IRC 6751(b) Supervisory Approval: Penalty Assessment and Defense

1. At a Glance

2. Statutory Framework

2.1 IRC 6751(b)(1): The General Rule

IRC 6751(b)(1) provides, in general terms, that no penalty under the Internal Revenue Code may be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making that determination, or such higher-level official as the Secretary may designate. Practitioners should verify the exact current text of IRC 6751(b)(1) at IRS.gov, as legislative amendments subsequent to the date of this guide could affect the scope or phrasing of the requirement.

The phrase "initial determination" has been the subject of extensive litigation (see Section 3), and Treasury Decision 10017 (December 23, 2024) codified regulatory standards addressing when a determination is deemed "initial" for purposes of the approval requirement. All statements in this guide about what constitutes an "initial determination" are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov; verify the current regulatory standard before advising a client.

The requirement of "personal" approval "in writing" means that electronic routing systems, computerized approvals, or blanket pre-approvals that are not tied to the specific penalty determination at issue are unlikely to satisfy the requirement, though the precise documentation standard is set by 26 C.F.R. Section 301.6751(b)-1 for assessments on or after December 23, 2024. Verify the current documentation standard at IRS.gov.

2.2 IRC 6751(b)(2): Enumerated Exceptions

IRC 6751(b)(2) sets out categories of penalties that are not subject to the supervisory approval requirement of IRC 6751(b)(1). These exceptions include penalties that are: (a) automatically calculated through electronic means, and (b) penalties specifically enumerated by the statute or, per the final regulations, by reference to 26 C.F.R. Section 301.6751(b)-1. The complete current list of enumerated exceptions must be verified at IRS.gov and against the full text of 26 C.F.R. Section 301.6751(b)-1; do not rely on any statement in this guide as a complete or definitive enumeration of all exempt penalties.

Whether a given penalty falls within a statutory or regulatory exception depends on: (a) how the penalty was determined (computationally by IRS systems or by IRS employee judgment); (b) the specific IRC section under which the penalty is imposed; and (c) the regulatory characterization in TD 10017. Practitioners must analyze each penalty separately and verify exempt status at IRS.gov for each applicable IRC section.

2.3 Legislative Purpose: The 1998 IRS Restructuring and Reform Act

The supervisory approval requirement was enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206. Congressional records and legislative history reflect that Congress was concerned that frontline IRS employees used penalty assertions as a negotiating tool during examinations and collection activity: IRS employees would threaten or impose penalties that could later be abated in exchange for taxpayer concessions on the underlying tax liability or other issues. The written supervisory approval requirement was designed to insert a meaningful supervisory check on the individual examiner's penalty-determination authority and to reduce inappropriate use of the penalty regime as leverage.

Courts have relied on this legislative history in interpreting the scope and purpose of IRC 6751(b). The RRA 1998 purpose is also important for framing the IRC 6751(b) argument before the IRS Appeals Office and the Tax Court: the defense goes to the fundamental integrity of the penalty determination process, not merely to a technical paperwork requirement. Practitioners should incorporate this framing into any IRC 6751(b) submission.

2.4 The Relationship Between the Statute and TD 10017

TD 10017 did not rewrite IRC 6751(b); it filled regulatory gaps and codified standards that had previously been developed through case law. The statute itself remains the source of the supervisory approval obligation; the regulations at 26 C.F.R. Section 301.6751(b)-1 define how that obligation is implemented in practice. In cases where the regulations conflict with the statute, the statute controls; however, as a general matter, TD 10017 is consistent with the statutory text as interpreted by the courts. Verify any apparent conflict between the statute and the regulations at IRS.gov and through current legal research.

3. Pre-TD 10017 Case Law

3.1 Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017)

The foundational Second Circuit decision in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), established that supervisory approval under IRC 6751(b)(1) must be obtained before the IRS employee "initially determines" the penalty. The Second Circuit held that the approval requirement is substantive rather than merely procedural, meaning that failure to obtain timely written approval is a complete bar to assessment of the affected penalties (as to the specific penalties at issue in that case). Practitioners should verify the current precedential status of Chai at IRS.gov and through current case law research in the applicable Circuit, as case law in this area continues to develop.

The Second Circuit's interpretation of "initial determination" turned on the point at which the examining IRS employee first affirmatively proposed a penalty, not on when the formal notice was issued or the assessment was made. This had significant practical implications because it meant that approval obtained after the examiner's own determination (but before assessment) was legally insufficient under the Second Circuit's reading. The precise scope of the "initial determination" concept under the current regulatory framework is governed by 26 C.F.R. Section 301.6751(b)-1 for assessments on or after December 23, 2024; verify at IRS.gov.

3.2 Graev v. Commissioner, 149 T.C. 485 (2017) (Graev III)

The Tax Court's third opinion in Graev v. Commissioner, 149 T.C. 485 (2017), applied and further developed the Second Circuit's analysis from Chai. The Tax Court held that the supervisor must approve the penalty determination before it becomes final, and that post-hoc supervisory approval obtained after the examiner's "initial determination" does not satisfy IRC 6751(b)(1). Graev III also established that the Tax Court would independently review compliance with the supervisory approval requirement and that the IRS bears the burden of producing evidence of timely written approval.

Practitioners should verify the current status of Graev III and the subsequent body of Tax Court decisions on IRC 6751(b) at IRS.gov and through current Tax Court research. The Tax Court has issued numerous decisions on IRC 6751(b) questions, including decisions addressing specific penalty types, the identity of the required approving official, and the adequacy of the approval documentation, and that body of case law should be reviewed for any case in which the defense is being raised.

3.3 Pre-TD 10017 Circuit Splits and Uncertainty

Prior to TD 10017, there was significant variation among the federal Circuits in how courts interpreted key elements of IRC 6751(b). Areas of disagreement included: when the "initial determination" of a penalty occurs; what form the written approval must take and what information it must contain; which IRS employee or official qualifies as the "immediate supervisor" whose approval is required; and whether the approval requirement applies at all to certain penalty types or in certain procedural contexts. Some Circuits adopted interpretations that were more favorable to the IRS than the Second Circuit's approach in Chai; others were more stringent.

This Circuit-level variation created significant uncertainty for both IRS employees (who needed to know what compliance required) and taxpayers and practitioners (who needed to know what was legally sufficient). Treasury cited this uncertainty as one of the primary rationales for promulgating the final regulations through TD 10017. Whether TD 10017 fully resolves all pre-existing Circuit splits, particularly for transition-zone cases (see Section 7), remains an open question to be resolved through ongoing litigation. Verify the current state of Circuit law on IRC 6751(b) in the applicable Circuit at IRS.gov and through current legal research.

3.4 Significance of Pre-TD 10017 Authority for Current Cases

Pre-TD 10017 case law remains directly governing for two categories of cases: (a) cases in which the penalty was assessed before December 23, 2024, and (b) transition-zone cases (examinations begun before December 23, 2024 with assessments after that date), to the extent courts determine that pre-TD 10017 standards apply to some or all elements of the claim. Practitioners handling cases with pre-December 23, 2024 assessments should focus their research on the applicable Circuit case law and the Tax Court decisions under the pre-regulatory framework. Verify all authority at IRS.gov and through current legal research before advising a client.

4. TD 10017 Final Regulations (December 23, 2024): What Changed

4.1 Codification of the Approval Requirement

TD 10017 codified the supervisory approval requirement in the Treasury Regulations at 26 C.F.R. Section 301.6751(b)-1. The final regulations provide specific rules addressing: which penalties require supervisory approval and which are exempt; the identity and qualification of the official whose approval is required; the documentation standard for the written approval; and the timing window within which the approval must be obtained and documented. All of these elements must be verified at IRS.gov and in the full regulatory text. This guide summarizes the key rules as understood from publicly available sources as of July 2026; subsequent regulatory amendments or IRS guidance could change the applicable standards.

4.2 Applicability Date (Critical)

Per 26 C.F.R. Section 301.6751(b)-1 and IRS.gov, TD 10017 applies to penalties assessed on or after December 23, 2024. This is the single most important threshold for practitioners analyzing any IRC 6751(b) issue:

• Penalties assessed before December 23, 2024: governed by pre-TD 10017 law, primarily Circuit case law and Tax Court decisions;
• Penalties assessed on or after December 23, 2024: governed by 26 C.F.R. Section 301.6751(b)-1;
• Transition-zone cases (examination begun before, assessment on or after, December 23, 2024): see Section 7 and the WARNING CALLOUT in that section.

Verify the applicable standard and the exact assessment date for each penalty at issue at IRS.gov before advising a client.

4.3 The Key Timing Rule

Under 26 C.F.R. Section 301.6751(b)-1 (effective for assessments on or after December 23, 2024; verify at IRS.gov), supervisory approval must be documented before the earlier of: (a) the issuance of the notice of deficiency, or (b) the assessment of the penalty. Practitioners should verify this timing rule at IRS.gov and in the full text of 26 C.F.R. Section 301.6751(b)-1, as nuances in the regulations and any subsequent IRS guidance may affect how this rule applies to specific penalty types, assessment procedures, or procedural contexts. All timing statements in this guide are hedged to 26 C.F.R. Section 301.6751(b)-1 (effective for assessments on or after December 23, 2024) and IRS.gov.

4.4 Documentation Standard

The final regulations at 26 C.F.R. Section 301.6751(b)-1 address the documentation standard for written supervisory approval, specifying what the written approval must contain, who must sign it, and how it must be preserved in the administrative record. Verify the current documentation standard at IRS.gov. In practice, practitioners reviewing administrative records have encountered a range of documentation issues: approvals without dates, undated approval forms completed after the fact, approvals signed by the wrong official, and approval forms present in the record that do not clearly relate to the specific penalty at issue. All of these scenarios may support an IRC 6751(b) argument depending on the specific facts and applicable regulatory standards; verify at IRS.gov.

4.5 What TD 10017 Did Not Resolve

Despite providing regulatory clarity on key issues, TD 10017 did not close all open questions. Unresolved issues include: the transition-zone question (see Section 7); whether the regulations are subject to challenge under the Administrative Procedure Act; how the regulations apply to penalty types that are partly computed and partly judgment-based; and how Circuit courts outside the Second Circuit will develop their own jurisprudence on specific regulatory provisions. See Section 12 for a fuller treatment of open questions. All statements in this section are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov; verify before advising a client.

5. Penalties Subject to the Approval Requirement (and Enumerated Exemptions)

5.1 Penalties Generally Subject to the Approval Requirement

As a general matter (verify at IRS.gov and under 26 C.F.R. Section 301.6751(b)-1), penalties that are determined by an IRS employee through the exercise of judgment, rather than being automatically calculated by IRS computer systems, are more likely to be subject to the supervisory approval requirement of IRC 6751(b)(1). Examples of penalty types that have been found subject to the approval requirement in case law or that are characterized as requiring supervisory approval under the regulatory framework include (verify each at IRS.gov; this list is illustrative and not exhaustive):

• Civil fraud penalties under IRC 6663;
• Negligence and disregard-of-rules-and-regulations penalties under IRC 6662(b)(1);
• Substantial understatement penalties under IRC 6662(b)(2) when asserted by an examiner rather than automatically computed;
• Gross valuation misstatement penalties under IRC 6662(h);
• Penalties under IRC 6701 (aiding and abetting understatement);
• Penalties determined by an IRS employee through examination or Appeals that require case-specific judgment about a taxpayer's conduct or position.

Do not rely on the above list as a complete or authoritative statement of which penalties are subject to the approval requirement. Verify each penalty type at IRS.gov and under 26 C.F.R. Section 301.6751(b)-1.

5.2 Penalties That May Be Exempt from the Requirement

IRC 6751(b)(2) and 26 C.F.R. Section 301.6751(b)-1 enumerate categories of penalties that are not subject to the supervisory approval requirement. The following table presents illustrative categories of potentially exempt penalties; verify the complete and current list at IRS.gov and in the regulatory text. Do not treat any penalty as categorically exempt without independent verification for the specific facts of the case at issue.

5.3 Hybrid Penalties: Partially Computed and Partially Judgment-Based

Some penalties are partially computed automatically and partially subject to IRS employee judgment. For example, a failure-to-file penalty may have a base amount computed automatically but may involve an IRS employee determining whether an enhancement (such as for fraudulent failure to file under IRC 6651(f)) applies. The application of IRC 6751(b) to such hybrid determinations is an area requiring careful analysis under 26 C.F.R. Section 301.6751(b)-1 and current case law. Verify the applicable standard for each specific penalty type and fact pattern at IRS.gov before advising a client.

6. Timing Rules: When Must Approval Occur?

6.1 The TD 10017 Timing Standard (Post-December 23, 2024 Assessments)

Under 26 C.F.R. Section 301.6751(b)-1 (effective for penalties assessed on or after December 23, 2024; verify at IRS.gov), supervisory approval must be documented before the earlier of:

1. The issuance of the notice of deficiency (if one is issued in connection with the penalty at issue), or
2. The assessment of the penalty.

This "earlier of" formulation is the central timing rule under the final regulations. Practitioners should verify this timing rule at IRS.gov and in the full regulatory text of 26 C.F.R. Section 301.6751(b)-1, and should consider how it applies to the specific penalty type and procedural context in each client's case. Nuances in the regulatory text may affect application to specific situations. All timing statements in this guide are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov.

6.2 How Timing Was Handled Before TD 10017

Before TD 10017, the timing question was governed by case law. The Second Circuit's decision in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), established that approval must be obtained before the IRS employee "initially determined" the penalty. The Tax Court in Graev v. Commissioner, 149 T.C. 485 (2017), applied this framework and held that post-hoc approvals (obtained after the examiner's own determination) were insufficient. Different Circuits interpreted "initially determined" differently: some courts found the triggering event to be the issuance of the 30-day letter, others the issuance of the notice of deficiency, others the revenue agent's report, and still others an earlier internal communication. This divergence was a primary driver of the regulatory project that produced TD 10017. For assessments prior to December 23, 2024, the applicable pre-regulatory standard must be verified at IRS.gov and through current case law research in the relevant Circuit.

6.3 The Significance of the Notice of Deficiency in the Timing Analysis

The notice of deficiency (commonly called the 90-day letter or statutory notice of deficiency) is the formal IRS determination that sets out the IRS's tax deficiency and any related penalties, and it triggers the taxpayer's right to petition the Tax Court without first paying the disputed amount. Under 26 C.F.R. Section 301.6751(b)-1 (verify at IRS.gov), the notice of deficiency is the first of the two potential timing triggers: approval must be documented before the NOD is issued, not before the later assessment. This means that in a deficiency case, an approval obtained after the NOD was sent cannot satisfy the timing requirement under the final regulations, even if the formal assessment has not yet occurred. Verify this rule at IRS.gov for the specific penalty type and context.

6.4 Cases Proceeding Without a Notice of Deficiency

Not all IRS penalty assessments proceed through the deficiency procedures that produce a notice of deficiency. Certain penalties are assessed directly (without a prior NOD) under procedures that do not give the taxpayer a right to contest the penalty in the Tax Court before payment. In these cases, under 26 C.F.R. Section 301.6751(b)-1 (verify at IRS.gov), the sole timing trigger is the assessment date: approval must be documented before the penalty is assessed. Practitioners should identify the specific assessment procedure applicable to each penalty type and verify the correct timing rule at IRS.gov.

6.5 Practical Timing: Why Early Action Matters

The timing rules under IRC 6751(b) create a practical imperative for practitioners to act early. Requesting the administrative record (see Section 8) before the case proceeds to Tax Court or before the notice of deficiency is issued maximizes the ability to identify and preserve the IRC 6751(b) argument. Once the case moves to assessment and the 90-day window to petition the Tax Court has passed (if the taxpayer does not petition), the opportunities to raise the IRC 6751(b) defense narrow significantly. Practitioners should treat the supervisory approval question as part of the initial case review, not as an afterthought.

7. The Transition Zone

7.1 Why the Transition Zone Is Legally Contested

The transition zone is contested because TD 10017's stated applicability date (assessments on or after December 23, 2024) answers the question of when the new regulations apply but does not directly resolve which standard governs an examination in which some events predate December 23, 2024 and others postdate it. Under the pre-TD 10017 Chai framework, the critical timing event was the IRS employee's "initial determination" of the penalty, which occurred before assessment. Under TD 10017, the critical timing events are the issuance of the notice of deficiency or the assessment (whichever is earlier). If the "initial determination" occurred before December 23, 2024 under the pre-TD 10017 framework but the assessment occurs after that date, a court could plausibly hold: (a) the new regulations govern because the assessment is after December 23, 2024; (b) the old case law governs because the penalty was "initially determined" before December 23, 2024; or (c) some hybrid approach applies. This ambiguity will be resolved through litigation.

7.2 Documenting the Factual Record in Transition-Zone Cases

In transition-zone cases, the factual record about when key events occurred -- when the revenue agent first proposed the penalty, when the penalty was included in the revenue agent's report, when the notice of deficiency was issued, and when the assessment occurred -- is critical under both frameworks. Practitioners should build a detailed timeline from the administrative record and ensure it is properly documented. All statements in this section are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov; verify before advising a client.

8. Requesting the Administrative Record

8.1 Why the Administrative Record Is the Foundation of the IRC 6751(b) Defense

Whether the IRS obtained timely written supervisory approval is a fact question. The answer lies in the administrative record of the examination, not in statutory or regulatory text alone. The administrative record typically includes: examination workpapers and the revenue agent's report; penalty approval forms (such as IRS Form 8278 or the equivalent form for the relevant penalty type); supervisory sign-off documentation (whether in paper or electronic form); correspondence between the examiner and supervisory personnel about the penalty; and any Appeals file materials. Without a thorough review of the administrative record, the IRC 6751(b) argument cannot be properly assessed. Practitioners should treat obtaining the administrative record as a mandatory first step in any case where a penalty is at issue and the 6751(b) argument may be available.

8.2 Requesting the Record at the Examination Stage

At the examination stage, practitioners should request in writing, from the examining revenue agent or group manager, all documentation in the administrative file related to any penalty being asserted, with a specific request for all supervisory approval documentation. This request should be made as early as possible in the examination process, ideally before the examination is closed. A written request (confirmed in a letter or fax to the group manager) creates a record of the request that may be useful later if the IRS cannot produce the documentation in Tax Court. The IRS is not required to produce the administrative record voluntarily during the examination, but making the request early signals that the 6751(b) defense is being evaluated and may prompt the examiner to ensure the documentation is in the file.

8.3 Requesting the Record at the Appeals Stage

If the case proceeds to the IRS Independent Office of Appeals, the Appeals Officer should have the examination file, which should include any penalty approval documentation. Practitioners should request that the Appeals Officer confirm the existence and completeness of supervisory approval documentation for each penalty at issue, in writing, as part of the pre-conference exchange. Appeals may attempt to cure a missing or deficient approval during the Appeals process; whether such a cure is permissible under the applicable timing standards (26 C.F.R. Section 301.6751(b)-1 for post-December 23, 2024 assessments; pre-TD 10017 case law for earlier assessments) is a question that must be analyzed for each specific case. Verify at IRS.gov.

8.4 Discovery in Tax Court

In Tax Court proceedings, the IRS is required to produce its administrative record and is subject to the Tax Court's discovery rules. The IRS bears the burden of production on penalty issues, meaning it must affirmatively demonstrate that supervisory approval was timely obtained. If the IRS cannot produce evidence of timely written approval in Tax Court, the 6751(b) argument is strengthened substantially. Practitioners should propound discovery requests specifically targeted at supervisory approval documentation at the earliest opportunity in Tax Court proceedings, and should consider filing a Motion for Partial Summary Judgment on the 6751(b) issue if the administrative record clearly lacks the required documentation. Verify current Tax Court discovery procedures and burden-of-proof rules at IRS.gov and the Tax Court's website.

8.5 Freedom of Information Act Requests

Practitioners can also submit Freedom of Information Act (FOIA) requests for examination workpapers and penalty approval forms. However, FOIA responses from the IRS are typically slow (often taking many months) and may be subject to exemptions that reduce the volume of materials produced. FOIA is generally best used as a secondary channel to supplement information obtained through direct examination or Tax Court discovery, rather than as the primary means of obtaining the administrative record. If a FOIA request is submitted, practitioners should be specific about the documents requested (examination workpapers for a specific tax year, Forms 8278 for specific penalties) to maximize the likelihood of a useful response.

8.6 What to Look For in the Administrative Record

When reviewing an administrative record for IRC 6751(b) compliance issues, practitioners should specifically look for the following elements and flag any deficiencies:

• Existence of a written approval document: Is there any document in the record that purports to constitute written supervisory approval for the specific penalty at issue?
• Date of the approval: Is the approval document dated? Does the date predate the relevant timing trigger (earlier of notice of deficiency or assessment per 26 C.F.R. Section 301.6751(b)-1; verify at IRS.gov)?
• Identity of the approving official: Is the approving official the "immediate supervisor" of the IRS employee who made the initial determination, or a "higher-level official" as contemplated by 26 C.F.R. Section 301.6751(b)-1 (verify at IRS.gov)? If an unauthorized official approved the penalty, the approval may be legally insufficient.
• Specificity of the approval: Does the written approval specifically identify the penalty being approved, or is it a generic approval that does not clearly relate to the specific penalty at issue?
• Consistency with other timeline evidence: Are there inconsistencies between the date on the approval document and other evidence in the administrative record (such as the date of the revenue agent's report or the date of the notice of deficiency) that suggest the approval was obtained after the fact?

9. IRS Internal Compliance: The SBSE Field Directive

9.1 What the SBSE Field Directive Addresses

The SBSE field directive (SBSE-04-0925-0040, September 23, 2025) is an internal procedural compliance document directed at SBSE field examiners, group managers, and Appeals Officers handling SBSE cases. As a general matter, field directives in this category address: which officials must sign penalty approval documentation; the sequence and timing of required approvals relative to the examination events specified in TD 10017; how approvals must be documented in the case file; and quality-assurance procedures to verify compliance before penalties are proposed. Because this document is subject to supersession and does not carry the force of law or regulation, this guide does not reproduce its specific instructions. Verify current SBSE compliance procedures at IRS.gov.

9.2 Strategic Relevance to Practitioners

The existence of an internal IRS field directive on TD 10017 compliance has two forms of strategic relevance for practitioners. First, the issuance of a field directive confirms that the IRS itself determined that its employees require specific internal procedural guidance to comply with TD 10017, which is useful context for understanding why IRS employees may or may not have complied with the approval requirements in any specific case. Second, if the IRS produces an administrative record that appears inconsistent with the field directive's procedures (for example, an approval that does not follow the documentation steps the directive requires), that inconsistency may be relevant to the weight of the IRC 6751(b) argument, though the field directive's evidentiary and legal weight in Tax Court proceedings should be verified with current Tax Court practice and guidance.

Practitioners should not rely on the field directive as a statement of legal obligation (it is internal guidance, not a regulation) or as proof of what constitutes compliant practice absent verification at IRS.gov that the directive remains current. All reliance on the September 2025 SBSE field directive must account for the possibility that it has been superseded, modified, or supplemented by subsequently issued IRS guidance.

10. Interaction with Other Penalty Defenses

10.1 Relationship to Reasonable Cause (IRC 6664(c))

The reasonable cause and good faith defense under IRC 6664(c) is the most widely applicable substantive penalty defense. It applies to accuracy-related penalties under IRC 6662 and, in a modified form, to the civil fraud penalty under IRC 6663 (where it effectively negates the fraud element). The reasonable cause defense is a merits-based inquiry: the taxpayer must establish that the underpayment arose from reasonable cause and that the taxpayer acted in good faith with respect to the amount of tax due. Verify the complete statutory and regulatory framework for the reasonable cause defense at IRS.gov.

The IRC 6751(b) supervisory approval defense and the reasonable cause defense are legally independent. A taxpayer may succeed on the IRC 6751(b) argument without establishing reasonable cause (because the absence of timely written approval is a procedural bar to assessment regardless of the taxpayer's conduct), and may establish reasonable cause without needing the IRC 6751(b) argument (because if the taxpayer's conduct was genuinely reasonable, the penalty fails on the merits). In practice, practitioners should assert both defenses when the facts support them, in the alternative, at the earliest stage of the proceeding where they can be raised. Abandoning one defense in favor of the other prematurely is a strategic error that can be costly if the primary argument fails.

10.2 IRC 6662 Accuracy-Related Penalties

Accuracy-related penalties under IRC 6662 are among the most frequently asserted penalties in examination proceedings, and they are a primary context in which IRC 6751(b) arguments arise. Where an examiner asserts an accuracy-related penalty (negligence, substantial understatement, substantial valuation misstatement, etc.), that penalty is generally subject to the supervisory approval requirement of IRC 6751(b)(1) unless it falls within an exemption under IRC 6751(b)(2) or 26 C.F.R. Section 301.6751(b)-1. Verify the specific penalty tier and assessment circumstances at IRS.gov. See the IRC 6662 practitioner guide linked in the Related Guides section below for a detailed analysis of the accuracy-related penalty tiers, the reasonable cause defense under Treas. Reg. Section 1.6664-4, Form 8275 disclosure procedures, and the intersection with the supervisory approval requirement.

10.3 IRC 6694 and 6695 Tax Preparer Penalties

Tax preparer penalties under IRC 6694 (unreasonable position and willful or reckless conduct) and IRC 6695 (failure to comply with specific preparer requirements) raise distinct questions about the applicability of IRC 6751(b). The relevant considerations include: whether the preparer penalty is determined by an IRS employee through the exercise of judgment (which would bring it within IRC 6751(b)(1)) or through an automated process (which might qualify it for the computational exemption); which IRS operating unit handles the preparer penalty determination and whether that unit's employees are subject to the same supervisory approval procedures; and whether any IRC 6751(b)(2) exception applies to the specific preparer penalty at issue. Practitioners should verify the applicability of IRC 6751(b) to preparer penalties at IRS.gov and under 26 C.F.R. Section 301.6751(b)-1. See the IRC 6694 and 6695 practitioner guide linked in the Related Guides section below.

10.4 Stacking Defenses: Procedural and Substantive Arguments Together

Because IRC 6751(b) is a procedural defense and the substantive defenses (reasonable cause, substantial authority, adequate disclosure, etc.) are independent merits-based defenses, they are not mutually exclusive and should generally both be developed and asserted when the facts support them. A common strategic error is to lead exclusively with the IRC 6751(b) procedural argument and inadequately develop the substantive defense, leaving the client exposed if the procedural argument fails. The reverse error -- focusing entirely on the merits defense and failing to develop the factual record needed for the IRC 6751(b) argument -- can result in waiver of the procedural defense. The practitioner checklist in Section 13 incorporates checkpoints for both procedural and substantive defenses.

10.5 IRC 6676 Erroneous Claim for Refund Penalties and Other Asserted Penalties

The IRC 6751(b) analysis applies not only to the most commonly litigated penalty types but also to any penalty asserted by an IRS employee through the exercise of judgment that is not otherwise enumerated as exempt under IRC 6751(b)(2) or 26 C.F.R. Section 301.6751(b)-1. Practitioners should review the IRC 6751(b) question for every IRS-asserted penalty in a client's case, not only for the penalties most frequently associated with the defense in case law. Verify the applicability of IRC 6751(b) to each specific penalty type at IRS.gov before advising a client.

11. Tax Court Considerations

11.1 How to Raise the IRC 6751(b) Argument in Tax Court

IRC 6751(b) arguments should be raised in the Tax Court petition where the facts are known at the time of filing, or through an amended petition or motion to amend the petition if the IRC 6751(b) issue becomes apparent after initial filing. A well-pleaded IRC 6751(b) allegation should specify: the exact penalty type at issue (by IRC section and amount); the date of assessment (or, if not yet assessed, the date of the notice of deficiency); the assertion that the administrative record does not reflect timely written supervisory approval; and the applicable legal standard under IRC 6751(b)(1), relevant Circuit case law, and (for post-December 23, 2024 assessments) 26 C.F.R. Section 301.6751(b)-1. Verify current Tax Court pleading requirements at IRS.gov and in the Tax Court Rules of Practice and Procedure, which are updated periodically.

11.2 The IRS Burden of Production in Tax Court

Under the Tax Court's interpretation of the burden of proof rules in penalty cases, the IRS bears the burden of producing evidence that it obtained timely written supervisory approval for each penalty at issue. This means the IRS must affirmatively produce documentation of approval; the taxpayer is not required to prove the negative (the absence of approval). However, the taxpayer's review of the administrative record and identification of missing or deficient documentation is a practical necessity: the taxpayer cannot rely on the IRS's burden of production without first examining what the record contains and identifying specifically what is missing or deficient. Verify the current burden-of-production framework at IRS.gov and through current Tax Court case law, as the allocation of burdens may be affected by TD 10017 and post-TD 10017 judicial decisions.

11.3 Pre-Trial Resolution Through Motion Practice

IRC 6751(b) arguments can sometimes be resolved before trial, through a Motion for Partial Summary Judgment or through stipulations. If the administrative record unambiguously lacks timely supervisory approval documentation and the IRS is unable to produce any such documentation in response to discovery, the issue may be ripe for summary judgment without a full trial on the merits. Filing a Motion for Partial Summary Judgment on the IRC 6751(b) issue early in Tax Court proceedings is a recognized practice that can efficiently resolve the procedural defense before the costs of a full trial are incurred. If the issue requires factual development (for example, if the IRS produces a document it claims constitutes timely approval but the taxpayer disputes the date, authenticity, or legal sufficiency of that document), trial may be necessary to resolve the factual dispute. Verify current Tax Court motion practice and scheduling procedures at the Tax Court's website and IRS.gov.

11.4 The IRC 6751(b) Argument at IRS Appeals

The IRC 6751(b) argument can also be raised at an IRS Appeals conference, and raising it at Appeals gives the practitioner an opportunity to resolve the issue administratively without Tax Court litigation. However, practitioners should weigh a significant strategic risk: raising the 6751(b) argument at Appeals gives the IRS an opportunity to attempt to cure a documentation deficiency before the penalty is formally assessed. If the Appeals Officer or examination group produces supplemental supervisory approval documentation in response to the Appeals-level argument, the timing and legal sufficiency of that supplemental documentation must be analyzed under the applicable standard (26 C.F.R. Section 301.6751(b)-1 for post-December 23, 2024 assessments; pre-TD 10017 case law for earlier assessments). In some cases, it may be more effective to preserve the IRC 6751(b) argument for Tax Court, where the IRS bears a formal burden of production, rather than fully exposing the argument at Appeals. Consult current case law and practice guidance before deciding on strategy; all strategic considerations in this section are subject to verification at IRS.gov and in current legal authority.

11.5 Interaction with the Tax Court's Small Tax Case Procedures

Taxpayers who elect to have their cases decided under the Tax Court's Small Tax Case procedures (the "S" case procedure, available for deficiencies of $50,000 or less per year) should be aware that S case decisions are not precedential and that the appeal rights from S case decisions are limited. If a significant IRC 6751(b) argument exists, the practitioner should consider whether the Regular Tax Court case procedure (which produces precedential decisions and allows full appeal rights) is more appropriate, even for smaller deficiency amounts. Verify current S case eligibility and procedure at the Tax Court's website and IRS.gov.

12. Open Questions Post-TD 10017

12.1 The Transition Zone

As discussed in Section 7, the most significant and most immediately pressing unresolved question post-TD 10017 is which legal standard governs examinations begun before December 23, 2024 that result in assessments on or after that date. This question will likely be resolved through Tax Court and Circuit court litigation over the next several years, as cases with pre-December 23, 2024 examination commencement dates but post-December 23, 2024 assessments proceed through the courts. Practitioners handling transition-zone cases should monitor new decisions at IRS.gov and through current legal research closely. All statements about the transition zone in this guide are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov.

12.2 Potential Administrative Procedure Act Challenges

As with any Treasury regulation promulgated through the notice-and-comment process, TD 10017 is potentially subject to challenge under the Administrative Procedure Act (APA) on various grounds, including failure to comply with notice-and-comment requirements, arbitrary and capricious rulemaking, or conflict with the statutory text of IRC 6751(b). As of the date this guide was drafted (July 2026), this guide does not address the status of any pending APA challenges to TD 10017 or to 26 C.F.R. Section 301.6751(b)-1. Practitioners should verify the current regulatory status of 26 C.F.R. Section 301.6751(b)-1 at IRS.gov to confirm that the regulation has not been stayed, vacated, or set aside by court order.

12.3 Circuit Court Development Post-TD 10017

Pre-TD 10017 Circuit splits and varying interpretations of IRC 6751(b) mean that different Circuits may develop different approaches to applying the TD 10017 regulations, particularly in transition-zone cases and in cases involving penalty types or fact patterns not specifically addressed in the regulatory preamble. Practitioners should verify the current state of Circuit law in the applicable Circuit at IRS.gov and through current legal research before advising a client. Reliance on pre-TD 10017 Circuit precedent for post-December 23, 2024 assessments is particularly risky, since the regulatory framework has changed and courts may apply the regulations rather than pre-existing case law for post-applicability-date assessments.

12.4 The "Immediate Supervisor" Question Post-TD 10017

One recurring issue in pre-TD 10017 case law was the identity of the "immediate supervisor" required to approve the penalty determination. In some IRS organizational structures, the person who technically supervises the examining agent in an administrative sense may not be the person with substantive authority over the penalty determination, or the approval may have been sought from a higher-level official. TD 10017 and 26 C.F.R. Section 301.6751(b)-1 address the definition of the required approving official, but cases will continue to arise in which the identity of the correct approving official is disputed. Verify the regulatory answer to this question for the specific operating division, unit, and organizational structure involved in the client's case at IRS.gov.

12.5 Documentation Adequacy Standards

Cases will continue to arise in which the IRS produces some form of supervisory documentation but the taxpayer argues that it is inadequate (wrong person, undated, wrong format, not specific to the penalty at issue, or internally inconsistent with the timeline). The standards for what constitutes sufficient "written approval" under TD 10017 and 26 C.F.R. Section 301.6751(b)-1 will be developed and tested through ongoing Tax Court and Circuit court litigation. Practitioners should monitor current decisions on documentation adequacy and verify the current standards at IRS.gov.

12.6 Interaction with Large Partnership and TEFRA Procedures

The application of IRC 6751(b) in the context of large partnership audits under the Bipartisan Budget Act (BBA) procedures, and in legacy TEFRA partnership proceedings, raises distinct procedural questions about when the "initial determination" of a penalty occurs and which official must approve it. These questions are beyond the scope of this guide; practitioners handling large partnership audit matters should conduct separate research into the intersection of IRC 6751(b) and the BBA or TEFRA procedures, and should verify the applicable standards at IRS.gov and through current legal research.

13. Practitioner Checklist

Use this checklist at the outset of any matter in which IRS penalties are at issue. All items are hedged to 26 C.F.R. Section 301.6751(b)-1 and IRS.gov; verify current requirements before relying on this checklist. The checklist is a starting point for analysis, not a substitute for legal research specific to the client's facts and applicable Circuit.

1. Identify and list each penalty separately. Do not analyze IRC 6751(b) applicability in the aggregate. List every penalty the IRS has asserted or may assert, by IRC section, dollar amount, and tax year. The IRC 6751(b) analysis must be performed independently for each penalty, because different penalties may have different applicable standards, different exemption statuses, and different supervisory approval documentation in the administrative record.
2. Determine the exact assessment date (or expected assessment date) for each penalty. If the penalty has already been assessed, verify the exact date of assessment from the account transcript (Form 4340 or equivalent). If the penalty has not yet been assessed, estimate the likely assessment date based on the procedural posture. The assessment date is the single most important threshold for determining whether TD 10017 (effective for assessments on or after December 23, 2024; verify at IRS.gov) or pre-TD 10017 case law governs.
3. Identify the applicable legal standard. For penalties assessed on or after December 23, 2024: apply 26 C.F.R. Section 301.6751(b)-1; verify the current regulatory text and any subsequent IRS guidance at IRS.gov. For penalties assessed before December 23, 2024: apply pre-TD 10017 Circuit case law and Tax Court decisions; research current authority in the applicable Circuit. For transition-zone cases (examination begun before December 23, 2024, assessment on or after December 23, 2024): see Section 7 and the WARNING CALLOUT in that section; argue in the alternative if the facts support it under both frameworks.
4. Verify whether each penalty is subject to the supervisory approval requirement. Check IRC 6751(b)(2) and 26 C.F.R. Section 301.6751(b)-1 for the complete current list of exempt penalties. Analyze the specific manner in which each penalty was determined (computationally or through IRS employee judgment) to identify whether the exemption applies. Do not assume any penalty is exempt without independent verification at IRS.gov; verify specifically for each penalty IRC section and each set of facts.
5. Request the administrative record immediately. Do not wait until Tax Court proceedings are underway. Submit a written request to the examining agent or group manager, and subsequently to the Appeals Officer, specifically requesting all supervisory approval documentation for each penalty being asserted. Document the request in writing and retain copies. Early request maximizes the ability to identify documentation deficiencies before deadlines such as the notice of deficiency date or the Tax Court petition deadline.
6. Review the administrative record for timely written supervisory approval. For each penalty, verify: (a) the existence of a written approval document; (b) a date on the approval that predates the relevant timing trigger (earlier of notice of deficiency or assessment per 26 C.F.R. Section 301.6751(b)-1; verify at IRS.gov for post-December 23, 2024 assessments); (c) the identity of the approving official as the immediate supervisor or a designated higher-level official; and (d) the specificity of the approval as applying to the particular penalty at issue. Verify the timing and documentation standard at IRS.gov for the applicable assessment date.
7. Document absent or deficient supervisory approval in a client memo. If the administrative record does not contain timely written supervisory approval, or if the approval is dated after the relevant timing trigger, document the deficiency in a written internal memo. This memo should specify: the penalty at issue; the applicable timing standard; the specific deficiency in the approval documentation; and the legal basis for the IRC 6751(b) argument. This memo is the foundation of the defense.
8. Assess substantive penalty defenses independently and in parallel. Determine whether the client has a reasonable cause defense under IRC 6664(c), a substantial authority defense, an adequate disclosure defense (Form 8275 or Form 8275-R), or any other substantive defense applicable to each penalty at issue. Do not abandon substantive defenses because a procedural IRC 6751(b) argument is available; assert both categories of defenses, in the alternative, unless doing so is strategically inadvisable based on the specific facts and applicable law.
9. Determine the best forum and timing for raising the IRC 6751(b) argument. Tax Court is generally the most effective forum (IRS bears the formal burden of production; the Court has authority to dismiss a penalty for failure to comply with IRC 6751(b)). Consider whether to raise the argument at IRS Appeals as well, accounting for the risk that doing so may give the IRS an opportunity to cure documentation deficiencies before assessment. Determine whether the argument should be raised on summary judgment or at trial in Tax Court proceedings.
10. Research current Circuit court authority on IRC 6751(b) in the applicable Circuit. Determine which Circuit's law governs the client's matter (generally the Circuit in which the taxpayer resides or is located, since Tax Court decisions can be appealed to the applicable Circuit). Research current post-TD 10017 decisions in that Circuit addressing IRC 6751(b). Do not assume that pre-TD 10017 Circuit precedent fully determines the outcome for post-December 23, 2024 assessments, as courts may apply the new regulations rather than prior case law for assessments after the regulatory effective date.
11. Verify the status of the SBSE field directive if applicable. If the client's examination is handled by the IRS SBSE division, the September 2025 field directive (SBSE-04-0925-0040) provides internal guidance on how SBSE employees must comply with TD 10017. Verify at IRS.gov that the field directive remains current and has not been superseded or modified. If the client's matter involves an IRS operating division other than SBSE (Large Business and International, Tax Exempt and Government Entities, etc.), the September 2025 SBSE directive does not apply; verify whether a comparable directive has been issued for the relevant operating division at IRS.gov. See the WARNING CALLOUT in Section 9 regarding the limitations of field directive reliance.
12. Verify all research and analysis at IRS.gov before providing written advice to the client. This guide reflects the state of the law and regulations as understood from publicly available information as of July 2026. Tax law, regulations, and IRS guidance in this area continue to develop. Always verify the current text of IRC 6751(b), 26 C.F.R. Section 301.6751(b)-1, relevant Circuit and Tax Court case law, and any applicable IRS guidance at IRS.gov and through current legal research tools before advising any client on the availability, strength, or strategy for an IRC 6751(b) defense.

14. Claims Notice