Laidlaw's Harley Davidson Sale v. Cir
29 F.4th 1066
| 9th Cir. | 2022Background
- Laidlaw’s Harley Davidson Sales failed to disclose participation in a listed transaction (Sterling Benefit Plan); §6707A penalty exposure arises from that nondisclosure.
- Revenue Agent Czora issued a May 26, 2011 30‑day letter proposing a $96,900 §6707A penalty and stating that the IRS would assess the penalty if Taxpayer took no action by the deadline.
- At the time the 30‑day letter was sent, no written supervisory approval under I.R.C. §6751(b)(1) had been obtained; Taxpayer protested on July 21, 2011.
- Supervisor Korzec signed the Civil Penalty Approval Form on August 23, 2011 (after the 30‑day letter but before the penalty was formally assessed on September 16, 2013).
- The Tax Court held that §6751(b)(1) requires written supervisory approval before the IRS formally communicates a proposed penalty to the taxpayer and granted summary judgment for Taxpayer.
- The Ninth Circuit reversed: it read §6751(b)(1) to require supervisory approval before assessment or, if earlier, before the supervisor loses discretion to approve; here approval occurred while the supervisor retained discretion and before assessment, so the requirement was satisfied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timing of §6751(b)(1) supervisory approval | Approval must be obtained before the IRS formally communicates the initial penalty determination to the taxpayer (i.e., before the 30‑day letter) | Approval is required only before formal assessment and while the supervisor still has discretion to withhold approval; it can occur after communication | Approval is required before assessment or before supervisor loses discretion; here approval (Aug 23, 2011) occurred while supervisor had discretion and before assessment, so §6751(b)(1) satisfied — Tax Court reversed |
| Meaning of “initial determination” and relevance of agency practice | “Initial determination” refers to an operative determination communicated to taxpayer (an opening bid that becomes effective unless objected to), so must be approved before being sent | “Initial determination” is not tied to communication timing; statute contains no temporal requirement and focuses on approval before assessment | Court applies textualist reading: statute lacks an express pre‑communication deadline; focus is on approval before assessment or loss of supervisor discretion |
Key Cases Cited
- Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (held approval must be obtained by the date of notice of deficiency when penalty is subject to deficiency procedures)
- Roth v. Commissioner, 922 F.3d 1126 (10th Cir. 2019) (discusses meaning of “assessed” as formal recording on tax rolls)
- Mazzei v. Commissioner, 998 F.3d 1041 (9th Cir. 2021) (standard of review for Tax Court decisions)
- United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121 (9th Cir. 2015) (textualist statutory‑interpretation principles)
- BedRoc Ltd. v. United States, 541 U.S. 176 (2004) (canon that interpretation begins with statutory text)