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The Penalty Defense That Costs You Nothing: § 6751(b)

Before the IRS can hit you with most penalties, a supervisor must approve it in writing—and the IRS has to prove it. If it can't, the penalty falls.

Liam Williams

Liam Williams

— 14 min read
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Your Notice of Deficiency has a penalty line on it. There's a procedural defense that can erase that penalty even if you lose the underlying tax—and it costs you nothing to raise.

Here's the rule in one sentence: before the IRS can hit you with most penalties, a real supervisor must have approved it in writing, and the IRS has to be able to prove that signature exists. If the approval is missing, or it came too late, the penalty falls—no matter how correct it was on the merits.

This matters most for the around 89% of Tax Court petitioners who represent themselves, because the law already puts the work on the IRS. You don't have to prove the penalty was wrong. You make the IRS produce its paperwork, and if it can't, you win that piece of the case. This article shows you which penalties the defense reaches, when the approval had to happen under the current (December 2024) rule, and exactly how to demand the form.

The Rule—§ 6751(b)(1)

The requirement lives in IRC § 6751(b)(1). The statute says:

No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.

Read that carefully, because two features make it powerful.

It's a precondition to assessment, not a merits rule. The penalty can be perfectly correct—you really did understate the tax, the records really were inadequate—and it still falls if the written approval is missing or late. That's the whole reason this is the cheapest, highest-leverage move in a penalty fight. You're not arguing about whether you deserved the penalty. You're holding the IRS to a procedure Congress required.

The IRS has to prove the approval exists. A separate provision, § 6751(a), already requires the IRS to show, with each penalty, the name of the penalty, the Code section it's imposed under, and a computation. But § 6751(b) goes further: a human supervisor must have signed off in writing, and—as you'll see below—proving that signature is part of the IRS's job in your case, not yours.

Plain version: a supervisor had to put their name on your penalty, and the IRS has to show you that signature. No signature, no penalty.

Does It Apply to Your Penalty?

This is the part to get exactly right, because the defense reaches a lot of penalties but not all of them. § 6751(b)(2) carves out two categories that need no approval:

  • Certain additions to tax—failure to file and failure to pay (§ 6651), the estimated-tax penalty (§ 6654), and the failure-to-deposit penalty (§ 6655). The statute also names § 6662 here, but only the narrow economic-substance sliver of it (the § 6662(b)(9) and (b)(10) grounds). The ordinary accuracy penalty is not in this carve-out.
  • Any penalty "automatically calculated through electronic means." This is the math-error and fully-automated category, discussed below.

Here's the practical breakdown.

Penalties the defense REACHES (written approval required):

  • The accuracy-related penalty for negligence or substantial understatement—§ 6662(b)(1) and (b)(2). This is the most common penalty the defense targets. Its details live in How To Fight the IRS Accuracy-Related Penalty in Tax Court.
  • The civil fraud penalty—§ 6663. A fraud penalty is never "automatically calculated through electronic means," so the automation exception can never save the IRS on a fraud penalty. See The 75% Fraud Penalty: Who Has To Prove It.
  • Most assessable penalties a person can be hit with (many information-return and foreign-information penalties). These need approval before they're assessed.

Penalties the defense does NOT reach (no approval needed):

  • Failure to file and failure to pay—§ 6651. That's the core of the administrative-abatement route in How To Request IRS Penalty Abatement.
  • The estimated-tax penalty—§ 6654, a named exception. See Estimated Tax Penalty Disputes in Tax Court.
  • The failure-to-deposit penalty—§ 6655.
  • Math-error and truly automated penalties. The classic example is a substantial-understatement penalty generated by the Automated Underreporter system on a CP2000.
  • The 10% early-retirement-distribution charge—§ 72(t). People call it the "10% penalty," but the Code treats it as an additional tax, not a penalty—so § 6751(b) doesn't reach it at all. See Retirement Distribution Disputes in Tax Court.

There's a critical twist hiding in that last bullet. A penalty only counts as "automatically calculated" while it stays automatic. Once you respond in writing and challenge the proposed penalty (or the tax behind it) and an IRS employee actually considers your response, the penalty is no longer automatically calculated—and approval is required again. That's one more reason to file a substantive written challenge to a CP2000 rather than just asking for more time.

So before you assume the defense applies, find the exact penalty line on your Form 4549 or your Notice of Deficiency and read which Code section the IRS asserted. It shows up as a row like "Accuracy-Related Penalty—IRC 6662—$2,000"; the Code section in that row (6662, 6663, 6651, 6654…) is what decides whether the lever is in play.

When Did Approval Have To Happen? The December 2024 Bright Line

This is the part where old advice is now wrong, so be careful.

Treasury and the IRS finalized regulations under § 6751(b) on December 23, 2024—T.D. 10017, 89 Fed. Reg. 104,419, codified at 26 C.F.R. § 301.6751(b)-1. The regulation sets bright-line deadlines, and it applies to penalties assessed on or after December 23, 2024.

There are three deadlines, depending on how the IRS brought the penalty:

  1. A penalty in a Notice of Deficiency (the ordinary case for a pro se petitioner): the written supervisory approval must be in place on or before the date the notice is mailed.
  2. An assessable penalty not subject to pre-assessment Tax Court review: approval any time before the penalty is assessed.
  3. A penalty the IRS raises after you petition—in its answer or an amended answer: approval no later than the date the IRS asks the court to determine that penalty.

The "immediate supervisor" is, in substance, the person who reviews the penalty proposal without that proposal having to clear someone in between—the reviewer the proposing employee reports to on penalties.

Do not rely on the old "before the 30-day letter" rule. For years, the Tax Court keyed approval to the IRS's first formal communication of a firm decision to assert the penalty—in practice, the 30-day letter or examination report that offered Appeals rights. That was the rule in Clay (below). The December 2024 regulation displaced it for penalties assessed on or after that date: for a deficiency penalty, the deadline is now the mailing date of the Notice of Deficiency, which is later and more favorable to the IRS. If you tell yourself "the IRS had to approve this before the 30-day letter," you may be relying on a rule that no longer governs your case.

This is genuinely new law, and it's being litigated—partly because the Supreme Court's 2024 Loper Bright decision reduced the deference courts give agency regulations. There's also a bill pending that could change the timing again (see the caution near the end). None of that changes the move you make; it's a reason to confirm the current rule when you file.

Why You Can Make the IRS Show Its Work—§ 7491(c)

This is the engine that makes demanding the form actually work.

For penalties against an individual, IRC § 7491(c) puts the burden of production on the IRS. In a court proceeding, "the Secretary shall have the burden of production…with respect to the liability of any individual for any penalty." The IRS has to come forward first with evidence the penalty is appropriate—you don't have to disprove it before it does.

The framework case is Higbee v. Commissioner, 116 T.C. 438 (2001): the IRS must produce evidence supporting the penalty before anything shifts to you.

Then two more cases pulled supervisory approval into that production burden. In Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), the Second Circuit held that compliance with § 6751(b) is part of the Commissioner's § 7491(c) burden in a deficiency case—turning a long-dormant statute into a real litigation weapon. The Tax Court then reversed its own earlier position and followed Chai in Graev v. Commissioner, 149 T.C. No. 23 (2017), holding the IRS must produce evidence of written supervisory approval as part of its penalty case.

Put it together and you get the lever: the IRS has to affirmatively put the signed approval document into the record—a Civil Penalty Approval Form or penalty lead sheet bearing the immediate supervisor's signature and date. If it doesn't volunteer it, you can force it through discovery. And if the IRS can't produce timely written approval, the penalty fails—even if the underlying deficiency is upheld.

One trap, carried over from the accuracy-penalty playbook: "the IRS has the burden" does not mean you can sit silent. Once the IRS produces its approval and its ground, the reasonable-cause defense under § 6664(c)—no penalty where there was reasonable cause and you acted in good faith—becomes yours to prove. Raise both. The § 6751(b) lever is the one that costs nothing and can win outright; reasonable cause is the backstop if the IRS's paperwork is clean.

How the Fight Actually Runs

A few cases show both how the rule developed and what it looks like in a real courtroom.

What counts as the "initial determination." In Belair Woods, LLC v. Commissioner, 154 T.C. 1 (2020), the Tax Court held that the determination requiring approval is the document by which the Examination Division formally notifies the taxpayer of an unequivocal decision to assert penalties—not every preliminary or tentative proposal along the way. Approval secured before that formal notice was timely for three penalties; a fourth penalty added later without prior approval fell. One case, both outcomes—a useful reminder that the lever can knock out some penalties and leave others standing.

The old timing rule the regulation replaced. In Clay v. Commissioner, 152 T.C. 223 (2019), the supervisor signed the approval form after the revenue agent issued the report and 30-day letter proposing the penalties—too late, even though it was before the Notice of Deficiency. That "before the 30-day letter" formulation is exactly the standard the December 2024 regulation displaced for newer assessments. Know it as history, not as current law.

Assessable penalties—any time before assessment. For a penalty not subject to pre-assessment Tax Court review, the Ninth Circuit held in Laidlaw's Harley-Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066 (9th Cir. 2022) that approval is timely if obtained any time before assessment. The Eleventh Circuit reached the same result in Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 2022). That "before assessment" rule is now the regulation's rule for assessable penalties. One practical point if this is your situation: a penalty assessed without a Notice of Deficiency never comes with a 90-day ticket to Tax Court—you raise § 6751(b) instead in a Collection Due Process hearing or a refund suit, not a deficiency petition.

The lived outcomes—three Tax Court cases, two of them self-represented:

  • In Beleiu v. Commissioner, T.C. Memo. 2025-70, the IRS conceded the entire 2015 civil fraud penalty because it couldn't show timely § 6751(b) approval for that year. For 2012–2014, approval was stipulated as timely, and those penalties proceeded. Same case, both outcomes—the single clearest "no approval, penalty gone" illustration.
  • In Bass v. Commissioner, T.C. Memo. 2023-41, a self-represented taxpayer saw his original penalty sustained as "automatically calculated through electronic means" (no approval needed)—but a later amendment-increase penalty fell on § 6751(b) when the IRS tried to slip its approval emails into the record after it had closed and the court refused them. Lesson: the record-timing demand bites, and the burden flips to the IRS on penalties it raises mid-case.
  • In Ayria v. Commissioner, T.C. Memo. 2022-123, a self-represented taxpayer faced a substantial-understatement penalty where the IRS did secure digital supervisory approval before the Notice of Deficiency. The court held it timely, so the lever didn't help—but a reasonable-cause argument carved off the slice of the penalty tied to a deduction he genuinely believed was allowed. When the IRS does it by the book, you fall back to reasonable cause.

One more wrinkle worth knowing: the Tax Court follows the law of the circuit your case can be appealed to once that circuit has decided a point (the "Golsen rule"), and the circuits haven't been perfectly uniform on timing. That's a reason this is a good spot to bring in a clinic or practitioner—but the move (demand the form) is the same everywhere.

Verify and Demand the Form

The defense is only as good as your demand for the paperwork. Here's how to make it concrete.

What you're looking for. A signed, dated managerial sign-off—internally, the IRS's Civil Penalty Approval Form or the penalty lead sheet / approval workpaper in the exam file. (This is an internal IRS document, not a form you file, so don't expect a consumer-facing version of it.) It should show the immediate supervisor's signature and the date approval was given, so you can check both that approval happened and that it happened in time under the bright-line rule above.

Where you raise it:

  1. In your petition. Deny the penalty and put the IRS to its proof on § 6751(b). You can adapt a line like: "The Commissioner erred in imposing the [accuracy-related / fraud / §___] penalty, and Petitioner does not concede that the penalty received timely written supervisory approval as required by IRC § 6751(b)." Tailor it to your facts; it's a routine, expected step that costs you nothing.
  2. In your pretrial memorandum, where you spell the demand out for the judge.
  3. Through discovery if the IRS doesn't volunteer the form. Start informally—the customary first step is a letter to IRS counsel asking for the approval document (a "Branerton letter," named for the case that requires the parties to try informal exchange before formal discovery); if that doesn't produce it, you can serve a formal request for production of documents. You can also request the exam workpapers from your case file under the Freedom of Information Act (FOIA), which doesn't depend on being in litigation.
  4. Don't stipulate the penalty away. Keep it live in your stipulation of facts.

Even if you've already filed a bare petition without raising it, you can still put the IRS to its proof in the pretrial memorandum and through discovery.

What Winning Gets You—And What It Doesn't

Be clear-eyed about the scope of this win, because it's narrower than it feels.

Winning on § 6751(b) wipes out the penalty—but not the underlying tax or the interest on that tax. If the IRS sustains (or you settle) the deficiency, you still owe it, and you still owe the interest that's been running on it.

Make it concrete. Say the IRS asserts a $10,000 deficiency plus a $2,000 accuracy penalty, with interest on top. Win the § 6751(b) lever, and the $2,000 penalty—and the interest that was accruing on that penalty—fall away. But the $10,000 tax and the interest on it remain. Interest computed on a penalty disappears when the penalty disappears; interest on the tax does not. For how that interest layer builds, see How Interest Works on Your IRS Tax Debt.

Why raise it anyway, given the limit? Because it's free and it's frequently decisive in settlement. Most (76%) of Tax Court cases close by formal settlement, and more than 99% resolve without a trial on the merits. A documented § 6751(b) demand the IRS can't easily answer is often exactly what produces a penalty concession.

A Live Caution—The Law May Change Again

The timing rule is in motion, so confirm it before you rely on it.

As of this writing, the December 2024 regulation (T.D. 10017) is the current operative law. But a bill, H.R. 5346, the "Fair and Accountable IRS Reviews (FAIR) Act," has passed the House—it cleared the full House on December 1, 2025—and awaits Senate action. It is not law. If enacted, it would push the approval deadline substantially earlier—toward requiring approval before any written communication about the penalty is sent to the taxpayer—which is more taxpayer-favorable than the regulation's notice-of-deficiency deadline.

What that means for you: the bright-line regulation is the rule today, but if the Senate passes the bill and it's signed, the timing could shift back toward the earlier "before the first written communication" standard. Re-verify the current state of § 6751 and the regulation—and the bill's status—at the time you file. This timing-and-currency nuance is precisely where a Low Income Taxpayer Clinic or a practitioner earns its keep. What is settled enough to act on right now is the move itself: demand the approval form, and if the IRS can't produce timely written approval, the penalty falls.

What To Do Now

The penalty fight is won on procedure and paper, and most of it costs you nothing. A concrete sequence:

  1. Read your Form 4549 or Notice of Deficiency (or CP2000) and find the exact penalty line. Which Code section, which ground? That decides whether the defense even applies.
  2. Calendar the 90 days deadline from the date on your Notice of Deficiency (150 days if you're addressed outside the US) and petition—the deficiency-penalty fight is a Tax Court fight. Missed it? See You Missed the 90-Day Deadline: Now What.
  3. In your petition, deny the penalty and demand the § 6751(b) approval (template line above).
  4. Force production through discovery or your pretrial memorandum if the IRS doesn't volunteer the form.
  5. Also build your reasonable-cause record (§ 6664(c))—belt and suspenders. You can't know which defense bites until the IRS produces.
  6. Don't stipulate the penalty away. Keep it live in the stipulation of facts.
  7. Verify the current timing rule before you rely on it—it's new, it's being litigated, and a bill could change it.

Get Help

Around 89% of Tax Court petitioners represent themselves, and a penalty defense built on the burden split and the § 6751(b) demand is well within reach for a pro se petitioner—the move is the same in every case. Where experienced help adds the most value is exactly the unsettled timing edge: a circuit-specific argument, or confirming which rule applies given the pending legislation.

If your income is at or below 250% of the poverty line and your dispute is at or below $50,000 per tax year, you may qualify for free representation through a Low Income Taxpayer Clinic. For more complex situations, see When To Get Professional Help With Your Tax Dispute.

Resources

Statute and regulations:

Legislation to watch:

  • H.R. 5346, the Fair and Accountable IRS Reviews (FAIR) Act, 119th Congress — passed the House Dec. 1, 2025; awaiting Senate action (not enacted)

IRS forms:

  • Form 4549, Report of Income Tax Examination Changes — shows the proposed deficiency and which penalty ground the IRS asserted
  • The IRS's internal Civil Penalty Approval Form / penalty lead sheet — the signed managerial approval you demand; an internal exam-file document, not a form you file

Cases cited:

Companion articles on TaxCourtHelp:

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax professional or attorney.

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TaxCourtHelp.com is not affiliated with the United States Tax Court or any government agency. This site provides general information only and does not constitute legal or tax advice.