Hearing Officer Not Required to Substantively Analyze Supervisor's Approval of Penalty

(Parker Tax Publishing April 2018)

The Tax Court held that there was no abuse of discretion by a settlement officer (SO) in a collections due process hearing where the SO determined that a computer-generated IRS record showing a supervisor's printed name but not the supervisor's signature was sufficient evidence of IRS supervisory approval. The Tax Court found that the SO was not required to analyze the thought process of the approving supervisor but only to verify that the supervisor approved in writing the initial determination of the penalty. Blackburn v. Comm'r, 150 T.C. No. 9 (2018).

Beginning in 2000, Emergency Response Training, Inc. (ERT) fell behind on its employment tax liabilities. Specifically, ERT failed to file a number of Forms 941, Employer's Quarterly Federal Tax Return, or satisfy numerous self-reported employment tax liabilities during 2000 through 2011.

In 2012, Scott Blackburn and another individual were determined by the IRS to be responsible persons and an IRS revenue officer asserted trust fund recovery penalties (TFRPs) against them. At the time, Senior Revenue Officer Janet Reed was the manager of the officer who made the initial TFRP determination. Later in 2012, the revenue officer changed her determination regarding the second individual's TFRP liability and submitted a request for supervisory approval to assert TFRP liabilities against Blackburn. A Form 4183, Recommendation re: Trust Fund Recovery Penalty Assessment, was generated showing Reed's approval of the TFRP determination against Blackburn. The computer-generated Form 4183 did not contain Reed's signature but showed her name in the supervisor signature block. In November 2012, the IRS assessed TFRP liabilities against Blackburn for the fourth quarter of 2003 and the fourth quarter of 2004. After a collections due process hearing, a settlement officer (SO) upheld the TFRP assessment.

Blackburn appealed the SO's decision in the Tax Court. He did not contest his liability for the TFRP, but argued that the SO had failed to fulfill the requirement under Code Sec. 6330(c)(1) to verify that the IRS had fulfilled all of its legal and procedural requirements. Blackburn reasoned that under Code Sec. 6751(b)(1), the IRS may not assess a penalty unless an IRS supervisor has personally approved the determination in writing; supervisory approval is part of the IRS's burden of production under Graev v. Comm'r, 149 T.C. No. 23 (2017). According to Blackburn, the SO's verification responsibility required a meaningful review, including a factual analysis of the supervisor's thought process, and he argued that by relying solely on the Form 4183 to verify that a supervisor approved the TFRP determination, the SO did not fulfill the Code Sec. 6330(c)(1) verification requirement. The IRS filed for summary judgment, arguing that Code Sec. 6751(b)(1) does not apply to a TFRP assessment and that even if it did, the Form 4183 fulfilled that requirement.

The Tax Court ruled in favor of the IRS, finding that the SO properly verified the assessment of the TFRP. The Tax Court held that Code Sec. 6330(c)(1) does not require an analysis of the thought process of the approving supervisor under Code Sec. 6751(b), but rather verification that the supervisor approved in writing the initial determination of the penalty. The Tax Court explained that, because it found no abuse of discretion regarding verification of compliance with Code Sec. 6751(b), it did not need to address the legal question of whether Code Sec. 6751(b) applies to the TFRP.

In the Tax Court's view, Blackburn was arguing that the SO's verification responsibility under Code Sec. 6330(c)(1) included making a determination of a meaningful approval of the merits of the liability. The Tax Court found no case law support for requiring a substantive review of the SO's thought process. Rather, the court found that the SO's review of the administrative steps taken before assessment is accepted as adequate under Code Sec. 6330 as long as there is supporting documentation in the administrative record. Imposing the requirement of a substantive review on the SO would, in the view of the Tax Court, allow the taxpayer to avoid the limitations of pursuing the underlying liability in a CDP hearing and apply a level of detail in the verification process that had never previously been required.

The Tax Court found that the treatment of Form 4340, Certificate of Assessment and Payments, as presumptive evidence that a tax was validly assessed was an apt parallel to the issue regarding Form 4183. Form 4340 is used to prove that an assessment has been made and is considered presumptive proof of a valid assessment. The Tax Court explained that the IRS may rely on Form 4340 where the taxpayer has not shown any irregularity in the assessment procedure that would raise a question about the validity of an assessment. An assessment requires a signature and is made by an IRS officer's signing the summary record of assessments; the officer's signature is not required on the Form 4340. In the court's view, even though Form 4183 does not have an actual signature, in the context of a review for abuse of discretion, its mere existence in the administrative record supports the SO's verification.

The Tax Court found that it had consistently held in prior decisions that reliance on standard administrative records was acceptable to verify assessments. The court reasoned that Form 4183 was similar to Form 4340, which had previously been found to be an IRS record that reflected compliance with administrative procedures. Form 4183, in the court's view, provided a similar mechanism to demonstrate supervisory approval. The Tax Court concluded that, regardless of whether supervisory approval was required before the TFRP assessment, a record of such prior approval was present in this case.

For a discussion of CDP hearings, see Parker Tax ¶260,540.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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