Alon Farhy, 10647-21

From 2003–2010 petitioner owned two Belizean corporations and was required to file Forms 5471 under I.R.C. § 6038(a); he did not and his failures were willful.
IRS mailed a notice of failure to file in 2016; petitioner never filed the Forms 5471.
In November 2018 the IRS assessed § 6038(b)(1) initial penalties ($10,000/year) and § 6038(b)(2) continuation penalties (up to $50,000/year) for each year at issue.
IRS issued a final notice of intent to levy in January 2019 to collect those assessed penalties; petitioner timely requested a § 6330 CDP hearing and disputed the IRS’s authority to assess § 6038(b) penalties.
Appeals issued a notice of determination sustaining the proposed levy; petitioner timely petitioned the Tax Court. The parties stipulated that the only remaining legal question is whether the IRS had statutory authority to assess and administratively collect the § 6038(b) penalties.

Issue	Plaintiff's Argument (Farhy)	Defendant's Argument (Commissioner)	Held
Whether the IRS has statutory authority to assess § 6038(b) penalties and collect them administratively (e.g., by levy).	§ 6038(b) contains no assessment/collection authorization; IRS may only recover these penalties by civil action under 28 U.S.C. § 2461(a), not by administrative assessment and levy.	§ 6201(a)’s assessment authority and the phrase “assessable penalties” include § 6038(b) penalties; Congress did not limit assessable penalties to chapter 68. Legislative history supports assessment.	Held for petitioner: IRS lacks statutory authority to assess § 6038(b) penalties and therefore may not collect them by levy.
Whether the terms in § 6201(a) ("taxes" and "assessable penalties") should be read to encompass § 6038(b) penalties.	§ 6201(a) does not automatically convert every Code penalty into an assessable penalty; § 6038(b) lacks any cross‑reference treating the penalty as a tax or assessable penalty.	The text of § 6201(a) and precedents permit reading "assessable penalties" broadly to include penalties not subject to deficiency procedures.	Held for petitioner: statutory scheme and precedent support a narrower reading—Congress expressly authorized assessment for many penalties, but not § 6038(b); therefore § 6201(a) does not authorize assessment here.

Sego v. Commissioner, 114 T.C. 604 (T.C. 2000) (when underlying liability is properly at issue in CDP, Court reviews de novo).
Goza v. Commissioner, 114 T.C. 176 (T.C. 2000) (standard of review for administrative determinations is abuse of discretion).
Freije v. Commissioner, 125 T.C. 14 (T.C. 2005) (set aside CDP determination where verification was legally incorrect; invalid assessments undermine collection).
Smith v. Commissioner, 133 T.C. 424 (T.C. 2009) (an ‘‘assessable penalty’’ must be paid on notice and demand and be assessed/collected like taxes).
Ruesch v. Commissioner, 154 T.C. 289 (T.C. 2020) (discussed limits of Tax Court jurisdiction re § 6038(b) absent a notice of determination).
Baltic v. Commissioner, 129 T.C. 178 (T.C. 2007) (assessment is the formal recording of tax liability).
In re Goldston (Goldston v. United States), 104 F.3d 1198 (10th Cir. 1997) (administrative collection depends on valid assessment; absent assessment IRS cannot use levy though it may sue).
Grajales v. Commissioner, 156 T.C. 55 (T.C. 2021) (distinguishing taxes from penalties by reference to Congress’s chosen label).