Federal Register / Vol. 89, No. 246 / Monday, December 23, 2024 / Rules and Regulations 104419 

1Typically a 30-day letter proposes penalties and 

gives the taxpayer an opportunity to request an 

administrative appeal. 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[TD 10017] 

RIN 1545–BP63 

Rules for Supervisory Approval of 

Penalties 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation. 

SUMMARY: This document contains final 

regulations regarding supervisory 

approval of certain penalties assessed by 

the IRS. The final regulations are 

necessary to address uncertainty 

regarding various aspects of supervisory 

approval of penalties that have arisen 

due to recent judicial decisions. The 

final regulations affect the IRS and 

persons assessed certain penalties by 

the IRS. 

DATES: 

Effective Date: These regulations are 

effective December 23, 2024. 

Applicability Date: For date of 

applicability, see § 301.6751(b)–1(f). 

FOR FURTHER INFORMATION CONTACT: 

William Prater, (202) 317–6845 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document amends the 

Regulations on Procedure and 

Administration (26 CFR part 301) by 

adding final regulations under section 

6751(b) of the Internal Revenue Code 

(Code) relating to supervisory approval 

of certain penalties assessed by the IRS. 

Section 6751(b)(1) expressly delegates to 

the Secretary of the Treasury or her 

delegate the authority to designate, for 

purposes of approving the initial 

determination of a penalty assessment 

under the Code, a higher level official 

other than the immediate supervisor of 

the individual making that initial 

determination. In addition, section 

7805(a) of the Code authorizes the 

Secretary to ‘‘prescribe all needful rules 

and regulations for the enforcement of 

[the Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

On April 11, 2023, a notice of 

proposed rulemaking (REG–121709–19) 

relating to supervisory approval of 

certain penalties under section 6751(b) 

was published in the Federal Register 

(88 FR 21564). See the Background and 

the Explanation of Provisions sections 

of the preamble to REG–121709–19 for 

a discussion of the proposed 

regulations, which are incorporated in 

this document to the extent not 

inconsistent with the Summary of 

Comments and Explanation of Revisions 

section of this preamble. 

Eight comments responding to the 

notice of proposed rulemaking were 

received and are available at https://

www.regulations.gov or upon request. A 

public hearing was held on September 

11, 2023, and four speakers provided 

testimony. After careful consideration of 

all of the written comments and 

testimony, the proposed regulations are 

adopted by this Treasury decision with 

minor modification. The public 

comments are summarized and 

discussed in the Summary of Comments 

and Explanation of Revisions. 

Summary of Comments and 

Explanation of Revisions 

Many of the comments addressed 

similar issues and expressed similar 

points of view. The comments largely 

opposed the proposed timing rules and 

many of the proposed definitions. 

Comments expressed concern that the 

proposed regulations would not 

implement what the comments viewed 

as the purpose of section 6751(b). The 

Treasury Department and the IRS 

disagree with these comments’ 

characterization of the text and effect of 

the proposed regulations, as well as 

their characterization of the statute’s 

text and scope, its legislative history, 

and the caselaw interpreting it. 

As explained in the preamble to the 

proposed regulations, the purpose of 

these rules is to clarify application of 

section 6751(b) in a manner that is 

consistent with the statutory text and 

that promotes nationwide uniformity, 

administrability for the IRS, and ease of 

understanding by taxpayers. Several 

comments suggested alternative rules 

that would impose extra-statutory 

formalities on IRS employees that 

would increase the probability of 

appropriate penalties being avoided if 

IRS employees do not satisfy those 

formalities. By contrast, the adopted 

rules faithfully interpret the statutory 

text, ensure penalties are imposed 

where appropriate, and guard against 

inappropriate use of penalties. 

1. Comments on Proposed Timing Rules 

The proposed regulations included 

three rules regarding the timing of 

supervisory approval of penalties under 

section 6751(b). Proposed 

§ 301.6751(b)–1(c) provided that, for 

penalties that are included in a preassessment notice issued to a taxpayer 

that provides the basis for jurisdiction 

in the United States Tax Court (Tax 

Court) upon timely petition, supervisory 

approval must be obtained at any time 

before the notice is mailed by the IRS. 

Proposed § 301.6751(b)–1(d) provided 

that, for penalties raised in the Tax 

Court after a petition, supervisory 

approval may be obtained at any time 

prior to the Commissioner requesting 

that the court determine the penalty. 

Finally, proposed § 301.6751(b)–1(b) 

provided that supervisory approval for 

penalties that are not subject to preassessment review in the Tax Court may 

be obtained at any time prior to 

assessment. 

Comments argued that the proposed 

timing rules should be rejected in favor 

of earlier deadlines for supervisory 

approval of penalties, which the 

comments asserted would more 

effectively prevent bargaining by the 

IRS. The comments’ suggested 

deadlines, however, lack any basis in 

the statutory text, and are supported by 

reasoning that has been rejected by three 

United States Circuit Courts of Appeals 

(circuit courts). Moreover, the suggested 

earlier deadlines would not do anything 

to prevent bargaining, as the preamble 

to the proposed regulations explained. 

Despite the comments’ stated concerns 

about the existence of bargaining, no 

comment identified a specific example 

of bargaining, and no court has ever 

found that an IRS employee attempted 

to use a penalty as a bargaining chip. 

Some comments suggested that the 

timing rule should require supervisory 

approval before issuance of a 30-day 

letter 1 (or substantive equivalent). As 

support for this suggestion, one 

comment stated that caselaw supported 

the assertion that the statute is 

ambiguous regarding when approval 

must occur. This comment misinterprets 

the existing caselaw, which has focused 

on an ambiguity as to what the ‘‘initial 

determination’’ is that must be 

approved, not on when the approval 

must occur. On the question of when 

approval must occur, the circuit courts 

that have considered the issue have 

uniformly held that a supervisor can 

approve a penalty at any point before 

losing discretion over whether to 

approve imposition of the penalty. The 

comments advocating for requiring 

approval before issuance of a 30-day 

letter (or substantive equivalent) rest 

heavily on a misunderstanding of a 

supervisor’s authority and on policy 

reasons that are not in fact served by the 


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suggested deadline. The comments also 

fail to address the circuit courts’ 

opinions that are contrary to their 

recommendations on this issue. 

As multiple circuit courts have 

explained, the statute lacks an ‘‘express 

timing requirement,’’ and the Tax 

Court’s ‘‘formal communication’’ rule 

has no basis in the text of the statute. 

Kroner v. Commissioner, 48 F.4th 1272, 

1276 (11th Cir. 2022); Laidlaw’s Harley 

Davidson Sales, Inc. v. Commissioner, 

29 F.4th 1066, 1072 (9th Cir. 2022), 

reh’g en banc denied, No. 20–73420 (9th 

Cir. July 14, 2022); Minemyer v. 

Commissioner, Nos. 21–9006 & 21– 

9007, 2023 WL 314832 (10th Cir. 

January 19, 2023). As explained in the 

preamble to the proposed regulations, 

the lack of any deadline in the statute 

other than assessment indicates that the 

provision did not intend an earlier 

deadline. 

Despite this, the Tax Court has 

continued to apply its own precedent in 

cases appealable to circuits other than 

the Ninth, Tenth, and Eleventh. See 

Aldridge v. Commissioner, T.C. Memo. 

2024–24 (appealable to the Eighth 

Circuit); Swift v. Commissioner, T.C. 

Memo. 2024–13 (appealable to the Fifth 

Circuit); Bachner v. Commissioner, T.C. 

Memo. 2023–148; Robinson v. 

Commissioner, T.C. Memo. 2023–147 

(appealable to the Fourth Circuit); 

Jadhav v. Commissioner, T.C. Memo. 

2023–140; Conrad v. Commissioner, 

T.C. Memo. 2023–100; Braen v. 

Commissioner, T.C. Memo 2023–85 

(appealable to the Third Circuit). For 

cases appealable to the Ninth Circuit, 

the Tax Court has held that it will 

follow the timing rule of Laidlaw’s, 

which the Tax Court interpreted to 

require a case-by-case analysis of 

whether a particular supervisor retained 

the discretion to approve penalties 

when they did so. See Kraske v. 

Commissioner, 161 T.C. 104 (2023). In 

Kraske and Pangelina v. Commissioner, 

T.C. Memo. 2024–5, the Tax Court 

suggested that an IRS Examination 

Division (Exam) supervisor’s discretion 

may be lost when a case is transferred 

to the Independent Office of Appeals 

(Appeals), but this is factually incorrect. 

As the Ninth Circuit recognized in 

Laidlaw’s, it is only ‘‘once the notice is 

sent’’ that ‘‘the Commissioner begins to 

lose discretion over whether the penalty 

is assessed.’’ Laidlaw’s, 29 F.4th at 1071 

n.4. Even when a case is transferred 

from Exam to Appeals, the Exam 

supervisor still has discretion to provide 

the required approval because the 

penalty is still before the IRS as a whole. 

As the preamble to the proposed 

regulations noted, a supervisor’s 

discretion is lost only after the IRS 

issues a pre-assessment notice subject to 

Tax Court review to a taxpayer. Because 

a supervisor retains discretion to 

approve a penalty until that point, 

issuance of the pre-assessment notice 

subject to Tax Court review remains the 

appropriate deadline for obtaining 

supervisory approval of penalties 

included in such a notice. 

The earlier deadlines that comments 

recommended and that the Tax Court 

continues to impose do not serve the 

legislative purpose that penalties be 

imposed where appropriate. By contrast, 

the proposed timing rules serve the 

legislative purpose of imposing 

penalties where appropriate while 

ensuring the requirement for 

supervisory approval can prevent 

bargaining. The proposed timing rules 

are consistent with all of the circuitlevel authority interpreting the statute 

and provide a bright-line rule that is 

administrable for the IRS and fair to 

taxpayers. Accordingly, this Treasury 

decision adopts the proposed timing 

rules without modification. 

2. Comments on Proposed Definitions 

A. Individual Who First Proposed the 

Penalty 

The proposed regulations provided 

that the individual who first proposes a 

penalty is the individual who section 

6751(b)(1) references as the individual 

making the initial determination of a 

penalty assessment. A proposal can be 

made either to a taxpayer (or the 

taxpayer’s representative) or to the 

individual’s supervisor or a designated 

higher level official. One comment 

agreed with the proposed definition of 

‘‘individual who first proposed the 

penalty,’’ while two others disagreed. 

The proposed regulations illustrated 

the effect of this definition in an 

example in which a Revenue Agent 

proposes a penalty to her immediate 

supervisor, but the supervisor does not 

approve the penalty and it does not 

appear in the statutory notice of 

deficiency; the penalty is then raised by 

an IRS Office of Chief Counsel (Counsel) 

Attorney in a Tax Court Answer and 

that attorney is considered the 

‘‘individual who first proposed the 

penalty.’’ Those disagreeing with the 

proposed definition argued that, in that 

example, it was the Revenue Agent and 

not the Counsel attorney that made the 

initial determination of the penalty. 

Such a view is at odds with the 

statutory text, which references (with 

respect to the penalty) the ‘‘initial 

determination of . . . assessment’’, and 

caselaw. See North Donald LA Property, 

LLC v. Commissioner, T.C. Memo. 2023– 

50 (citing multiple cases before 

concluding that ‘‘[w]e have never held 

that the exam team’s decision not to 

assert a penalty has any bearing on 

Chief Counsel’s ability to assert that 

penalty later’’). As the preamble to the 

proposed regulations explained, an 

initial determination that does not 

ultimately result in an assessment of a 

penalty is not an ‘‘initial determination 

of . . . assessment.’’ In addition, 

adopting the comments’ suggested 

interpretation would render section 

6214, which allows Counsel to raise a 

penalty in an answer, amended answer, 

or other pleading, meaningless because 

it would remove Counsel’s ability to 

make an independent evaluation of 

whether a penalty is appropriate. 

By contrast, the proposed definition 

harmonizes the statutory scheme and 

allows the IRS the flexibility to pursue 

penalties when appropriate. The IRS 

should not be prevented from asserting 

a penalty solely because an individual 

IRS employee involved earlier in the 

process did not determine that the 

penalty was appropriate at the time 

such employee considered it, a result 

that would follow from adopting the 

comments’ suggestions. Instead, the IRS 

should be permitted to assert penalties 

that both a Counsel attorney and the 

attorney’s supervisor believe are 

warranted. 

Comments’ concerns about the 

proposed definition of ‘‘individual who 

first proposed the penalty’’ have led the 

Treasury Department and the IRS to 

conclude that language is needed to 

clarify that, for purposes of determining 

which individual first proposed a 

penalty, the individual must have 

proposed the penalty either to a 

taxpayer (or the taxpayer’s 

representative) or to the individual’s 

supervisor or designated higher level 

official. This requirement is to preclude 

informal suggestions of coworkers or 

supervisors as being treated as the 

initial determination of a penalty 

assessment when those individuals had 

no official responsibility with respect to 

a penalty determination or the 

responsibility was a supervisory one. 

This interpretation also allows 

supervisors to do their job of reviewing 

and directing a subordinate’s work, 

which may include suggesting that their 

subordinates propose a penalty. It also 

eliminates those who are not assigned 

responsibility for making an initial 

penalty determination from being 

treated as having done so by virtue of 

having made an informal comment 

about a penalty to a coworker. An 

example is added to these final 

regulations to illustrate the effect of the 

definition. Specifically, the new 

example highlights that an individual 


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who did not make a proposal to a 

taxpayer, supervisor, or designated 

higher level official is not the individual 

who made the initial determination of a 

penalty assessment. 

B. Immediate Supervisor and 

Designated Higher Level Officials 

The proposed regulations defined the 

term ‘‘immediate supervisor’’ as any 

individual with responsibility to review 

another individual’s proposal of 

penalties without the proposal being 

subject to an intermediary’s approval. 

Some comments argued that the 

proposed definition of ‘‘immediate 

supervisor’’ was too vague, and that it 

could allow non-managerial, nonsupervisory personnel to approve 

penalties. Some argued that the 

definition should be revised to mean 

any individual who ‘‘directly supervises 

the substantive work’’ of an individual, 

while others recommended that it be 

limited to a single individual that meets 

the definition of a ‘‘supervisor’’ or 

‘‘manager’’ under other provisions of 

Federal law related to labor and 

employment matters. 

These alternative suggestions focus on 

substantive work generally, rather than 

penalty review specifically. Because 

supervisory approval in this context 

relates only to penalties, this broader 

focus is not appropriate. By looking to 

an individual’s assigned job duties 

rather than their title, the proposed 

definition takes a functional approach 

that is consistent with the statutory 

purpose of ensuring that a person that 

is familiar with the penalty aspects of a 

case be the one to give approval to assert 

penalties. See Sand Inv. Co. v. 

Commissioner, 157 T.C. 136, 142 (2021) 

(holding that the legislative history 

supports the conclusion that the person 

with the greatest familiarity with the 

facts and legal issues presented by the 

case is the ‘‘immediate supervisor’’ for 

purposes of section 6751(b)). Moreover, 

unlike some of the suggested 

alternatives, the proposed definition 

recognizes that IRS employees often 

have multiple supervisors with different 

roles for different parts of an 

examination. 

After consideration of the comments, 

the final regulations adopt the proposed 

definition with one modification. Rather 

than defining ‘‘immediate supervisor’’ 

as ‘‘any individual with responsibility 

to approve another individual’s 

proposal of penalties,’’ the adopted 

definition defines it as ‘‘any individual 

with responsibility to review another 

individual’s proposal of penalties.’’ This 

definition recognizes that a person 

assigned to review a penalty proposal 

has the responsibility to make a 

judgment call about the appropriateness 

of the penalty. Responsibility to review 

another’s work is the hallmark of being 

a supervisor. The definition adopted in 

the final regulations takes a practical 

approach that is consistent with the 

statute’s focus on supervision of the 

penalty proposal. 

Pursuant to the grant of authority in 

section 6751(b)(1) to designate which 

higher level officials may approve the 

initial determination, in addition to the 

general grant of authority in section 

7805(a), the proposed regulations 

defined a ‘‘higher level official’’ as any 

person who has been directed via the 

Internal Revenue Manual or other 

assigned job duties to approve another 

individual’s proposal of penalties before 

they are included in a notice that is a 

prerequisite to Tax Court jurisdiction, 

an answer to a Tax Court petition, or are 

assessed without the need for such 

inclusion. 

Some comments disagreed with this 

definition, arguing that it is too vague 

and should be narrowed to only a small 

group of upper-level management. But 

these comments’ suggested alternatives 

reject a functional approach in favor of 

unnecessary formalities that could 

result in appropriate penalties being 

eliminated. They are also inconsistent 

with section 6751(b)’s provision of 

discretion to designate which higher 

level officials may designate a penalty. 

Accordingly, the final regulations adopt 

the proposed definition without change. 

C. Personally Approved (in Writing) 

The proposed regulations define 

‘‘personally approved (in writing)’’ to 

mean any writing, including in 

electronic form, that is made by the 

writer to signify the writer’s assent and 

that reflects that it was intended as 

approval. 

Comments argued that the definition 

of ‘‘personally approved (in writing)’’ 

should be revised to require that the 

approval, if made electronically, be 

made through a digital signature that 

includes a software-generated 

timestamp indicating when the 

document was signed and who signed 

it. One comment also argued that, 

alternatively, the IRS should require 

that a statement of signing accompany 

the request for a supervisor’s approval 

of a penalty. 

After consideration of the comments, 

the proposed definition is adopted 

without change. Adopting the 

comments’ suggestions would impose 

formalities that frustrate imposition of 

appropriate penalties. The statute does 

not mandate the use of a particular type 

of signature, only that the approval be 

in writing. While it may be a best 

practice to use digital signatures with 

software-generated timestamps, 

mandating their use would go beyond 

the scope of the statute and these 

regulations. Nor does the statute require 

the immediate supervisor to use any 

particular format when approving the 

penalty, such as with a statement of 

signing. The functional approach 

adopted in these final regulations 

ensures that written approval, which is 

all the statute requires, is obtained. See 

PBBM-Rose Hill, Ltd. v. Commissioner, 

900 F.3d 193, 213 (5th Cir. 2018) 

(rejecting an argument that section 

6751(b)(1) was not satisfied because the 

penalty was not on the same page as the 

signature); Deyo v. Commissioner, 296 

F. App’x 157 (2d Cir. 2008) (rejecting an 

argument that section 6751(b)(1) was 

not satisfied because the approval was 

provided by a stamp rather than a 

manual signature); Thompson v. 

Commissioner, T.C. Memo. 2022–80 

(rejecting the argument that crossexamination of a revenue agent and his 

supervisor was needed because it 

‘‘would be immaterial and wholly 

irrelevant’’ where there was written 

approval in the record); Raifman v. 

Commissioner, T.C. Memo. 2018–101 

(same). 

D. Automatically Calculated Through 

Electronic Means 

The proposed regulations provide that 

a penalty is ‘‘automatically calculated 

through electronic means’’ if it is 

proposed by an IRS computer program 

without human involvement. A penalty 

is no longer considered ‘‘automatically 

calculated through electronic means’’ if 

a taxpayer responds to a computergenerated notice proposing a penalty 

and challenges the penalty or the 

amount of tax to which the penalty is 

attributable, and an IRS employee works 

the case. 

Some comments argued that the 

proposed definition of ‘‘automatically 

calculated through electronic means’’ is 

too broad and encompasses penalties 

that, in the comments’ view, should 

never be exempt from supervisory 

approval for various reasons. As 

explained in the preamble to the 

proposed regulations, the scope of this 

definition is limited to identifying when 

a penalty should be considered exempt 

from the supervisory approval 

requirements of section 6751(b)(1) by 

operation of section 6751(b)(2)(B). 

Comments sought to narrow the 

proposed definition and impose 

additional requirements on the IRS that 

are divorced from the statutory 

requirements. The comments were 

directed to whether proposal and 

assessment of certain penalties should 


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ever be automated, as opposed to 

whether a specific penalty was in fact 

‘‘automatically calculated through 

electronic means’’ within the meaning 

of section 6751(b)(2)(B). As such, the 

comments go beyond the scope of the 

regulations. 

One comment recommended that the 

proposed definition be revised to 

eliminate the requirement that an IRS 

employee consider a taxpayer’s 

response to an automatically-generated 

notice in order to remove the penalty 

from the automatically-calculated 

exception. In this comment’s view, this 

requirement could lead to situations 

where the IRS ignores correspondence 

and asserts penalties without proper 

consideration of the taxpayer’s response 

to an automatically-generated penalty 

notice. The Treasury Department and 

the IRS are sensitive to the comment’s 

concerns but consider this a matter 

outside of the scope of these regulations. 

The stated concerns are policy 

considerations about how the IRS 

should handle correspondence. They 

are not within the scope of these 

regulations, which seek only to interpret 

and define the statutory text of section 

6751(b). As stated in the preamble to the 

proposed regulations, it is the policy of 

the IRS to give ‘‘full and fair 

consideration to evidence in favor of not 

imposing [a] penalty, even after the 

[IRS’]s initial consideration supports 

imposition of a penalty . . . .’’ This 

policy should prohibit the type of 

conduct with which the comment is 

concerned. Finally, even if the IRS did 

fail to consider a taxpayer’s response to 

an automatically-generated penalty 

notice, there would be no bargaining nor 

would there be an individual who made 

an initial determination with respect to 

the penalty at issue. Accordingly, it 

would be impossible for the IRS to 

obtain supervisory approval from the 

(non-existent) individual’s supervisor. 

As the preamble to the proposed 

regulations explains, requiring 

supervisory approval in that situation 

would disrupt the automated process 

and would not square with the statutory 

text. For these reasons, the proposed 

definition is adopted without 

modification. 

3. Other Comments 

Comments made a number of other 

recommendations that went beyond the 

scope of the proposed regulations. 

These recommendations related to the 

types of forms the IRS should use in 

documenting supervisory approval and 

how those forms should be provided to 

taxpayers, the internal practices the IRS 

should follow to ensure compliance 

with section 6751(b) among its 

employees, and the types of employees 

that should be permitted to approve 

certain penalties over a certain dollar 

threshold. Other comments also 

criticized the existing penalty approval 

process as ineffective and stated that 

pending legislation would soon obviate 

the need for these regulations. Finally, 

one comment was submitted that did 

not relate to section 6751(b). 

Aside from being outside of the scope 

of these regulations, adopting these 

recommendations would impose 

laborious formalities that are not 

required by section 6751(b) and that 

would give taxpayers and their 

representatives more opportunities to 

avoid the penalties that Congress 

intended be asserted against them. The 

final regulations therefore do not adopt 

these recommendations. 

Special Analyses 

I. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6(b) of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Regulatory Flexibility Act 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that these regulations will not 

have a significant economic impact on 

a substantial number of small entities. 

This certification is based on these 

regulations imposing no obligations on 

small entities and therefore no 

economic impact on those entities. 

Because these regulations ensure that 

only appropriate penalties will apply by 

imposing requirements on the IRS and 

do not otherwise bear on the 

applicability of any penalty, the final 

regulations do not impose a significant 

economic impact on a substantial 

number of small entities. 

Pursuant to section 7805(f) of the 

Code, the notice of proposed rulemaking 

preceding these regulations was 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small businesses, and 

no comments were received. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This rule does 

not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

IV. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These final regulations 

do not have federalism implications and 

do not impose substantial direct 

compliance costs on state and local 

governments or preempt State law 

within the meaning of the Executive 

order. 

V. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs has 

designated this rule as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). 

Drafting Information 

The principal author of these 

regulations is William Prater of the 

Office of the Associate Chief Counsel 

(Procedure and Administration). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 301 

Employment taxes, Estate taxes, 

Excise taxes, Gift taxes, Income taxes, 

Penalties, Reporting and recordkeeping 

requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 301 is 

amended as follows: 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Paragraph 1. The authority citation 

for part 301 is amended by adding an 

entry for § 301.6751(b)–1(a)(4) in 

numerical order to read in part as 

follows: 

Authority: 26 U.S.C. 7805. 

* * * * * 

Section 301.6751(b)–1(a)(4) also issued 

under 26 U.S.C. 6751(b)(1). 

* * * * * 


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■ Par. 2. Section 301.6751(b)–1 is added 

to read as follows: 

§ 301.6751(b)–1 Supervisory and higher 

level official approval for penalties. 

(a) Approval requirement—(1) In 

general. Except as provided in 

paragraph (a)(2) of this section, section 

6751(b) of the Internal Revenue Code 

(Code) generally bars the assessment of 

a penalty unless the initial 

determination of the assessment of the 

penalty is personally approved (in 

writing) by the immediate supervisor of 

the individual making the initial 

determination or such higher level 

official as the Secretary of the Treasury 

or her delegate may designate. 

Paragraph (a)(2) of this section lists 

penalties not subject to section 

6751(b)(1) and this paragraph (a)(1). 

Paragraph (a)(3) of this section provides 

definitions of terms used in section 

6751(b) and this section. Paragraph 

(a)(4) of this section designates the 

higher level officials described in this 

paragraph (a)(1). Paragraphs (b) through 

(d) of this section apply section 

6751(b)(1) and this paragraph (a)(1) to 

penalties not subject to pre-assessment 

review in the United States Tax Court 

(Tax Court), penalties that are subject to 

pre-assessment review in the Tax Court, 

and penalties raised in the Tax Court 

after a petition is filed, respectively. 

Paragraph (e) of this section provides 

examples illustrating the application of 

section 6751(b) and this section. 

Paragraph (f) of this section provides 

dates of applicability of this section. 

(2) Exceptions. Under section 

6751(b)(2), section 6751(b)(1) and this 

section do not apply to: 

(i) Any penalty under section 6651, 

6654, 6655, 6673, 6662(b)(9), or 

6662(b)(10) of the Code; or 

(ii) Any other penalty automatically 

calculated through electronic means. 

(3) Definitions. For purposes of 

section 6751(b) and this section, the 

following definitions apply— 

(i) Penalty. The term penalty means 

any penalty, addition to tax, or 

additional amount under the Code. 

(ii) Individual who first proposed the 

penalty. Except as otherwise provided 

in this paragraph (a)(3)(ii), the 

individual who first proposed the 

penalty is the individual who section 

6751(b)(1) and paragraph (a)(1) of this 

section reference as the individual 

making the initial determination of a 

penalty assessment. For purposes of this 

section, a proposal of a penalty can be 

made only to either a taxpayer (or the 

taxpayer’s representative) or to the 

individual’s supervisor or designated 

higher level official. A proposal of a 

penalty, as defined in paragraph (a)(3)(i) 

of this section, to a taxpayer does not 

include mere requests for information 

relating to a possible penalty or 

inquiries of whether a taxpayer wants to 

participate in a general settlement 

initiative for which the taxpayer may be 

eligible, but does include offering the 

taxpayer an opportunity to agree to a 

particular penalty in a particular 

amount other than a penalty under a 

settlement initiative offered to a class of 

taxpayers. An individual who first 

proposed the penalty is not the 

individual whom section 6751(b)(1) and 

paragraph (a)(1) of this section reference 

as the individual making the initial 

determination of a penalty assessment if 

the assessment of the penalty is 

attributable to an independent proposal 

made by a different individual. 

(iii) Immediate supervisor. The term 

immediate supervisor means any 

individual with responsibility to review 

another individual’s proposal of 

penalties, as defined in paragraph 

(a)(3)(i) of this section, without the 

proposal being subject to an 

intermediary’s approval. 

(iv) Higher level official. The term 

higher level official means any person 

designated under paragraph (a)(4) of this 

section as a higher level official 

authorized to approve a penalty for 

purposes of section 6751(b)(1). 

(v) Personally approved (in writing). 

The term personally approved (in 

writing) means any writing, including in 

electronic form, made by the writer to 

signify the writer’s assent. No signature 

or particular words are required so long 

as the circumstances of the writing 

reflect that it was intended as approval. 

(vi) Automatically calculated through 

electronic means. A penalty, as defined 

in paragraph (a)(3)(i) of this section, is 

automatically calculated through 

electronic means if an IRS computer 

program automatically generates a 

notice to the taxpayer that proposes the 

penalty. If a taxpayer responds in 

writing or otherwise to the 

automatically-generated notice and 

challenges the proposed penalty, or the 

amount of tax to which the proposed 

penalty is attributable, and an IRS 

employee considers the response prior 

to assessment (or the issuance of a 

notice of deficiency that includes the 

penalty), then the penalty is no longer 

considered ‘‘automatically calculated 

through electronic means.’’ 

(4) Higher level official. Any person 

who has been directed by the Internal 

Revenue Manual or other assigned job 

duties to approve another individual’s 

proposal of penalties before they are 

included in a pre-assessment notice 

prerequisite to Tax Court jurisdiction, 

an answer, amended answer, or 

amendment to the answer to a Tax Court 

petition, or are assessed without need 

for such inclusion, is designated as a 

higher level official authorized to 

approve the penalty for purposes of 

section 6751(b)(1). 

(b) Penalties not subject to preassessment review in the Tax Court. The 

requirements of section 6751(b)(1) and 

paragraph (a)(1) of this section are 

satisfied for a penalty that is not subject 

to pre-assessment review in the Tax 

Court if the immediate supervisor of the 

individual who first proposed the 

penalty personally approves the penalty 

in writing before the penalty is assessed. 

Alternatively, a person designated as a 

higher level official as described in 

paragraph (a)(4) of this section may 

provide the approval otherwise required 

by the immediate supervisor. 

(c) Penalties subject to pre-assessment 

review in the Tax Court. The 

requirements of section 6751(b)(1) and 

paragraph (a)(1) of this section are 

satisfied for a penalty that is included 

in a pre-assessment notice that provides 

a basis for Tax Court jurisdiction upon 

timely petition if the immediate 

supervisor of the individual who first 

proposed the penalty personally 

approves the penalty in writing on or 

before the date the notice is mailed. 

Alternatively, a person designated as a 

higher level official as described in 

paragraph (a)(4) of this section may 

provide the approval otherwise required 

by the immediate supervisor. Examples 

of a pre-assessment notice described in 

this paragraph (c) include a statutory 

notice of deficiency under section 6212 

of the Code, a notice of final partnership 

administrative adjustment under former 

section 6223 of the Code, and a notice 

of final partnership adjustment under 

section 6231 of the Code. 

(d) Penalties raised in the Tax Court 

after a petition. The requirements of 

section 6751(b)(1) and paragraph (a)(1) 

of this section are satisfied for a penalty 

that the Commissioner raises in the Tax 

Court after a petition (see section 

6214(a) of the Code) if the immediate 

supervisor of the individual who first 

proposed the penalty personally 

approves the penalty in writing no later 

than the date on which the 

Commissioner requests that the court 

determine the penalty. Alternatively, a 

person designated as a higher level 

official as described in paragraph (a)(4) 

of this section may provide the approval 

otherwise required by the immediate 

supervisor. 

(e) Examples. The following examples 

illustrate the rules of this section. 

(1) Example 1. In the course of an 

audit regarding a penalty not subject to 

pre-assessment review in the Tax Court, 


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104424 Federal Register / Vol. 89, No. 246 / Monday, December 23, 2024 / Rules and Regulations 

Revenue Agent A concludes that 

Taxpayer T should be subject to the 

penalty under section 6707A of the 

Code for failure to disclose a reportable 

transaction. Revenue Agent A sends T a 

letter giving T the option to agree to the 

penalty; submit additional information 

to A about why the penalty should not 

apply; or request within 30 days that the 

matter be sent to the Independent Office 

of Appeals (Appeals) for consideration. 

After T requests that Appeals consider 

the case, A prepares the file for 

transmission, and B (who is A’s 

immediate supervisor, as defined in 

paragraph (a)(3)(iii) of this section) signs 

a cover memorandum informing 

Appeals of the proposed penalty and 

asks Appeals to consider it. The 

Appeals Officer upholds the penalty, 

and it is assessed. The requirements of 

section 6751(b)(1) are satisfied because 

B’s signature on the cover memorandum 

is B’s personal written assent to the 

penalty proposed by A and was given 

before the penalty was assessed. 

(2) Example 2. In the course of an 

audit, Revenue Agent A concludes that 

Taxpayer T should be subject to an 

accuracy-related penalty for substantial 

understatement of income tax under 

section 6662(b)(2). Revenue Agent A 

sends T a Letter 915, Examination 

Report Transmittal, along with an 

examination report that includes the 

penalty. The Letter 915 gives T the 

option to agree to the examination 

report; provide additional information 

to be considered; discuss the report with 

A or B (who is A’s immediate 

supervisor, as defined in paragraph 

(a)(3)(iii) of this section); or request a 

conference with an Appeals Officer. T 

agrees to assessment of the penalty and 

signs the examination report to consent 

to the immediate assessment and 

collection of the amounts shown on the 

report. B provides written supervisory 

approval of the penalty after T signs the 

examination report, but before the 

penalty is assessed. Paragraph (b) of this 

section applies because T’s agreement to 

assessment of the penalty excepts it 

from pre-assessment review in the Tax 

Court. Because B provided written 

supervisory approval before assessment 

of the penalty, the requirements of 

section 6751(b)(1) are satisfied. 

(3) Example 3. In the course of an 

audit of Taxpayer T by a team of 

revenue agents, Revenue Agent A 

concludes that T should be subject to an 

accuracy-related penalty for negligence 

under section 6662(b)(1) and (c). 

Supervisor B is the issue manager and 

is assigned the duty to review the Notice 

of Proposed Adjustment for any penalty 

A would propose. Revenue Agent A 

reports to B, but B is not responsible for 

the overall management of the audit of 

T. C is the case manager of the team 

auditing T and is responsible for the 

overall management of the audit of T. C 

may assign tasks to A and other team 

members, and has responsibility for 

approving any examination report 

presented to T. 

(i) Alternative Outcome 1: Only B 

approves the penalty in writing before 

the mailing to T of a notice of deficiency 

that includes the penalty. Under 

paragraph (a)(3)(iii) of this section, B 

qualifies as the immediate supervisor of 

A with respect to A’s penalty proposal, 

and the requirements of section 

6751(b)(1) are met. 

(ii) Alternative Outcome 2: Only C 

approves the penalty in writing before 

the mailing to T of a notice of deficiency 

that includes the penalty. Because C has 

responsibility to approve A’s proposal 

of the penalty as part of approving the 

examination report, C qualifies as a 

higher level official designated under 

paragraph (a)(4) of this section to 

approve the penalty proposed by A, and 

the requirements of section 6751(b)(1) 

are met. 

(4) Example 4. In the course of an 

audit, Revenue Agent A concludes that 

Taxpayer T should be subject to a 

penalty for negligence under section 

6662(c). Revenue Agent A recommends 

the penalty to her immediate supervisor 

B, who thinks more factual development 

is needed to support the penalty but 

must close the audit immediately due to 

the limitations period on assessment 

expiring soon. The IRS issues a statutory 

notice of deficiency without the penalty 

and T files a petition in the Tax Court. 

In reviewing the case file and 

conducting discovery, IRS Chief 

Counsel Attorney C concludes that the 

facts support imposing a negligence 

penalty under section 6662(c). Attorney 

C proposes to her immediate supervisor, 

D, that the penalty should apply and 

should be raised in an Answer pursuant 

to section 6214(a). D agrees and signs 

the Answer that includes the penalty 

before it is filed. The section 6662(c) 

penalty at issue is subject to preassessment review in the Tax Court and 

was raised in the Tax Court after a 

petition was filed under paragraph (d) of 

this section. Therefore, written 

supervisory approval under paragraph 

(d) of this section was required prior to 

filing the written pleading that includes 

the penalty. Attorney C is the individual 

who first proposed the penalty for 

purposes of section 6751(b)(1) and 

paragraphs (d) and (a)(3)(ii) of this 

section, and she secured timely written 

supervisory approval from D, the 

immediate supervisor, as defined in 

paragraph (a)(3)(iii) of this section. As a 

result, the requirements of section 

6751(b)(1) are met. Revenue Agent A 

did not make the initial determination 

of the penalty assessment because any 

assessment would not be attributable to 

A’s proposal but would be based on the 

independent proposal of Attorney C 

raised pursuant to section 6214(a). 

(5) Example 5. In the course of an 

audit, Revenue Agent A concludes that 

Taxpayer T should be subject to a 

penalty for negligence under section 

6662(c). Revenue Agent A includes the 

penalty in a draft report that she sends 

for review to her immediate supervisor 

B. B reviews A’s recommendation and 

notices that A did not consider whether 

a penalty for a substantial 

understatement of income tax under 

section 6662(d) should apply in the 

alternative. B sends an email to A telling 

her to ‘‘add a section 6662(d) penalty if 

the math checks out.’’ Revenue Agent A 

reviews the facts, determines that the 

imposition of the section 6662(d) 

penalty is warranted, and adds the 

penalty to a report she issues to the 

taxpayer. Revenue Agent A is the 

individual who first proposed both of 

the penalties for purposes of section 

6751(b)(1) and paragraphs (d) and 

(a)(3)(ii) of this section because she is 

the individual who first proposed the 

penalty to the taxpayer. Supervisor B 

did not make the initial determination 

of the section 6662(d) penalty because, 

even though she first thought of and 

suggested it, she did not propose it to 

the taxpayer or her supervisor (or 

designated higher level official). 

(6) Example 6. The IRS’s Automated 

Underreporter (AUR) computer program 

detects a discrepancy between the 

information received from a third party 

and the information contained on 

Taxpayer T’s return. AUR automatically 

generates a CP2000, Notice of 

Underreported Income, that includes an 

adjustment based on the unreported 

income and a proposed penalty under 

section 6662(d) that is mailed to T. The 

CP2000 gives T 30 days to respond to 

contest the proposed adjustments and 

the penalty. T submits a response to the 

CP2000, asking only for more time to 

respond. More time is granted but no 

further response is received from T, and 

a statutory notice of deficiency that 

includes the adjustments and the 

penalty is automatically generated and 

issued to T. The section 6662(d) penalty 

at issue is automatically calculated 

through electronic means under 

paragraphs (a)(2)(ii) and (a)(3)(vi) of this 

section. The penalty was proposed by 

the AUR computer program, which 

generated a notice to T that proposed 

the penalty. Although T submitted a 

response to the CP2000, the response 


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Federal Register / Vol. 89, No. 246 / Monday, December 23, 2024 / Rules and Regulations 104425 

did not challenge the proposed penalty, 

or the amount of tax to which the 

proposed penalty is attributable. 

Therefore, the penalty was 

automatically calculated through 

electronic means and written 

supervisory approval was not required. 

(f) Applicability date. The rules of this 

section apply to penalties assessed on or 

after December 23, 2024. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 2, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–29074 Filed 12–20–24; 4:15 pm] 

BILLING CODE 4830–01–P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Part 4044 

Allocation of Assets in SingleEmployer Plans; Interest Assumptions 

for Valuing Benefits 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Final rule. 

SUMMARY: This final rule amends the 

Pension Benefit Guaranty Corporation’s 

regulation on Allocation of Assets in 

Single-Employer Plans to prescribe the 

spreads component of the interest 

assumption under the asset allocation 

regulation for plans with valuation dates 

of January 31, 2025–April 29, 2025. 

These interest assumptions are used for 

valuing benefits under terminating 

single-employer plans and for other 

purposes. 

DATES: Effective January 31, 2025. 

FOR FURTHER INFORMATION CONTACT: 

Monica O’Donnell (odonnell.monica@

pbgc.gov), Attorney, Office of the 

General Counsel, Pension Benefit 

Guaranty Corporation, 445 12th Street 

SW, Washington, DC 20024–2101, 202– 

229–8706. If you are deaf or hard of 

hearing, or have a speech disability, 

please dial 7–1–1 to access 

telecommunications relay services. 

SUPPLEMENTARY INFORMATION: PBGC’s 

regulation on Allocation of Assets in 

Single-Employer Plans (29 CFR part 

4044) prescribes actuarial 

assumptions—including an interest 

assumption—for valuing benefits under 

terminating single-employer plans 

covered by title IV of the Employee 

etirement Income Security Act of 1974 

(ERISA). The interest assumption is also 

posted on PBGC’s website 

(www.pbgc.gov). 

PBGC uses the interest assumption in 

§ 4044.54 to determine the present value 

of annuities in an involuntary or 

distress termination of a singleemployer plan under the asset 

allocation regulation. The assumptions 

in part 4044 of PBGC’s regulations are 

also used in other situations where it is 

appropriate for liabilities to align with 

private sector group annuity prices. For 

example, PBGC’s regulations on Notice, 

Collection, and Redetermination of 

Withdrawal Liability (29 CFR part 4219) 

and Duties of Plan Sponsor Following 

Mass Withdrawal (29 CFR part 4281) 

provide that these assumptions are used 

to value liabilities for purposes of 

determining withdrawn employers’ 

reallocation liability in the event of a 

mass withdrawal from a multiemployer 

plan. Multiemployer plans that receive 

special financial assistance under the 

regulation on Special Financial 

Assistance by PBGC (29 CFR part 4262) 

must, as a condition of receiving special 

financial assistance, use the interest 

assumption to determine withdrawal 

liability for a prescribed period. 

Additionally, plan sponsors are required 

to use some, or all of these assumptions 

for specified purposes (e.g., reporting 

benefit liabilities in filings required 

under PBGC’s regulation on Annual 

Financial and Actuarial Information 

Reporting (29 CFR part 4010) or 

determining certain amounts to transfer 

to PBGC’s Missing Participants Program 

on behalf of a missing participant of a 

terminating defined benefit plan under 

PBGC’s regulation on Missing 

Participants (29 CFR part 4050)) and 

may use them for other purposes (e.g., 

to ensure that plan spinoffs comply with 

section 414(l) of the Internal Revenue 

Code (the Code)). 

On June 6, 2024, PBGC issued a final 

rule at 89 FR 48291 that changes the 

structure of the interest assumption for 

valuation dates on or after July 31, 2024, 

from the select and ultimate approach to 

a yield curve approach. As described in 

the June 6 final rule, this ‘‘4044 yield 

curve,’’ is based on a blend of two 

publicly available bond yield curves 

that is adjusted to the extent necessary 

so that the resulting liabilities align with 

group annuity prices. The adjustments 

are referred to as ‘‘spreads.’’ PBGC 

determines and publishes spreads 

quarterly based on survey data on 

pricing of private-sector group 

annuities. As noted in the preamble to 

the June 6 rule, PBGC will post the 4044 

yield curve on its website at 

www.pbgc.gov each month shortly after 

its underlying data become available. In 

addition, practitioners are able to 

determine the 4044 yield curve as of the 

end of any month using the publicly 

available bond yield curves and the 

spreads specified in the regulation. 

This rule amends the regulation to 

specify the spreads used to determine 

the 4044 yield curve as of the last days 

of January, February, and March of 

2025, (i.e., the ‘‘first quarter 2025 

spreads’’). 

Need for Immediate Guidance 

PBGC has determined that notice of, 

and public comment on, this rule are 

impracticable, unnecessary, and 

contrary to the public interest. PBGC 

routinely updates the spreads 

component of the interest assumption in 

the asset allocation regulation so that 

the 4044 yield curve may be determined 

as soon as the underlying bond yield 

curves become available. These 

amendments are merely technical; they 

ensure that use of PBGC’s interest 

assumption continues to yield liabilities 

in line with group annuity prices. 

Accordingly, PBGC finds that the public 

interest is best served by issuing this 

rule expeditiously, without an 

opportunity for notice and comment, 

and that good cause exists for making 

the assumptions set forth in this 

amendment effective less than 30 days 

after publication. 

PBGC has determined that this action 

is not a ‘‘significant regulatory action’’ 

under the criteria set forth in Executive 

Order 12866. 

Because no general notice of proposed 

rulemaking is required for this 

amendment, the Regulatory Flexibility 

Act of 1980 does not apply. See 5 U.S.C. 

601(2). 

List of Subjects in 29 CFR Part 4044 

Employee benefit plans, Pension 

insurance, Pensions. 

In consideration of the foregoing, 29 

CFR part 4044 is amended as follows: 

PART 4044—ALLOCATION OF 

ASSETS IN SINGLE-EMPLOYER 

PLANS 

■ 1. The authority citation for part 4044 

continues to read as follows: 

Authority: 29 U.S.C. 1301(a), 1302(b)(3), 

1341, 1344, 1362. 

■ 2. In § 4044.54, revise table 1 to 

paragraph (e) to read as follows: 

§ 4044.54 Interest assumptions. 

* * * * * 

(e) * * * 


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