

u s tp l ay the p ro ph etan dtry

t o p red i ctCh ai ’ s effect o n an y ap p el l at e rev i ew o f Graev III. Th ro u g h th is l eg al

real is tl en s , i ts eem s t o m e th atth e m ajo ri ty ’ s d eci s i o n i s m o re p rag m at i c t han th e p art i al d i s s en t ; an dthati td o es a b et t er jo b o f ach i ev i n g th e p u rp o se o f t h e s t atu t e. Al th o u g h i tap p ears thatCh i ef Co u n s el At t o rn ey M ack ey d id n ’ tco m

m u n i cat e wi t h th e Graev s an dth erefo re co u l dn ’ th av e u s edth e 2 0 % n on cas h -co n tri b u t i on p en al t y
as a b arg ai ni n g ch i p , i td o es s eem thath e (an d n o ts o m e o th er IRS em p l o y ee) effect i v el y --i f n otas a m at t er o f d el eg at edau th ori ty --m ad e t he i n i t i al d et erm i n at i o n reg ard i n g the p en al ty . Th e p art i al d i s s en ti s far m o re p ers u as i v e o n th e qu es t i o n o f t h e au tho ri ty o f Ch i ef Co u n sel l awy ers t o m ak e d et erm in at i o n s b efo re t h e IRS i ss u es a n o t i ce o f d efi ci en cy . Th e p ro b l em i s th at h av i n g m o v ed fro m th e l an g u ag e o f t h e Co d e t o red efi n e “ as s es s m en t ” t o m ean “ d et erm i nat i o n i n th e n o ti ce o f d efi ci en cy

(o r an an s wer o r am en dedan s wer)” t h ere i s l i t tl e reas o n t o
n o tred efi n e “ d et erm i n at i o n ” t o m ean “ reco m m en d at i o n wi th th e b ack i n g o f a

1 1 (...co n t i nu ed )
“ b eg ru d g i n g co m

p l ian ce * * * i s n o n et h el es s co m p l i an ce”), aff’ g i n p art , v acat i n g i n p art , an drem an d i n g 1 3 9 T.C. 3 04 (2 0 1 2).- 6 8 -

l awy er’ s p ro fes s i o n al s t atu s .” If s ect i o n 6 7 51 (b ) i s t o ach i ev e i t s p u rp o s e, i ts eem s
s o m ewh atm o re l i k el y

t o ap p ly t o th e p ers o n atth e IRS wh o i s actu al l y m ak i n g th e
s ub s t an t i ve ju d g m en t cal l reg ard i n g p en al t i es ; an dI thi n kthe Seco n dCi rcu i ti s th u s s o m ewh atm o re l i k el y t o ag ree wi th th atv i ew. Bu tI d o n ’ tco n cu r wi th th e m ajo ri ty ’ s d eci s i o n t o ex t en d Ch ai t o al l o f t h e
o th er ci rcu i t s . Th e p ro b l em l i es i n o u r t ry i n g t o fi n ds ect i o n 6 7 5 1 ’ s p urp o s e an d th en u si n g th atp u rp o s e t o d efi n e t h e m ean i ng o f t h e t ex t , b ecau s e “ n o l eg i s l at i o n p u rs u es i t s p u rp os es atal l co s t s ,” Ro dri gu ez v . Un it edSt at es , 4 80 U.S. 5 2 2 , 5 2 5
- 2 6 (1 98 7 ) (

p er cu ri a m ), an d “ ‘ [e] v ery s tatu t e p u rp o s es , n o t o n l y t o ach i ev e cert ai n
en d s, b u tal s o t o ach iev e t hem b y p art i cu l ar m ean s ,’ ” Freem an v . Qu i ck en Lo an s, In c., 5 6 6 U.S. 6 2 4 , 6 3 7 (2 0 1 2 ) (qu o ti n g Di rect o r, Offi ce o f W o rk ers ’ Co m p . Pro g ram s v . Newp o rtNews Sh i p b u i l d i n g & Dry Do ck Co
. , 5 1 4 U.S. 1 2 2, 1 3 6 (1 9 9 5)). “ Iti s qui t e m is t ak ent o as s um e * * * th at‘ wh at ev er’ m i g h t ap p ear t o

‘ fu rt h er[] th e s tatu t e’ s p ri m ary o b ject iv e m u s tb e t h e l aw.’ ” Hen s o n v . San t an d er Co n s u m er USA In c., 5 8 2 U.S. , , 1 3 7 S. Ct . 1 7 1 8 , 1 7 25 (2 0 1 7 ) (qu ot i n g Ro dri g u ez, 4 8 0 U.S. at5 2 6 ). Laws are l i k e v ect o rs --t h ey h av e b ot h d i rect i o n a n d m ag n i tud e. See Fran k H. Eas t erb ro o k , “ Th e Ro l e o f Ori g i nal In t en ti n St atu t ory Co n s tru ct i on ”, 1 1 Harv
. J .L. & Pub . Po l ’ y

5 9 , 6 3 (1 9 8 8 ). Ch ai s ay s i tfu rt h ers th e p u r p o s e o f s ect i on- 6 9 -

6 7 5 1 (b ), b uti td oes s o b y ch an g i n g th e m ean in g o f “ as s es s m en t ”. M ay b e th i s was
s o m e k i ndo f draft i ng erro r an dn o o n e cau g h tth e s ub s t i tu ti o n o f “ as ses s m en t ” fo r

“ d et erm i nat i on n o l at er t h anth e d at e t h e IRS i ss ues th e n o t i ce o f d efi ci en cy (o r fi les an an s wer o r am en d edan s wer).” Bu tfo r kn o wl ed g eab l e l eg i sl at ors wh o
m i g h th av e b een s k ep t ical o f up s et t i n g trad i t i o n al Tax Co u rtp ract i ce, u s i n g

“ i n it i al d et erm i n at i on o f s u ch as s es s m en t ” an d “ ap p ro v ed(i n wri t i n g ) b y th e i m m ed i at e s up erv i s o r” m ig h th av e b een an as s uran ce t hatth e am en d m en twas p ecu li arl y

ai m edatIRS em

pl o y ees wh o d et erm i n e p en al t i es --an das s es s th em -- wi th o u trev i ew o u t

s i d e the IRS. Th is i s the o v erwh el m i ng p ro po rt i o n i n n u m b ers
an d d o l l ars o f al l p en al t i es as s es s ed , an d s ect i on 6 7 5 1(b ) h as h ada g reateffect o n th e way th e IRS o p erat es i n i t s ev ery d ay affai rs . I ag ree wi th ev ery o n e el s e t h at
s ect i on 6 7 5 1 i s di rect ed

i n fav o r o f t ax p ay ers , b uta p ro p er m eas u rem en to f i t s
m ag n i tu d e s h o u l ds h o wth ati ts t o p s atth e Tax Co u rt ’ s d o o r. I th i n k we g o t o o far wh en we ex ten di t s p u rv i ew t o o u r p reas s es s m en tfo ru m . I wo u l d’ v e p referred t o s ee o u r Co u rtd eci d e t h i s cas e u n d er t he Go l s en ru l e
an d l i v e t o fi g htan ot h er d ay i n an o ther ci rcu i t . See Go ls en , 5 4 T.C. at 7 5 7. In s t ead , I’ m

afrai dwe’ v e b ou g h to u rs el v es y ears o f p ro cedural l i t i g at i o n--wh en th e m o re t i m o ro us IRS at t o rn ey s tu rn o u tthei r l i g h t s t o n i g h t , i tm ay n o tb e g h o u l s th ey fear, b u tthe m ean i n g o f “ i n i t i al d et erm i n at io n.”- 7 0 -

I t herefo re res p ect fu ll y

co n cu r o n l y

i n th e res u lt
.-7 1
-

BUCH, J ., co n cu rri n g as t o Part s I an dIII an dd i s s en t i n g as t o PartII: Th e
o p i n i o n o f t h e Co u rth as o v erru l edo u r h o l d i n g i n Graev v . Co m m i s s i on er, 1 4 7 T.C. _

_ (No v. 3 0 , 2 0 16 ), an dh as ch o s en t o fo l l o w th e Co u rto f Ap p eal s fo r t h e Seco n dCi rcu i t’ s o p i n i on i n Ch ai v . Co m m i s si on er, 8 5 1 F.3 d 1 9 0 (2 dCi r. 2 0 1 7 ), aff’ g i n p art , rev ’ g in p artT.C. M em o 2 0 15 -4 2. Wh et h er o n t h e m eri ts o r “ i n th e i n t eres to f rep o s e an du n i fo rm i ty ”, we jo in wi th th e o p i n i o n o f t h e Co u rti n fo l l o w i n g Ch ai . Our v ery n arro w area o f d i s ag reem en t i s o n th e i s s u e o f wh et h er a
reco m m en d at i o n fro m

an at t o rn ey

wi th i n th e IRS Offi ce o f Ch i ef Co u ns el can
co n st i tu t e “ the i ni t i al d et erm i n at i o n ” t o i m p o s e a p en al ty

fo r p urp o s es o f s ect i o n 6 7 5 1 (b )(1 ). Becau s e t h e at t o rn ey h as th e au tho ri ty

o n l y t o ad v i s e o r reco m

m en d , we wo u ldh o l dth atth e at t o rn ey ’ s reco m m en d at io n t o as s erta p en al ty i s n o tth e i n i t i al d et erm i n at i o n th atm u s t b e ap p ro v edi n wri t i n g . It m ay b e h el p fu l t o b eg i n wi th t h e t wo m ai n p oi n ts o v er wh i ch th e v as t
m ajo ri ty o f t h e Co u rtn o w ag rees . W e ag ree t h at , i n a d efi ci en cy p ro ceed i n g , we
m ay co ns i d er wh et h er t h e Co m m i s s i o n er co m

p li edwi th s ect i o n 6 7 5 1(b )(1 ). An d we ag ree t h atu n d er s ect i o n 7 4 9 1 (c), t h e Co m m i s s i o ner h as th e b u rd en t o es t ab l is h
co m p l ian ce wi th s ect io n 6 7 5 1 (b )(1 ). W e b ri efl y ad dres s th o s e p o i n t s i n tu rn .-7 2
-

I. Co m

p l i an ce W i th Sect i o n 6 7 5 1 (b )(1 ) W e b eg i n wi th an es sen ti al p o i n t : s ect i o n 6 7 5 1 (b )(1 ) i s am b ig uo u s . It p ro v id es : “

No p en al ty

u n d er t h i s t i t l e s h al l b e as ses s edu n l es s th e i n i t ial d et erm i n at i o n o f s u ch as s es s m en ti s p ers o nal l y ap p ro v ed(i n wri t i n g ) b y the i m m ed i at e s up erv i s o r o f t he i n di v i du al m ak i n g s u ch d et erm i n at i o n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i g n at e.” In th e t ax wo rl d“ as s es s m en t ” h as a v ery s p eci fi c an dwel l -u n d ers to o d
m ean i n g : Iti s th e acto f reco rd i n g a t ax p ay er’ s l iab i l i ty . Sec. 6 2 0 3 . As th e Co u rt
o f Ap peal s n o ted : “ If as s es s m en ti s the fo rm al reco rd i ng o f a t ax p ay er’ s t ax l i ab i l i ty , th en § 67 5 1 (b ) i s u n wo rk ab l e: o n e can d et erm i n e a d efi ci en cy , s ee I.R.C. § § 6 2 1 2 (a), 6 2 1 3 (a), an d whet h er t o m ak e an as s es s m en t, b uto n e can no t d et erm i n e an as s es s m en t .” Ch ai v . Co m m is s io n er, 8 5 1 F.3 dat2 1 8 -2 19 (i n t ern al qu o t at i o n m ark s o m i t t ed ) (qu o t i n g Graev v . Co m m i s s i o n er, 1 4 7 T.C. at

_

_ (s l i p
o p . at8 5 ) (Gu s t afs o n , J ., d i s s en t i n g )). So we are l eftt o m ak e s en s e o f t h at l an g u ag e. Fo rtun at el y , th e Co u rto f Ap p eal s h as p ro v i d eda cl ear i n t erp ret at i o n fo r u s t o fo l l o w. Ith el d th at“ § 6 7 5 1 (b )(1 ) req ui res wri t t en ap p ro v al o f t h e i n i ti al p en al t y d et erm i n at i o n n o l at er t h an th e d at e t h e IRS i s s ues th e n o t i ce o f d efi ci en cy (o r fi l es
an an swer o r am en d edan s wer) as s ert i n g s u ch p en al ty .” Id . at2 2 1 . Th i s read i n g i s-7 3
-

fai th fu l t o th e l eg is l at i ve h i st o ry an dfo cu s es u s o n t h e “ i n it i al p en al ty d et erm i n at i o n ”. Id
. at 2 1 9 ; Graev v . Co m m i s s i on er, 1 4 7 T.C. at_

_ (s l i p o p . at 1 0 1 ) (Gu s t afs o n , J
. , d i ss en t i n g ); S. Rep t
. No
. 1 0 5 -1 7 4 , at6 5 (1 9 98 ), 1 9 9 8 -3 C.B. 5 3 7 , 6 0 1
. II. Th e Co m

m is s i o n er’ s Bu rd en Un d er Sect io n 7 4 9 1 (c) Deci d i n g th ats ect i on 6 7 5 1 (b )(1 ) req u i res wri t t en ap p ro v al o f th e i n i t i al p en al ty d et erm i n at i on n eces s ari l y g i v es ri se t o th e qu es t i o n o f wh et h er t h e Co m m i s s i o n er h as th e b u rd en o f es t ab l i s h in g th atth e req u i si t e wri t t en ap p ro v al
o ccu rred . Th e Co m

m i s s i on er h as “ th e b u rd en o f p ro duct i on i n an y co u rt p ro ceed in g wi th res p ectt o th e l i ab i l i ty o f an y i n d i v i du al fo r an y

p en al ty , ad d i t i o n t o t ax , o r ad d i t i o n al am o u n t”. Sec. 7 4 9 1 (c). In Hi g b ee v . Co m m i ss i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 0 0 1), we ex t en s i v el y qu o t ed th e l eg i sl at iv e h i s t o ry o f s ect i o n 7 4 9 1 (c)
an d co n cl u d ed b y o b s erv i n g “ th atfo r t he Co m m i s s i o n er t o m eeth i s b u rd en o f p ro duct i o n , th e Co m

m i ss io n er m

u s tco m e fo rwardwi th s u ffi ci en tev id en ce i n d i cat i n g t h at i ti s ap p ro p ri at e t o i m po s e t h e rel ev an tp en al ty . ” W i th t h ats t an d ard i n m i n d , we tu rnb ackt o s ect io n 6 7 5 1 (b )(1 ). W e, al o n g wi th th e Co urto f Ap p eal s , h av e co n cl u d edth at i t i s n o t ap p ro p ri at e t o i m

p o s e a p en al ty

wi th o u tth e requ is i t e s up erv i so ry ap pro v al u n d er
s ect i on 6 7 5 1 (b )(1 ). Th e i n tro du ct o ry cl au s e o f s ect i o n 6 7 5 1 (b )(1 ) m ak es thi s-7 4
-

cl ear; i tp ro v id es : “

No p en al ty

u n d er th is t i tl e s h al l b e as ses s edu nl es s ” t h e i n i t i al p en al ty d et erm i n at i on “ i s p ers on al l y ap p ro v ed(i n wri ti ng ) b y th e i m m ed i at e
s up erv i s o r o f t h e i n d iv i du al m ak i n g s uch d et erm i n at i o n ”. Th e s up erv i so ry ap p ro v al i s a n eces s ary

p red i cat e t o th e i m

p o s i t i o n o f a p en al ty , b ecau s e wi th o u ti t

“ [n ] o p en al ty

* * * s h al l b e as ses s ed ”. Or t o b o rro w fro m Hi gb ee, s up erv i s o ry ap p ro v al i s n eces s ary

t o es tab l i s h th ati ti s ap pro p ri at e t o i m p o se t he rel ev an t p en al ty . Becau s e i ti s n eces s ary , s ect i o n 7 4 9 1 (c) req u i res thatth e Co m m is s i o n er
co m e fo rward wi th s u ffi ci en tev i d en ce t o s h o w s up erv is ory ap p ro v al o f t h e i n i t i al p en al ty d et erm i n at i on . III. At t o rn ey

M ack ey ’ s Lacko f Au th o ri ty Wh ere we p artco m

p an y wi th th e o p i n i o n o f t h e Co u rt i s o n th e i s s u e o f wh et h er M r. M ack ey , an at t o rn ey wi th i n th e IRS Offi ce o f Ch i ef Co u n s el , h adth e
au th o ri ty t o m ak e t h e i n i t i al p en al ty d et erm in at i o n . If h e l ack edth atau th ori ty , th en th e ap p ro v al o f h is s up erv i s o r i s i rrel ev an t
. A. Th e Ro l e o f IRS Co u n sel Th e o p i n i o n o f t h e Co u rtd o es n otap p ear t o reco g n ize t h atth e In t ern al Rev enu e Serv i ce an dthe IRS Offi ce o f Ch i ef Co u n s el h av e d i s t i n ctro l es an d
res p o n s i b i l i t ies
.-7 5
-

Th e res p o n s i b i l i ty

t o ad m i n i s t er t h e i n t ern al rev enu e l aws fal l s o n th e Co m m i s s i o n er an dh is s ubo rd i n at es . Th e Co m m i s s i o n er h as “ s uch du t i es an d p o wers as th e Secret ary m ay p res cri b e” i n cl ud i ng ad m in i s t eri ng th e i n tern al
rev en u e l aws . Sec. 7 8 0 3(a)(2 )(A). Th e Secret ary h as p res cri b ed s uch du t i es an d p o wers , m ak i n g th e Co m m i s si o n er “ res p o ns i b le fo r t h e ad m i n i st rat i o n an d
en fo rcem en to f t h e In t ern al Rev en u e l aws .” Treas . Dep t . Ord er No
. 1 5 0 -1 0 (Feb
. 2 5 , 2 0 1 6 ). Res p o n d en th as n o td i rect edu s t o an y s i m i l ar o rd er d el eg at i ng
res p o n s i b i l i ty

t o ad m i n i s t er t h e i n tern al rev enu e l aws t o t h e Ch i ef Co u ns el o r h i s
s ub o rd i n at es . In co n tras tt o the Co m

m i s s i o ner’ s res po n s i b i l i ty t o ad m i n i s ter t h e i n t ern al
rev en u e l aws , th e ro l e o f t h e Ch i ef Co u n sel an dh i s s ub o rd i n at es i s t o ad v i s e t h e Co m m i s s i o n er. Th e Ch i ef Co un s el i s “ th e ch i ef l aw o ffi cer fo r t h e In t ern al Rev enu e Serv i ce an ds h al l p erfo rm s u ch du t i es as m ay

b e p res cri b ed b y

th e Secret ary ” i n cl u di n g b ei n g “ l eg al ad v i s o r t o th e Co m m i s s io n er an dth e Co m m i s s i o n er’ s o ffi cers an d em p l o y ees ” an d“ rep res en t [i n g ] th e Co m m i s si o n er i n
cas es b efo re t h e Tax Co u rt ”. Sec. 7 8 03 (b )(2 ). Th e d is t in ct io n b et w een th es e
s ep arat e ro l es i s rei n fo rcedupo n rev i ew o f t h e d el eg at i o n s o f au th o ri ty an d i n t ern al g u i d an ce wi th i n th e In t ern al Rev en ue Serv i ce an dth e IRS Offi ce o f Ch ief Co u n s el
.-7 6
-

Th e o p i n i o n o f t h e Co u rtd o es n otd i rect th e read er t o an y au th o ri ty fo r t he p ro p os i t i on th at th e l awy ers ad v i s i n g t h e IRS h av e t h e au th o ri ty t o m ak e a p en al t y d et erm i n at i o n , wh et h er i n i t i al o r fi n al . Th e cl o s es twe g eti s a ci t at i o n o f In t ern al Rev enu e M an u al (IRM ) p t. 4
. 8 .9 .7 .2 (1 ) (Oct . 3 0 , 2 0 04 ); s ee o p . Ct
. p . 1 0 . Th e qu o t edl an g u ag e d i scu ss es wh ati s t o t ak e p l ace “ [i ] f Area Co u n s el s u gg es ts ch an ges t o th e p ro p o s edn o t i ce”. Th e u s e o f t h e wo rd “ s u g g es t s ” b el i es th e n o t i o n th atan Area Co un s el at to rn ey h as th e au th o ri ty

t o m ak e a d et erm i n at i o n . Th e h ead in g fo r t hatp ro v is i on , wh ich th e o p i ni o n o f t he Co u rto m i t s, al s o b el i es th e
n o t i o n th atCo u n s el i s m ak i n g a d et erm i n at i on ; th e p ro v i s i o n i s cap t i o n ed“ Area Co u n s el Rev i ew.” (Th e cu rren t , ren u m b ereds ect i o n u s es th e h ead i n g “ Area Co u n s el Reco m

m en d at i o n s.” See IRM p t . 4 .8 .9 .9 .2 .2 (J u l y 9 , 2 0 1 3 ).) Nei th er a
s u g g es t i o n , n o r a rev i ew, n o r a reco m m en d at i o n i s a d et erm i n at i o n . Th e cu rren ti t erat i o n o f IRM p t . 4
. 8 .9 .9 .2 (1 ) (J u l y 9 , 2 01 3 ) ex p l i ci tl y

s et s fo rt h t he ro l e o f Co u n s el i n i ss u i n g n o t i ces o f d efi ci en cy : Th e au th o ri ty

t o i s s u e a n o t i ce o f d efi ci en cy res t s wi th th o s e IRS o ffi ci al s d el eg at edth e au th o ri ty b y Serv icewi d e Del eg at i o n Ord er 4 -8 , as o u t l in edi n IRM 4 .8 .9 .5 , Au th o ri ty t o Is s u e No t i ces o f Defi ci en cy . Th e ro l e o f Area Co un s el i n th e n o t ice o f d efi ci en cy p ro ces s i s t o p ro v i d e ad v i ce o n wh et h er a n ot i ce o f d efi ci en cy s ho u ld b e i s s ued , an di f s o , t o m ak e reco m m en d at io n s co ncern i n g the i s s u es as s ert edan d t he wo rd i n g o f t h e d et erm i n at i o n .-7 7
-

A rev iew o f Del eg at i o n Ord er 4 -8 co n fi rm s th atn o o n e i n th e IRS Offi ce o f Ch i ef Co u n s el h as b een d el eg at edthe au th o ri ty t o i s s ue a n o t i ce o f d efi ci en cy . Th u s far, we h av e fo cu s edo n p ro vi s i o n s th atrel at e t o th e rev i ew o r i s s u an ce
o f n o ti ces o f d efi ci en cy , b u twe can l o o kel s ewh ere i n th e In t ern al Rev en u e M an u al t o s ee wh o h as th e au th o ri ty t o m ak e a p en al ty

d et erm i n at i o n . Fo r
ex am p l e, we can l o okt o Part4 (Ex am i n i n g Pro ces s ), Ch ap ter 1 0 (Ex am i n at i o n o f Retu rn s), s ect i o n 6 (Pen al ty Co n s i d erat io n s ). Th ere we l earn : “ Th e d et erm i n at i o n wh et h er t o as s ertp en al t i es , i d en t i fy th e ap pro p ri at e p en al t i es , an d cal cu l at e t h e p en al ty am o u n taccu rat el y i s p ri m ari l y th e ex am i ner’ s res p o n s i b i l i ty .” IRM p t
. 4 .1 0.6 .1 .1 (1 ) (M ay

1 4, 1 9 9 9 ). No o n e h as d i rect edu s t o a p ro vi si o n thatm ak es th e d et erm i n at i o n wh et h er t o as s ertp en al t i es th e res p o ns i b i l it y o f anat t o rn ey i n th e IRS Offi ce o f Ch ief Co u n s el , wh et h er p ri m ary , s eco n d ary , o r t ert i ary . W e co ul dl oo kt o s ee wh atth e IRS Offi ce o f Ch i ef Co u n s el s ay s o n th e
s ub ject . Wh ati s s o m et i m es cal l edthe Ch i ef Co u n s el Di rect i ves M anu al b eg i n s at p art3 0 o f t h e In t ern al Rev en u e M an u al
. Part 3 3 i s t i t l ed“ Leg al Ad v i ce”. An d p art3 3 .1 .2 .8 (1 ) (Oct . 1 7 , 2 0 1 6 ) g o v ern s th e rev i ew o f n o t i ces o f d efi ci en cy
o ri g i nat in g i n th e Ex am i n at i o n fu n ct i o n . 1

1 A s ep arat e p ro v i s i o n ad dres s es th e rev i ew o f n o t i ces o f d efi ci en cy o ri g i nat in g i n Ap p eal s . See IRM p t . 3 3 .1 .2 .7 .4 (J u n e 2 , 2 0 1 4 ).-7 8
-

Co u ns el ’ s ro l e i s cl ear: Th e au th o ri ty

t o i s s u e a d efi ci en cy

n o t i ce res ts wi th the Co m m is s i o n er, Area Di rect o rs , Fi el dTerri t o ry M an ag ers , Serv i ce Cam p us Di rect o rs , an dAp p eal s Team M an ag ers . Th e ro l e o f t he Fi el d Co u ns el i s t o ad v is e wh et h er a d efi ci en cy n o t ice s h o u l d b e i s s u ed , an di f s o , t o m ak e reco m

m en d at i o n s co n cern i n g th e i s s u es t o b e as s ert edan d t he wo rd i n g o f t h e d et erm i n at i o n . Th e ro l e o f co u n s el i s t o ad v i s e an dreco m m en d , n otd et erm i ne. Ag ai n, n ei th er
res p o n d en t n o r the o pi n i o n o f t h e Co u rt h as d i rect edu s t o an y p ro v i s i o n th atg i v es at t o rn ey s i n th e IRS Offi ce o f Ch i ef Co u ns el th e au th o ri ty t o m ak e a p en al ty d et erm i n at i o n . 2 B. Th e Ro l e o f M r. M ack ey Th e reco rdd o es n o t es t ab l i s h th atth e IRS Offi ce o f Ch ief Co un s el h as th e
au th o ri ty t o m ak e a p en al ty

d et erm i nat i o n . M oreo v er, t he reco rd i s cl ear t h atM r. M ack ey , an at to rn ey

wi th in th e IRS Offi ce o f Ch ief Co u n s el , was act i n g as an ad v is o r an dn o tm ak i n g a p en al ty d et erm in at i o n .

2 Th e Secret ary

m ay p res cri b e t h e du t ies o f t h e Co m m i s s io n er an do f th e Ch i ef Co u n s el
. See s ec. 7 8 0 3(a)(2 ), (b )(2 ), res p ect i v el y . An dth e Secret ary m ay d es i g n at e wh at“ h ig h er l ev el o ffi ci al ” h as th e au tho ri ty t o ap p ro v e t h e i n i t i al d et erm i n at i o n o f a p en al ty . Sec. 6 7 5 1 (b )(1 ). Wh eth er p ers o n n el i n th e IRS Offi ce o f Ch ief Co u n s el co u l db e au tho ri zedt o d et erm i n e a p en al ty i s n otb efo re u s , b u t as o f t h e wri t i n g o f t h is d is s en t i n g o p i n i o n , th ey h av e n o tb een s o au th o ri zed
.-7 9
-

Th e o p i n i o n o f t h e Co u rtrel i es o n a Sep t em b er 1 2 , 2 0 0 8 , m em o ran du m p rep aredb y

M r. M ack ey

an di n i t i al edb y

h i s s up erv i s o r as co n s t i tut i n g t h e i n i t i al p en al ty d et erm i n at i on . Th atm em o ran du m co ul dn o tb e cl earer t h atM r. M ack ey
was act i n g as a l eg al ad v i s o r. Ov er h al f o f t h e m em o ran du m i s red act ed , an dth os e red act i on s were m ad e, atl eas t i n p art , b ecau s e t h e Co m m i s s io n er as s ert eda cl ai m
o f at t orn ey -cl i en tp ri v i l eg e as t o th o s e red act io n s . M o reo v er, t h e m em o ran du m
s t at es ex p l i ci t l y

th ati t“ m ay

co n t ai n p ri v i l eg edi n fo rm at i o n .” Iti s cl ear t h atth e Sep tem b er 1 2 , 2 0 0 8, m em o ran du m th atth e o p i ni o n o f t he Co urti d en t i fi es as th e i n i t i al p en al ty

d et erm i n at i o n was n o s u ch th in g ; i twas ad v i ce. W e n eedn o treadb et ween th e l i n es o r i n fer fro m th e t ex to f t h e
m em o ran du m

th ati twas m ere ad v ice; res p on d en tco n ced es the p o in tas p arto f t h e
s t ip u l at i o n s i n th i s cas e:

1 11 . Th e Offi ce o f Ch i ef Co un s el h as th e d el eg at ed au th o ri ty t o ad v i se Res p on den tas t o th e ap p li cab i li ty o f a p en al ty

u n d er t h e In t ern al Rev enu e M an u al
. 1 12 . Th e ro l e o f Co u n s el i s t o ad v i s e wh et h er a d efi ci en cy n o t i ce s h o u ldb e i s s u ed , an di f s o , t o m ak e reco m m en d at io n s co n cern i n g th e i ss u es t o b e as s ert edan d t h e wo rd i n g o f t h e d et erm i nat i o n . 1 13 . Res p o n d en t’ s p o s i t i o n i s thatCh i ef Co un s el At t o rn ey Gerard M ack ey

was as s ig n edt o rev i ew t h e SNOD i s s ued t o Pet i t i o ners i n th is cas e an dwas th e fi rs tt o reco m m en dp u rs u i to f t he p en al t i es b y

ad v i s i n g Res p o n d en tt o as s ertth e accu racy rel at ed p en al t i es i n th e SNOD t o b e i s s u edt o Pet i t i o ners .-8 0
-

Res po n d en th as s t i p u l at edth atM r. M ack ey ’ s ro l e was t o ad v i s e an dreco m m en d
. C. Det erm i n i n g Vers u s Reco m m en di n g o r Ad v i s in g In a feat o f l i n g u i s t i c ji u -ji t s u , res p o n d en tm ai nt ai ns “ th atthe
reco m m en d at i o n o r ad vi ce t o p u rs u e t h e as ses s m en to f a p en al ty co n st i tu t es th e

‘ in i t i al d et erm i n at i on ’ o f a p en al ty as ses s m en twi th i n th e m ean i n g o f s ect i o n 6 7 5 1 .” Seco ndSup p l em en t al St i p u l at i o n o f Fact s , p ara. 1 0 9 (J an . 1 5 , 2 0 15 ). To
m ai n t ai n th i s p o s i t i o n i s t o i g n o re t h e p l ai n m ean i ng s o f t h e wo rd s “ d et erm i n e”,

“ reco m m en d ”, an d “ adv i s e”. To m ak e a d et erm i n at i o n i s t o es tab l i s h s o m et h i n g co n cl u si v el y . Wh en
as cert ai n i n g th e p l ai n m ean i n g o f wo rd s , i ti s ap p ro p ri at e t o co n s u ltd i ct i o n ari es . See Nat ’ l M uffl er Deal ers As s ’ n , In c. v . Un i t edSt at es , 4 4 0 U.S. 4 7 2, 4 8 0 n .1 0 (1 9 7 9); Ro m e I, Lt d. v . Co m m is s i o n er, 9 6 T.C. 6 9 7 , 7 0 4 (1 99 1 ). W eb s t er’ s Co l leg i at e Di ct io nary3 15 (1 0 th ed . 1 9 9 6 ) d efi n es “ d et erm in e” as “ t o fi x
co n cl u s i v el y

o r au tho ri t at i v el y ”. Th e Ran d o m Ho us e Co l l eg e Di ct i o n ary 3 6 2 (rev
. ed . 1 9 8 0 ) d efi n es i t as “ to s et t l e o r d eci d e (a d i s p ut e, qu es t i on , et c.) b y an
au th o ri t at i v e o r co n cl u s i v e d eci s i o n ”. Th es e d efi n it i on s are co n si st en t ; a d et erm i n at i o n i s au th o ri t at i v e o r co n cl u s i v e. By res po n d en t ’ s o wnad m i s si o n, M r. M ack ey ’ s act i o n s were n ei th er
au th o ri t at i v e n o r co n cl u s i v e; h e ad v i s ed an d reco m m en d ed . To ad v i s e m ean s “ t o-8 1
-

g i v e ad v i ce” o r “ t o g i v e i n fo rm at i o n o r n o t i ce”. W eb s t er’ s Co ll eg iat e Di ct i o n ary 1 8 . An d t o reco m

m en d i s “ t o p res en tas wo rth y o f accep t an ce o r t ri al ”. Id . at9 7 6
. Nei th er t erm

h i nt s atan yth i n g au tho ri t at i v e o r co n cl us i v e. Th e act i o n s o f M r. M ack ey , g i v i n g ad v i ce o r m ak in g a reco m m en dat i o n, s im

p l y d o n o tfi t wi th i n th e
s t atu te, wh ich fo cu s es o n th e p ers on m ak i n g th e i ni ti al d et erm i n at i o n . Co n cl u s io n Sect io n 6 7 5 1 (b )(1 ) req u i res th at th e i ni t i al p en al ty d et erm i n at i o n b e ap p ro v edi n wri ti n g b y

th e i m m ed i at e s up erv i so r o f t h e i n d iv i du al m ak i n g th e d et erm i n at i o n . By

th e res p o n den t ’ s o wnch aract eri zat i o n , M r. M ack ey ad v i s ed
an d reco m

m en dedth ata p en al ty

b e as s ert ed , b u th e d i dn o td et erm i n e i t ; h e l ack ed th e au th o ri ty

t o d o so . Acco rd i n g l y , we d i s s en tas t o PartII o f t h e o p i n i o n o f t h e Co u rt
. FOLEY, VASQUEZ, GOEKE, GUSTAFSON, an d M ORRISON, J J ., ag ree wi th th i s co n cu rri n g i n p artan d d is s en t i n g i n p arto p i n i on .