United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 14, 2024 Decided May 3, 2024

No. 23-1179

ALON FARHY,

APPELLEE

v.

COMMISSIONER OF INTERNAL REVENUE,

APPELLANT

Appeal from the United States Tax Court

Francesca Ugolini, Attorney, U.S. Department of Justice, 

argued the cause for appellant. With her on the briefs were 

Jennifer M. Rubin and Robert J. Wille, Attorneys.

Edward M. Robbins argued the cause and filed the brief 

for appellee.

Before: PILLARD and WILKINS, Circuit Judges, and 

ROGERS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge PILLARD.
2

PILLARD, Circuit Judge: Section 6038(a) of the Internal 

Revenue Code requires U.S. persons to file information returns 

reporting their control of any foreign business. Alon Farhy 

acknowledges that he violated that statutory obligation when 

he failed to report to the Internal Revenue Service his 

ownership of Belizean corporations and thus owes the United 

States government nearly $500,000 in penalties under section 

6038(b), which imposes a fixed-dollar penalty for failure to 

comply with the requirements of section 6038(a). Farhy disputes 

only the method by which the Internal Revenue Service sought 

to collect that sum: assessing the penalties owed and notifying 

Farhy that it will levy his property if he fails to pay them. He 

contends that the IRS lacks statutory authority for its decadeslong practice of assessing and administratively collecting 

section 6038(b) penalties. As he reads the statute, the 

government must sue him in federal district court to collect 

what he owes under section 6038(b). The Tax Court agreed, 

concluding that the Code does not empower the Service to 

assess and administratively collect section 6038(b) penalties. 

We hold that the text, structure, and function of section 6038 

demonstrate that Congress authorized assessment of penalties 

imposed under subsection (b), and so reverse and remand to the 

Tax Court with instructions to enter decision in favor of the 

Commissioner.

BACKGROUND

A.

This case is a dispute over the process available to the IRS 

to enforce U.S. persons’ obligations to file tax returns 

regarding their foreign interests. Can the penalty for failure to 

file be assessed by the Internal Revenue Service (IRS or 

Service), or must the Department of Justice sue and obtain a 

judgment from a federal district court before it can enforce the 
3

penalty? To appreciate what is at stake, it helps to understand 

that the Treasury Secretary’s power of “assessment” is the 

cornerstone of the government’s tax collection authority. An 

“assessment” is the “official recording” of the amount a 

taxpayer owes the federal government. Polselli v. IRS, 598 

U.S. 432, 438 (2023); see also I.R.C. § 6203. The federal tax 

system largely relies on each taxpayer’s self-assessment,

meaning the taxpayer’s calculation of the amount she owes in 

a tax return filed with the IRS along with the indicated tax 

payment. The Commissioner of the Service, to whom the 

Treasury Secretary’s assessment authority is delegated,

typically accepts the taxpayer’s calculation and formally 

executes the assessment by “record[ing] the liability of the 

taxpayer” and crediting payments to that amount. United 

States v. Galletti, 541 U.S. 114, 122 (2004); accord Direct 

Mktg. Ass’n v. Brohl, 575 U.S. 1, 9 (2015). When a taxpayer 

fails to file the requisite return or misstates the amount owed, 

the Commissioner determines the assessment: It “calculates 

the proper amount of liability and records it in the 

Government’s books.” Galletti, 541 U.S. at 122. 

An assessment’s unassuming form as a “bookkeeping 

notation,” Hibbs v. Winn, 542 U.S. 88, 100 (2004) (quoting 

Laing v. United States, 423 U.S. 161, 170 n.13 (1976)), belies 

its importance. “[I]t is the assessment, and only the 

assessment, that sets in motion the collection powers of the 

IRS, powers that include the seizure of assets, the freezing of 

bank accounts and the creation of liens, all without judicial 

process.” Phila. & Reading Corp. v. United States, 944 F.2d 

1063, 1064 n.1 (3d Cir. 1991). Within 60 days of the IRS’s 

assessment of a liability not already paid, the Service must

“give notice to each person liable for the unpaid tax, stating the 

amount and demanding payment thereof.” I.R.C. § 6303(a). 

Then, if the amount remains unpaid, the IRS “can employ 

administrative enforcement methods to collect the tax,” 
4

including liens and levies. Galletti, 541 U.S. at 122. An IRS 

assessment thus serves as “the trigger for levy and collection 

efforts.” Hibbs, 542 U.S. at 102.

It is the rare federal tax that can only be recovered through 

a government-initiated lawsuit. Generally, “all taxes” imposed 

under the Internal Revenue Code (IRC or Code) are assessable. 

I.R.C. § 6201(a). That includes “assessable penalties,” id., 

such as those authorized by Chapter 68 of the Internal Revenue 

Code (titled “Additions to the Tax, Additional Amounts, and 

Assessable Penalties”), see I.R.C. Ch. 68; see also id.

§ 6665(a)(1). Chapter 68 penalties cover a range of conduct

such as the failure to include required reportable transactions 

on returns, id. § 6707A, and the failure to file information with 

respect to certain foreign trusts, id. § 6677(a). But not every 

tax-related penalty is assessable. The IRC specifies, for 

example, that civil penalties for willful failure to pay excise 

taxes related to tobacco products are “to be recovered, with 

costs of suit, in a civil action.” Id. § 5761(a).

Collection actions ensuing from IRS assessments operate 

largely in the administrative realm with limited opportunities 

for taxpayers to seek judicial review. Generally, taxpayers can 

obtain judicial review of an assessed liability by paying the 

amount in full and then filing a refund suit in federal district 

court. See Flora v. United States, 362 U.S. 145, 157-58 (1960). 

Recognizing that the pay-first, challenge-later model put 

judicial review out of reach of taxpayers who could not pay, 

Congress provided for pre-collection review of assessments in 

two main circumstances. 

First, if an unpaid tax is a “deficiency,” the IRS is required 

to provide the taxpayer an opportunity for judicial review

before assessment. The Code defines a deficiency as “the 

amount by which the [income, gift, estate, or excise] tax 
5

imposed . . . exceeds” the sum of “the amount shown as the tax 

by the taxpayer upon his return” plus any previous deficiency, 

less “the amount of rebates . . . made.” I.R.C. § 6211(a). It 

thus “does not include all taxes owed by a taxpayer, but only 

those that are both owed and not reported.” Laing, 423 U.S. at

173 n.18. Upon receipt of a notice of deficiency, a taxpayer 

generally has 90 days within which to petition the Tax Court 

for a redetermination of the deficiency. I.R.C. § 6213(a). Tax 

Court decisions are reviewable in federal courts of appeals. Id. 

§ 7482(a)(1). The Service cannot assess the deficiency until 

the Tax Court’s decision is final (or until expiration of the 90-

day window to seek Tax Court review). Id. § 6213(a). 

Many penalties, however, are not included in the statutory 

definition of “deficiency.” Those exactions are not subject to 

deficiency procedures, so the IRS can assess them without 

awaiting judicial review. The IRS must notify the taxpayer of 

the amount due per its assessment and demand payment. I.R.C.

§ 6303(a). If the taxpayer fails to pay, the amount due “shall 

be a lien in favor of the United States upon all property and 

rights to property, whether real or personal, belonging to such 

person.” Id. § 6321. When the IRS files public notice of the 

federal tax lien on the taxpayer’s property, it must again 

provide notice to the taxpayer. Id. § 6320(a). Similarly, if the 

IRS chooses to collect the liability by levying (i.e., seizing) a 

taxpayer’s property or rights to property, it must provide notice 

to the taxpayer. Id. § 6331(d).

Those lien and levy notices trigger the second main path 

to pre-collection judicial review. Upon notice of the IRS’s

filing of a lien or intention to levy property, the taxpayer is 

entitled to request a Collection Due Process (CDP) hearing,

I.R.C. §§ 6320(b)(1), 6330(b)(1), the result of which the 

taxpayer may challenge in Tax Court, id. §§ 6320(c),

6330(d)(1). A CDP hearing proceeds before the IRS Office of 
6

Appeals, id. §§ 6320(b)(1), 6330(b)(1), and lacks the typical 

hallmarks of a judicial hearing. There are no formal discovery 

procedures, and the taxpayer has no right to subpoena 

documents or witnesses. See Treas. Reg. § 301.6330-1 (2006). 

The hearing may occur through written or oral correspondence 

rather than a single in-person event. Id. “Indeed, far from 

constituting a formal hearing,” a CDP hearing simply provides 

the taxpayer “an opportunity for an informal oral or written 

conversation with the IRS before he must pay a tax.” Our 

Country Home Enters., Inc. v. Comm’r, 855 F.3d 773, 780 (7th 

Cir. 2017). 

In a CDP hearing, the taxpayer may raise “any relevant 

issue relating to the unpaid tax or the proposed levy,” including 

“appropriate spousal defenses,” “challenges to the 

appropriateness of collection actions,” and “offers of collection 

alternatives” to facilitate his payment of the amount due. I.R.C.

§ 6330(c)(2)(A). If the taxpayer had no prior opportunity to 

dispute the tax liability—such as through deficiency 

proceedings—she may also challenge the “existence or amount 

of the underlying tax liability.” Id. § 6330(c)(2)(B). The 

appeals officer conducting a CDP hearing must consider (1) the 

verification from the Service that the agency followed 

applicable laws and procedures, (2) any challenges raised by 

the taxpayer, and (3) whether “any proposed collection action 

balances the need for the efficient collection of taxes with the 

legitimate concern of the person that any collection action be 

no more intrusive than necessary.” Id. § 6330(c)(3). An

Appeals Office decision is appealable to the Tax Court and,

from there, to a federal court of appeals. Id. §§ 6330(d)(1), 

7482(a)(1).
7

B.

At issue in this case is section 6038(a), which requires U.S. 

persons to file information returns reporting their control of any 

foreign business. It is one of dozens of provisions across the 

Internal Revenue Code that require taxpayers and other third 

parties to file certain information returns with the IRS or face 

penalties. Those required disclosures facilitate the IRS’s 

verification of taxpayers’ income and tax liabilities and assist 

the Service in detecting tax evasion. See Michael I. Saltzman 

& Leslie Book, IRS PRACTICE & PROCEDURE ¶ 7B.10. Many 

required informational filings relate to U.S. taxpayers’ foreign 

interests: Activities including the receipt of large gifts from 

foreign persons, transfers of property to foreign businesses or 

persons, ownership of foreign financial assets, and creation of 

foreign trusts all trigger reporting requirements enforceable 

with civil penalties—even if no taxes are owed in connection 

with the requisite information. See I.R.C. §§ 6039F, 6038B, 

6038D, 6048. Those requirements are designed to inform the 

Service of activities not subject to withholding that might 

generate tax revenue. They deter the use of international 

schemes to evade taxes, which are estimated to cost the U.S. 

government over $100 billion per year. See Jane G. Gravelle, 

Cong. Rsch. Serv., R40623, TAX HAVENS: INTERNATIONAL 

TAX AVOIDANCE AND EVASION 1, 21, 29-30 (2022). 

When Congress initially enacted section 6038 in 1960, the 

sole penalty for the failure to file the information required by 

section 6038(a) was a 10 percent reduction of the violator’s 

foreign tax credit. See Act of Sept. 14, 1960, Pub. L. No. 86-

780, § 6(a), 74 Stat. 1010, 1014-16 (initially applying the 

reporting requirement only to domestic corporations that 

controlled foreign businesses); see also Revenue Act of 1962, 

Pub. L. No. 87-834, § 20(a), 76 Stat. 960, 1059-60 (amending 

section 6038 to apply to all U.S. persons with control over a 
8

foreign business). Now codified at subsection 6038(c), the 

foreign tax credit reduction is assessable by the Service. Its 

assessability is intrinsic to how the subsection (c) penalty 

works: By reducing a taxpayer’s foreign tax credit, it increases

the amount of tax he owes. The penalty amount is thus 

necessarily reflected in a tax liability. Taxes are categorically 

assessable under section 6201(a), which states that “[t]he 

Secretary is authorized and required to make . . . assessments 

of all taxes . . . .” Indeed, for this reason, Farhy concedes that 

subsection (c) penalties are assessable. See Oral Arg. Rec. 

54:40-57. 

In 1982, Congress amended section 6038 to bolster its 

enforcement. See Tax Equity and Fiscal Responsibility Act of 

1982, Pub. L. No. 97-248, Title III, § 338, 96 Stat. 324, 631. 

“Despite complaints about inadequate reporting with respect to 

controlled foreign corporations,” enforcement of the penalty 

for failure to file was persistently lax. S. Rep. No. 97-494, vol. 

1, at 299 (1982). At the time, the foreign tax credit penalty was 

overly “complicated” and rarely imposed. Id. The penalty

could be “unduly harsh” in response to minor violations, even 

as it was “of no use” to penalize violators who paid no foreign 

income tax, so were due no credit in the relevant year. Id.

Congress responded by adding alongside subsection (c) a 

streamlined, uniform penalty for the same failure to file an 

informational return for a controlled foreign business: a flat 

$1,000 subsection (b) penalty, which it has since increased to 

$10,000. See § 338, 96 Stat. at 631; Taxpayer Relief Act of 

1997, Pub. L. No. 105-34, Title XI, § 1142(a), 111 Stat. 788, 

982. The subsection (b) penalty escalates by standard 

increments in response to persistent and knowing non-payment 

to a maximum total of $60,000 per year. See I.R.C. 

§ 6038(b)(1)-(b)(2). And section 6038 coordinates the 

penalties imposed under subsections (b) and (c) to avoid 
9

double-charging for the same violation. The amount of the 

subsection (c) penalty—the percentage-based reduction of the 

taxpayer’s foreign tax credit—is itself offset by the amount of 

any fixed-dollar penalty authorized for the same period under 

subsection (b). See id. § 6038(c)(3). 

C.

In 2004, U.S. permanent resident Alon Farhy developed a 

scheme to falsely underreport to the IRS his income from 

exercising certain stock options he received from his thenemployer. Seeking to fabricate losses to reduce his U.S.-

reportable income, he transferred more than $2 million to a 

sham foreign entity, which then transferred the funds to a bank 

account in the name of a Belize-based corporation Farhy 

created solely for that purpose. Farhy’s scheme violated a 

variety of tax-related obligations beyond his duty to correctly 

report and pay the income tax he owed. Most relevant to this 

case, he also failed to report to the IRS his control of foreign 

financial accounts and foreign corporations he used in the 

scheme. In 2012, Farhy signed a non-prosecution agreement 

with the Tax Division of the U.S. Justice Department that 

immunized him from criminal prosecution for his failure to 

disclose his offshore accounts, provided he cooperated fully 

and truthfully with tax enforcement efforts and paid all 

applicable taxes, interest, and penalties.

But the non-prosecution agreement did not absolve Farhy 

of civil liabilities arising from tax code violations. On 

February 9, 2016, the IRS mailed Farhy notice that, between 

2003 and 2010, he had failed to file forms to disclose his 

ownership of the Belizean corporations, as required by I.R.C.

§ 6038(a). More than two years later, when Farhy still had not 

filed the required forms, the IRS assessed initial and 

continuation penalties pursuant to I.R.C. § 6038(b), totaling 
10

$60,000 per year of Farhy’s non-compliance. After the IRS 

sent Farhy notice of its intent to levy his property to collect the 

penalties owed, Farhy requested a CDP hearing. The Appeals 

Office upheld the proposed levy of Farhy’s property.

Farhy petitioned the Tax Court to invalidate the proposed 

levy, arguing only that the IRS was not authorized to assess 

penalties imposed under section 6038(b). He claimed that the 

IRS was instead required to collect liabilities for such penalties 

through a civil action brought in federal district court under 28 

U.S.C. § 2461(a). Section 2461(a) establishes a general cause 

of action authorizing the government to sue to collect any civil 

penalty “prescribed for the violation of an Act of Congress.” 

The Tax Court granted Farhy’s petition. See Farhy v. 

Comm’r, Dkt. No. 10647-21L, 2023 WL 2752459, at *1 (T.C. 

Apr. 3, 2023). It held that the IRS could not proceed with its

proposed levy because the Secretary lacked statutory authority 

to assess the penalties. Id. at *4. The court concluded that,

although Congress explicitly authorized assessment with 

respect to many penalty provisions across the tax code, it did 

not do so for section 6038(b). Id. at *4-5. That meant that the 

IRS could collect section 6038(b) penalties only through a civil 

suit filed by the U.S. Department of Justice, not through the 

administrative collection methods that it had used to enforce

the penalties for more than forty years. Id. at *5. The 

government appeals. 

DISCUSSION

We review the Tax Court’s legal rulings de novo. Lissack 

v. Comm’r, 68 F.4th 1312, 1322 (D.C. Cir. 2023). The only 

question on appeal is what mechanism Congress authorized for 

the Secretary of the Treasury to collect the fixed-dollar 

penalties authorized in I.R.C. § 6038(b) against a U.S. person
11

who fails to file the requisite information returns regarding 

foreign businesses under her control. 

The text of section 6038 does not explicitly say whether 

the penalties imposed for violating section 6038(a) are 

assessable. The parties principally argue from dueling 

presumptions that they contend generally apply to all penalties 

across the Internal Revenue Code. Each claims support from a 

distinct reading of I.R.C. § 6201(a), which grants the Treasury 

Secretary broad authority to assess “all taxes (including 

interest, additional amounts, additions to the tax, and 

assessable penalties).” Although none of the terms in section 

6201(a)’s parenthetical are defined by the statute, the three 

categories of penalties listed after “interest” in the text

correspond with—but are not necessarily limited to—the 

penalties that are set out in I.R.C. Subtitle F, Chapter 68, which 

is titled “Additions to the Tax, Additional Amounts, and 

Assessable Penalties.” All exactions in Chapter 68 are 

explicitly directed to “be assessed . . . in the same manner as 

taxes” by a subsection contained therein. I.R.C. § 6665(a)(1).

In relying on section 6201(a) to argue that the disputed 

penalty is assessable, the Service emphasizes that section’s text 

as well as “its role in the Code, its history, and the absurdities 

that would result from a narrower interpretation.” Reply Br. 2. 

The Service starts by treating the exactions listed in the section 

6201(a)’s “including” parenthetical as both non-exhaustive 

and, together with “all taxes,” illustrative of every type of 

exaction the tax code authorizes. It does not only claim that the 

term “assessable penalties” in the section 6201(a) parenthetical 

encompasses section 6038(b) penalties and others located 

“outside of Chapter 68.” IRS Br. 18. Rather, the Service

contends section 6201(a) is written to “cover the waterfront,” 

Reply Br. 12, by making all exactions assessable as taxes 

unless the Code expressly requires a different process as to a 
12

given exaction. The Service explains that section 6201(a)’s 

parenthetical lists “interest” and three broad types of penalties

that appear in the Code. Because the word “including” 

precedes that list, the Service contends that list is illustrative 

rather than exhaustive, and was meant to encompass penalties 

generally, thereby comfortably including section 6038(b) 

penalties. It claims support for that position in the immediate 

predecessor to section 6201(a), which empowered and 

obligated the Commissioner “to make the inquiries, 

determinations, and assessments of all taxes and penalties

imposed by this title, or accruing under any former internal 

revenue law, where such taxes have not been duly paid . . . ,”

I.R.C. § 3640 (1940) (emphasis added), which Congress 

recodified as 6201(a) with no apparent intention to 

circumscribe its applicability to all penalties. 

For his part, Farhy interprets section 6201(a) to stand for 

the reverse presumption: He reads it to confirm that a penalty 

must be explicitly characterized as a “tax” or designated as 

“assessable” (or, presumably, an “additional amount” or 

“addition to the tax”) elsewhere in the tax code for the 

Secretary to assess it per section 6201(a). Farhy reads section 

6201(a)’s reference to “assessable penalties” to carry a

negative implication that some penalties are not assessable, 

section 6038(b) penalties among them. More broadly, Farhy 

sketches out an exclusive schema of four overlapping ways the 

Code renders penalties assessable and insists penalties outside 

these categories are not assessable:

First, “[s]ome penalties are designated as taxes for 

assessment purposes,” thereby authorizing their assessment 

under section 6201(a). Farhy Br. 7 (emphasis omitted). This 

category encompasses all penalties contained in Subtitle F, 

Chapter 68 of the IRC, which states that those penalties “shall 
13

be assessed . . . in the same manner as taxes.” I.R.C. 

§ 6665(a)(1).

Second, “[s]ome penalties have a stand[-]alone assessment 

authority” in the section of the tax code imposing them, Farhy 

Br. 7 (emphasis omitted), because they describe a penalty that 

“shall be assessed,” see, e.g., I.R.C. § 527(j)(1), or provide, 

through cross-reference to Chapter 68, that a statutory violation 

authorized outside that Chapter is subject to a penalty provided 

therein. Farhy Br. 7-8.

Third, “[s]ome penalties have a group assessment 

authority,” which occurs when the tax code “authorize[s] 

assessment of a penalty belonging in a designated group.” Id. 

at 8 (emphasis omitted). Farhy again cites the penalties located 

in subchapter B of Chapter 68 (titled “Assessable Penalties”), 

which are explicitly directed to be “assessed and collected in 

the same manner as taxes,” I.R.C. § 6671(a).

Fourth, “[s]ome penalties result from a designated 

procedure,” such as deficiency proceedings. Farhy Br. 8-9

(emphasis omitted). 

Because section 6038(b)’s penalties fall into none of those 

categories, Farhy contends, they are not “assessable penalties” 

and section 6201(a) cannot be read to encompass them and 

thereby make them so. 

We need not embrace either party’s tax code-wide default 

rule to resolve this case. We accordingly do not pass on those 

broader theories beyond explaining why Farhy’s does not 

preclude assessment of section 6038(b) penalties. Instead, we 

conclude that a narrower set of inferences suffices to show that 

Congress intended to render those penalties assessable. Read 

in light of its text, structure, and function, section 6038 itself is 

best interpreted to render assessable the fixed-dollar monetary 
14

penalties subsection (b) authorizes. As a result, the 

Commissioner’s authority to assess all “assessable penalties” 

encompasses the authority to assess penalties imposed under 

section 6038(b).

A.

A close reading of section 6038 with an eye to the role of 

subsection (b) within it reveals that the Congress that amended 

the Code in 1982 intended the subsection (b) penalty to be 

assessable. For the same underlying failure to file, the section 

originally authorized only a percentage-based, assessable

penalty imposed as a reduction of the taxpayer’s foreign tax 

credit (now codified as subsection (c)). Two changes effected 

by the amendment are particularly relevant: First, in response 

to difficulties experienced in applying that original penalty,

Congress added (as subsection (b)) a fixed-dollar penalty that 

could be more simply and consistently collected. Second,

Congress required (in subsection (c)(3)) that the two penalties 

be coordinated. The subsection (b) penalty must be offset from 

any subsection (c) penalty in cases in which both penalties 

apply. All agree the IRS may assess subsection (c) penalties, 

and those two objectives of the amendment—that recovery of 

subsection (b) penalties be more streamlined than recovery of 

subsection (c) penalties, and that any subsection (c) penalty be 

reduced by the amount of the subsection (b) penalty—make 

plain that subsection (b) penalties must also be assessable. 

Section 6038’s express authorization of the IRS rather than a 

district court to evaluate a taxpayer’s defense to penalties 

imposed under the section reinforces that conclusion.

1.

Reading subsection (b) to require the government to sue 

taxpayers to collect its fixed-dollar penalty, as Farhy does, 

treats Congress as having enacted a supplemental penalty 
15

process that is less streamlined, not more, than the preexisting 

collection process for subsection (c) penalties. Again, the IRS 

may assess and collect a subsection (c) penalty without 

entering a courtroom. All assessable exactions, including 

penalties under subsection (c), are subject to litigation only if a 

taxpayer opts for judicial review, such as by challenging a 

notice of deficiency in Tax Court pursuant to I.R.C. § 6213. If

penalties imposed under subsection (b) are likewise assessable, 

as the government contends, the taxpayer may opt for judicial 

review of those penalties, too, by requesting a CDP hearing 

and, if dissatisfied with its result, obtaining Tax Court review

under I.R.C. § 6330(d)(1). 

If subsection (b) penalties are not assessable, the IRS 

cannot collect them at all without going first to court in each 

and every case. But it is unlikely the government will file 

lawsuits to recover from taxpayers the flat, $10,000 penalty 

authorized by subsection (b). Farhy concedes as much: As his 

counsel put it, the “Justice Department wouldn’t touch that 

with a ten-foot pole.” Oral Arg. Rec. 57:52-55. If subsection 

(b) penalties are that hard to recover, they may not be worth the 

candle. It would be “highly anomalous” for Congress to have 

responded to the identified problem of the underuse of 

subsection (c) penalties by promulgating a penalty that, while

simpler to calculate, is much harder to enforce. IRS Br. 21; see 

also S. Rep. No. 97-494, vol. 1, at 299. Farhy has no persuasive 

rebuttal to that point. To the contrary, he suggests that 

Congress purposely made section 6038(b) penalties nonassessable—and therefore largely ornamental—because it 

wanted to “withhold the IRS’s super-charged collection 

powers” that flow from assessment. Oral Arg. Rec. 44:32-42. 

That view is contradicted by the clear congressional purpose 

behind the enactment of subsection (b). 
16

Further, the subsection (c)(3) coordination provision 

shows Congress contemplated that section 6038’s tandem 

penalties could be imposed at the same time. When they are, 

treating the subsection (b) penalties as non-assessable would 

make recovering subsection (c) penalties even more, rather 

than less, complicated. That is because the amount by which 

the reduction of the taxpayer’s foreign tax credit, calculated 

under section 6038(c)(1), should be offset per section 

6038(c)(3) is set by subsection (b). It is thus fair to assume that 

Congress intended the subsection (b) penalty to be routinely 

assessed, but credited back in cases in which the Service also 

imposes a subsection (c) penalty. Under Farhy’s reading,

however, the subsection (b) penalty must await a federal 

court’s entry of judgment. If both subsection (b) and 

subsection (c) penalties were sought in the same case, the 

Secretary would be forced to wait for the conclusion of the 

federal court action regarding the subsection (b) penalty before 

she could coordinate the subsection (b) and subsection (c) 

penalty amounts and then collect the correct subsection (c) 

penalty amount. To agree with that reading, we would have to 

conclude that, in enacting subsection (b), Congress not only 

failed in its avowed quest to streamline, but also 

counterproductively threw sand in the gears of section 6038’s 

existing enforcement scheme.

2.

Another feature of the process contemplated in section 

6038 drives home that Congress expected the IRS, not a federal 

district court, to assess subsection (b) penalties. Consider what 

section 6038 says about the determination of specified defenses 

to the penalties the section imposes. As with many penalties 

imposed across the tax code, penalties under sections 6038(b) 

and (c) are subject to a “reasonable cause” affirmative defense, 

which courts describe as requiring the taxpayer to establish that
17

she “exercised ordinary business care and prudence” in 

attempting to adhere to her reporting obligations. Flume v. 

Comm’r, Dkt. No. 15772-14L, 2017 WL 394541, at *5 (T.C. 

Jan. 30, 2017) (quoting United States v. Boyle, 469 U.S. 241, 

246 (1985)). And section 6038 empowers the Service—not a 

court—to grant or deny that defense. See I.R.C. 

§ 6038(c)(4)(B) (requiring reasonable cause to be “shown to 

the satisfaction of the Secretary”). 

Various IRC provisions excuse taxpayers for conduct 

otherwise subject to penalty based on a showing of “reasonable 

cause” for the noncompliance. If a taxpayer experienced a 

debilitating health condition constituting “reasonable cause”

severe enough to interfere with her ability to file, for example, 

the IRS could not impose penalties unless the taxpayer’s noncompliance persisted once she had recovered. See, e.g., 

Remisovsky v. Comm’r, Dkt. No. 11945-20L, 2022 WL 

3755390, at *3-4 (T.C. Aug. 30, 2022). Putting the IRS in 

charge of determining whether a taxpayer has demonstrated 

reasonable cause only makes sense in circumstances in which 

it is the IRS that assesses the penalty. Where Congress requires

the government to file a civil action to enforce a violation of 

the tax code, the court rather than the Service would decide 

whether the taxpayer proved that the defense excuses his or her 

violation. 

Section 6038(c)(4)(B) expressly treats the reasonable 

cause showing for failure to file the relevant informational 

returns as within the purview of the Service. A taxpayer facing 

a subsection (b) penalty may submit to the IRS a written 

statement attesting that reasonable cause excused the filing 

failure, see Treas. Reg. § 1.6038-2(k)(3)(ii), and “provide a 

reasonable cause narrative during the CDP hearing” to an IRS 

employee acting with delegated authority from the Secretary, 

who makes a determination that can be appealed to the Tax 
18

Court. Flume, 2017 WL 394541, at *6; see Treas. Reg. 

§ 1.6038-2(k)(3)(ii). The 1982 Senate Report confirms that the 

reasonable-cause defense to subsection (b) penalties was 

intended to operate “[a]s under present law,” meaning as under 

subsection (c); in either case, a showing made “to the 

satisfaction of the Secretary” would mean that “no penalty is 

due.” S. Rep. No. 97-494, vol. 1, at 299. 

If the subsection (b) penalty were not assessable, there 

would be no post-assessment administrative process in which 

the taxpayer could make a reasonable cause showing to the 

Secretary. On Farhy’s reading, it would be for the district court

rather than the Secretary to determine the taxpayer’s liability 

for the penalty, subject to any reasonable-cause defense. It is 

hard to see what purpose would be served by the statutory 

requirement that the taxpayer’s reasonable-cause defense be 

“shown to the satisfaction of the Secretary” if the claim subject 

to that defense must be decided in the first instance by a district 

court judge. I.R.C. § 6038(c)(4)(B). 

Congress’s specification that the Secretary, not the district 

court, evaluates taxpayers’ assertions of reasonable-cause 

defenses to section 6038(b) penalties dovetails neatly with 

section 6201(a). In addition to empowering and requiring the 

Secretary to make assessments, section 6201(a) calls on the 

Secretary to “make the inquiries [and] determinations . . . of all 

taxes (including . . . assessable penalties).” As just discussed, 

one familiar set of secretarial “determinations” is whether a 

taxpayer has “shown to the satisfaction of the Secretary” that 

he had reasonable cause for failing to file required information, 

per I.R.C. § 6038(c)(4)(B). Farhy’s insistence that section 

6201(a) is inapplicable to section 6038(b) penalties would 

leave the Secretary without power under section 6201(a) 

regarding not only the assessment of section 6038(b) penalties, 

but “inquiries” and “determinations” into them as well. Section 
19

6038’s express contemplation that the Secretary will determine 

the reasonable-cause defense—whether penalty is sought 

under subsection (b) or (c)—supports treating both section 

6038 penalties as assessable. The unworkability of rendering 

inquiry-and-determination authority not equally applicable to 

the penalties under those tandem subsections bolsters our 

conclusion that Congress intended both penalties to be 

assessable within the meaning of section 6201(a).

3.

Finally, the potential bifurcation of the review of penalties 

arising from the same violation underscores the anomalous 

implications of interpreting subsection (c), but not subsection 

(b), penalties to be assessable. Farhy’s reading would create 

parallel and substantively overlapping judicial tracks for 

determination of twinned penalties for the same 

noncompliance: federal district court for the subsection (b) 

penalties, and Tax Court for the subsection (c) penalties. 

Interjecting a federal district court into a penalty process 

already subject to IRS administrative determinations 

reviewable by the Tax Court introduces an inexplicable 

asymmetry and potential for inconsistent doctrinal 

development. If both penalties were sought in the same case, 

it could even generate duplicative court proceedings on 

common issues. Both courts might have to decide, for 

example, whether the taxpayer who failed to disclose his 

controlling stake of the foreign businesses owned those 

businesses during the years for which the IRS seeks penalties, 

and review or decide whether the taxpayer had a reasonablecause defense to the section 6038(a) violation. 

Treating the subsection (b) penalty as non-assessable 

could also raise potential preclusion issues when both penalties 

are imposed for the same conduct. Provided other 
20

requirements of collateral estoppel are met, the first-issued 

judgment as to a common issue between the parallel 

proceedings would have binding effect on the other court. See, 

e.g., Burrows v. United States, 945 F.2d 408 (9th Cir. 1991)

(unpublished table decision). Reading section 6038 to call for 

dual-track subsection (b) and (c) judicial proceedings could stir 

concerns about gamesmanship, incentivizing parties to push 

forward more quickly in the forum they perceive to be more 

favorable. 

We decline to adopt a reading of section 6038(b) that 

attributes to Congress the intent to respond to the problem it 

identifies in a manner that is not only ineffective, but 

counterproductive. 

B.

It is hardly anomalous that section 6038(b) penalties are 

assessable even though the text of section 6038 does not 

explicitly label them as such. Farhy’s contention that Congress 

may only authorize assessment of a penalty by using certain 

formulations that he has identified overlooks the realities of the 

Internal Revenue Code—an ever-changing statutory 

patchwork that contains nearly 10,000 code sections. See 

NAT’L TAXPAYER ADVOCATE, ANNUAL REPORT TO CONGRESS

45 (2022). Scattered across the tax code are more than one

hundred penalties applicable to diverse forms of 

noncompliance and set forth in varied ways. Discerning the 

operation of each penalty is necessarily a context-dependent 

exercise.

Farhy argues that, because the Internal Revenue Code has 

“explicitly authorized assessment regarding myriad penalty 

provisions in the Code” in the four ways he deems to be 

exclusive, Congress’s putative failure to fit section 6038(b) 

penalties into his framework means they are non-assessable. 
21

Farhy Br. 9; see Farhy, 2023 WL 2752459, at *4. But Farhy is 

incorrect that Congress can only render a penalty assessable 

through the standardized methods he identifies. 

Nothing establishes Farhy’s categories as exhaustive of the 

ways the Internal Revenue Code designates penalties as 

assessable. Consider I.R.C. § 6038D, which requires U.S. 

persons to report to the IRS any interest exceeding $50,000 in 

certain foreign financial assets, such as financial accounts and 

foreign entities. Much like section 6038(b), section 6038D(d) 

imposes a fixed-dollar penalty of $10,000 for violating the 

statutory obligation. I.R.C. § 6038D(d)(1). And, like section 

6038(b) penalties, penalties under section 6038D(d) escalate in 

response to continuing failure to comply after notice from the 

IRS. Id. § 6038D(d)(2). The penalty imposed under section 

6038D(d) lacks all of the explicit indications of assessability 

Farhy insists are needed: Section 6038D is not within Chapter 

68, all of which the Code explicitly renders assessable; it does 

not identify the penalty imposed therein as assessable; and it

does not say its penalty corresponds to any penalties listed in 

Chapter 68. Consequently, Farhy urges that this penalty, too, 

is not assessable. See Farhy Br. 10 n.1. 

But section 6038D(e) spells out a presumption, binding on 

the Commissioner “for purposes of assessing the penalties 

imposed under this section,” that foreign financial assets not 

disclosed or sufficiently described meet the threshold amount 

required for the penalties to apply. I.R.C. § 6038D(e) 

(emphasis added). We do not rule on the point, as it is not 

before us, but specifying a default rule for the Commissioner 

to apply in penalty assessment would seem to make it quite 

plausible that section 6038D(d)’s penalties are assessable.

Section 45(b)(7)(B) provides another example of a 

provision that Farhy categorizes as not assessable within his 
22

schema, even though its text suggests that the penalty it 

authorizes is assessable. See Farhy Br. 10 n.1. That section 

imposes penalties for the failure to pay required wages to 

laborers who construct or repair renewable energy facilities. 

I.R.C. § 45(b)(7)(B)(i)(II). It does not appear in or crossreference Chapter 68, or directly state that the penalty is 

assessable, as Farhy insists is required. It states only that 

deficiency proceedings “shall not apply with respect to the 

assessment or collection of any penalty imposed by this 

paragraph.” Id. § 45(b)(7)(B)(ii) (emphasis added). Again, we 

make no holding on the point, but the implication is clear that, 

although the penalties imposed are not deficiencies, the 

Commissioner can summarily assess them. And Farhy

ultimately concedes as much. Oral Arg. Rec. 49:10-20. 

Thus, Congress renders penalties assessable in more ways 

than Farhy’s proposed schema contemplates: The absence of 

the penalty from Chapter 68 and the lack of either a crossreference to Chapter 68 or explicit language directing that the 

penalty “shall be assessed” is not determinative. Congress can 

make a penalty assessable by implication, and it did so here.

***

We conclude, based on the statute’s text, structure, and 

function, that penalties imposed under section 6038(b), like the 

related penalties under section 6038(c), are assessable. This 

conclusion is buttressed by more than forty years of 

congressional acquiescence to the IRS’s practice of assessing 

section 6038(b) penalties. “It is well established that when 

Congress revisits a statute giving rise to a longstanding 

administrative interpretation without pertinent change, the 

‘congressional failure to revise or repeal the agency’s 

interpretation is persuasive evidence that the interpretation is 

the one intended by Congress.’” Commodity Futures Trading 
23

Comm’n v. Shor, 478 U.S. 833, 846 (1986) (quoting NLRB v. 

Bell Aerospace Co., 416 U.S. 267, 274-75 (1974)); see also 

Wash. All. of Tech. Workers v. U.S. Dep’t of Homeland Sec., 

50 F.4th 164, 182-85 (D.C. Cir. 2022). Since adding 

subsection (b) in 1982, Congress has amended section 6038 

seven times; each time, it has left undisturbed the IRS’s 

practice of assessing and administratively collecting penalties 

imposed under section 6038(b).

For the foregoing reasons, we reverse the judgment of the 

Tax Court and remand with instructions to enter decision in 

favor of the Commissioner.

So ordered.