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No Supervisory Approval Needed for Assessment of Penalties Under Sec. 6721(e)

(Parker Tax Publishing October 2023)

The Tax Court held a Code Sec. 6721(e) penalty for failing to file a Form W-2 due to intentional disregard, which is assessed through the IRS's Combined Annual Wage Reporting (CAWR) computer program, is not subject to the Code Sec. 6751(b)(1) supervisory approval requirement. The court found that the penalty is automatically calculated through electronic means and therefore exempt under Code Sec. 6751(b)(2)(B). Piper Trucking & Leasing, LLC v. Comm'r, 161 T.C. No. 3 (2023).


Piper Trucking & Leasing, LLC, is a single-member limited liability company. Piper Trucking's principal place of business is Celina, Ohio.

Employers are required to file Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statement, with the Social Security Administration (SSA). The SSA sends two warning letters to employers that fail to file these forms. The first letter informs the employer to either respond or file the missing forms. The second letter warns the employer that the matter will be referred to the IRS to determine whether penalties are applicable. If an employer fails to respond to both letters, their name is added to a database. Every year the SSA transfers this database to the IRS. Following the transfer of the database, the IRS's Combined Annual Wage Reporting (CAWR) computer program automatically sends the employers in the database a Letter 98C asserting a Code Sec. 6721(e) penalty. If the employer does not respond to the Letter 98C, the IRS, through the CAWR computer program and without any human intervention, assesses the Code Sec. 6721(e) penalty.

In a Letter 98C, the IRS asserted a Code Sec. 6721(e) penalty against Piper Trucking. Piper Trucking did not respond. Through his CAWR computer program, the IRS assessed a Code Sec. 6721(e) penalty against Piper Trucking for failure to file, with the SSA, Forms W-2 relating to 2015. Piper Trucking did not pay the Code Sec. 6721(e) penalty, and, the IRS sent Piper Trucking a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 relating to 2015. In a Form 12153, Request for a Collection Due Process or Equivalent Hearing, Piper Trucking requested a lien withdrawal and submitted a Form 2848, Power of Attorney and Declaration of Representative.

The IRS scheduled a telephonic collection due process (CDP) hearing and requested that Piper Trucking complete Form 433-B, Collection Information Statement for Businesses, and file its Form 940, Employer's Annual Unemployment (FUTA) Tax Return, relating to 2019. Neither Piper Trucking nor its representative attended the hearing. The IRS scheduled another telephonic CDP hearing. Piper Trucking's representative attended and agreed to send the required documentation. Piper Trucking did not submit the documents and the parties had no further discussions. Piper Trucking did not propose a collection alternative or dispute the underlying liability. The IRS issued Piper Trucking a Notice of Determination Concerning Collection Actions under IRC Sections 6320 or 6330 sustaining the lien filing.

Piper Trucking filed a petition with the Tax Court. In a motion for summary judgment, the IRS argued that the underlying Code Sec. 6721(e) penalty met the Code Sec. 6751(b)(1) supervisory approval requirement. Code Sec. 6751(b)(1) provides that no penalty shall be assessed unless the initial determination to assert penalties is approved in writing by the immediate supervisor of the person making the determination. Code Sec. 6751(b)(2)(B) provides that penalties "automatically calculated through electronic means" are not subject to the Code Sec. 6751(b)(1) supervisory approval requirement.


The Tax Court granted the IRS's motion for summary judgment. The court found that, because Piper Trucking failed to respond to the Letter 98C, the underlying Code Sec. 6721(e) penalty was determined through the IRS's CAWR computer program and did not involve human intervention. The court found that the underlying Code Sec. 6721(e) penalty was "automatically calculated through electronic means" under Code Sec. 6751(b)(2)(B). Therefore, the court held that a Code Sec. 6721(e) penalty assessed through the IRS's CAWR program is not subject to the Code Sec. 6751(b)(1) supervisory approval requirement.

Next, the court determined that in its CDP hearing Piper Trucking failed to dispute the underlying liability and therefore it was not at issue. Accordingly, the court reviewed the IRS's administrative determinations for abuse of discretion. Since Piper Trucking did not propose a collection alternative, failed to provide the requested financial information, and was not current on its filing obligations, the court found that Piper Trucking was not eligible for collection alternatives or withdrawal of the lien. Further, as the underlying penalty did not require Code Sec. 6751(b)(1) supervisory approval, the court determined that the Appeals officer was not required to verify approval of the underlying penalty prior to issuing the notice of determination. Therefore, the court concluded that the Appeals officer met the requirements of Code Sec. 6330(c) and did not abuse his discretion.

For a discussion of the supervisory approval requirement for penalty assessments, see Parker Tax ¶262,195.

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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