Expect More Civil Tax Penalties—So, Now What?
How to prepare for and defend against the more frequent penalties

Imagine a street with a twenty-five-mile-per-hour speed limit, but everyone knows the police don’t patrol the street. Would you go twenty-five miles per hour? In a voluntary tax system, the Internal Revenue Service enforces the Internal Revenue Code (IRC, or the Code) with the threat of the civil tax penalty. Yes, the IRS has to catch you—but when it does, you could get hit with a huge penalty in addition to tax and statutory interest.

Civil tax penalties come in all shapes and sizes. Some are automatic (such as penalties for failure to pay on time), and some are discretionary (such as negligence penalties). Some can be abated by having a good excuse and being able to demonstrate it. But all are meant to enforce compliance. In recent years, the IRS has used the penalties in its arsenal with increasing frequency, asserting them in situations in which they have never applied before in, for example, garden-variety transactions.

So how can you protect yourself against the assessment of a civil tax penalty? In this article we discuss some common penalties that the IRS has asserted against taxpayers and some tips to prepare and defend against them. Large corporate taxpayers are generally well versed in the mechanics of an IRS examination and the potential for disagreements over return positions. Tax adjustments, while not desirable, are a fact of life and the cost of engaging in routine tax planning. But penalties imposed by the IRS are another case entirely.

Table Setting

In a recent report, the Treasury Inspector General for Tax Administration (TIGTA) stated that the IRS is failing to patrol the streets and enforce the speed limit. Indeed, the IRS does not levy civil tax penalties in the vast majority of its cases.¹ For example, for the tax years 2015 to 2017, TIGTA found that, in the IRS’ Large Business and International (LB&I) Division examinations that resulted in additional tax assessments of $10,000 or more, the IRS collected $14 billion for 4,600 returns reviewed. In all of those examinations, the IRS asserted a penalty only six percent of the time. TIGTA determined that “[i]f the IRS does not properly consider and propose the accuracy-related penalty, taxpayers may be treated inconsistently and unfairly, undermining tax system integrity and diminishing voluntary compliance.”

The IRS, however, disagrees with TIGTA’s conclusions, and takes the position that each examination depends upon its own facts and circumstances. At the recent New York University Tax Forum in June 2019, IRS Commissioner Charles Rettig commented on the TIGTA report. He noted that penalties should be determined on a case-by-case basis and that the IRS will assert penalties when appropriate. Clearly, the IRS believes it is appropriately policing taxpayers, using civil penalties when needed to enforce tax laws. One thing TIGTA did not consider is that, during examinations, the IRS Exam team may use the penalty as a bargaining chip to get the taxpayer to agree to pay additional tax. IRS Exam teams, unlike IRS Appeals officers, are not supposed to settle cases by negotiating a percentage of the additional tax determined. Instead, they are supposed to “examine” the tax return and to propose additional tax (and penalties) based on what they discover during the audit. Giving up a civil tax penalty in exchange for an agreed-to proposed adjustment is one of the only bargaining chips IRS Exam teams have to resolve matters.

IRS Foot Faults—Procedural Requirements for IRS Penalty Assertions

In the late 1990s, Congress was concerned that the IRS was inappropriately asserting penalties as a bargaining chip. Unknown to many taxpayers and practitioners, Congress enacted IRC Section 6751.² Subject to certain exceptions, this new statute provided that “[n]o penalty under [the Code] 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.”³

It took almost twenty years before courts began interpreting this provision, ultimately leading to the current view that the IRS bears the burden of demonstrating that the initial determination to assert a penalty against a taxpayer must be approved in writing by a supervisor, and that such approval must occur before the first formal communication to the taxpayer of the initial determination.⁴ No particular form is required for such approval, and any form of approval will generally suffice so long as it is in writing. And there can be multiple initial determinations—for example, the IRS might determine one penalty during examination and a different penalty after IRS Appeals, all of which may be procedurally permissible so long as supervisory approval is obtained for each penalty.

Recently, the supervisory approval requirement has been the subject of significant litigation. Because of the IRS’ failure to adhere to IRC Section 6751 requirements in many older cases, some taxpayers have been able to take advantage of the IRS’ foot fault to avoid penalties. However, going forward the IRS almost certainly will follow Section 6751 requirements as interpreted by the courts to ensure that necessary approval is obtained before a penalty is formally communicated to a taxpayer. In the unfortunate situation where penalties are asserted and a case goes to litigation, taxpayers should ensure that the IRS has met its obligations under IRC Section 6751.

The “Norm”—Common Civil Tax Penalties and Defenses

The most common civil tax penalty asserted against taxpayers is the so-called “accuracy-related” penalty in IRC Section 6662. This provision imposes a penalty equal to twenty percent (and in some cases forty percent) of any underpayment of tax on various grounds, including:

• negligence or disregard of rules or regulations;
• substantial understatement of income tax;
• certain misstatements related to valuation, basis, pension liabilities, and undisclosed foreign financial assets; and
• disallowance of claimed tax benefits by reason that a transaction lacks economic substance within the meaning of IRC Section 7701(o).

Of these grounds, negligence/disregard of rules or regulations and substantial understatement of income tax are the most common. “Negligence” includes any failure to make a reasonable attempt to comply with the Code, and “disregard” includes any careless, reckless, or intentional disregard. “Rules or regulations” encompasses the provisions of the Code, temporary or final regulations, and revenue rulings or notices. For corporations (other than S corporations and personal holding corporations), a substantial understatement occurs if the amount of the understatement for the taxable year exceeds the lesser of ten percent of the tax required to be shown on the return for the taxable year (or, if greater, $10,000) or $10 million.⁵

The negligence penalty will not apply if the taxpayer has a “reasonable basis” for its position.⁶ The penalty for disregard of rules or regulations and the penalty for substantial understatement will not apply if the taxpayer has a reasonable basis for its position and such position is properly disclosed.⁷ The substantial understatement penalty also will not apply if “substantial authority” exists for the tax return position.⁸ Because the substantial authority standard is more stringent than the reasonable basis standard, substantial authority will generally also abate the penalty for negligence and the disregard of rules or regulations (assuming proper disclosure for the latter). Additionally, none of these penalties applies if the taxpayer demonstrates that it acted with “reasonable cause” and in “good faith.”⁹

Reasonable Basis and Disclosure

Reasonable basis is the least stringent standard for avoiding penalties, lower than the substantial authority standard and the more-likely-than-not standard. To establish reasonable basis, a taxpayer’s position cannot be frivolous or patently improper.¹⁰ It also must not be one “that is merely arguable or that is merely a colorable claim.”¹¹ If a return position is based on one or more of the authorities considered under the substantial authority defense, the return position will generally satisfy the reasonable basis standard even though it may not satisfy the substantial authority standard. And, reasonable basis may exist even in the absence of certain types of authority, if, for example, the taxpayer’s position is supported only by a well-reasoned construction of the applicable statutory provision.

Disclosure, in the case of positions that are not contrary to a regulation, ordinarily must be made by attaching IRS Form 8275, Disclosure Statement, to the return. IRS Form 8275-R is used for positions that are contrary to regulations. However, the regulations provide that the IRS may by revenue procedure (or otherwise) prescribe the circumstances under which disclosure on a return in accordance with applicable forms and instructions is adequate. Accordingly, the IRS has indicated that a complete and accurate disclosure of a tax position on Schedule UTP will be treated as if the corporation filed a Form 8275 or Form 8275-R regarding the tax position. The instructions for Schedule UTP contain similar guidance.

It is important to note that Form 8275 or Form 8275-R need not be attached to a taxpayer’s return. In other words, there are no separate penalties for failure to attach such a form. However, the consequence of failing to attach a Form 8275-R is that the taxpayer will be prohibited from arguing that it reasonably relied on the advice of counsel (discussed below).

Substantial Authority

“Substantial authority” is an objective standard based on an analysis of the law as applied to the relevant facts.¹² It is less stringent than the more-likely-than-not standard but more stringent than the reasonable basis standard, and it looks at whether the weight of authorities supporting the treatment is substantial in relation to the weight of authorities supporting contrary treatment.¹³ Conclusions reached in opinions rendered by tax professionals are not authority; however, the authorities underlying such expressions of opinion where applicable to the facts of a particular case may give rise to substantial authority for the tax treatment of an item.¹⁴ Substantial authority may exist in the absence of certain types of authorities if the taxpayer’s position is supported by a well-reasoned construction of the applicable statutory provision.¹⁵

Recently, the supervisory approval requirement has been the subject of significant litigation.

When All Else Fails—Reasonable Cause/Good Faith

The determination of whether a taxpayer acted with “reasonable cause” and in “good faith” is made on a case-by-case basis, considering all pertinent facts and circumstances.¹⁶ Generally, the most important factor is the extent of the taxpayer’s effort to assess its proper tax liability.¹⁷ As discussed below, assertion of a reasonable cause defense has collateral consequences, including the potential waiver of privilege.

Reliance on tax advice or a tax opinion may satisfy the reasonable cause defense so long as

1) the advisor was a competent professional with sufficient expertise to justify reliance on him or her; 2) the taxpayer provided necessary and accurate information to the advisor; and 3) the taxpayer actually relied in good faith on the advisor’s judgment.¹⁸ Such advice need not be in the form of a tax opinion or memorandum, but either is generally preferable and makes a position easier to substantiate with the IRS.

Showing that your tax advisor is competent is typically easily satisfied. It is extremely important, however, that taxpayers provide their advisors with all relevant information and do not assume important issues or facts. In addition, just because a taxpayer has an opinion from a competent professional does not automatically mean the taxpayer has relied in good faith on the advice. Taxpayers have the burden to show that they received and reviewed the tax advice prior to filing their tax return, and that the tax advice was not “too good to be true.” Reliance on draft opinions can be hazardous, as can reliance on opinions that contain incorrect information.

In cases involving novel issues, courts have generally held that penalties are inappropriate where the statutory language is not entirely clear and judicial doctrines such as “substance over form” and “economic substance” are not involved.¹⁹ Although courts will still look at all of the facts and circumstances, demonstrating that an issue has not been previously addressed and that there is some ambiguity can be helpful in convincing a court that the taxpayer acted reasonably and in good faith. During the examination process, however, taxpayers may want to avoid signaling a belief that an issue is unsettled or unclear. Thus, the issue of first impression defense may, in appropriate circumstances, be held in one’s back pocket if the taxpayer cannot get the IRS to back down based on other defenses.

The issue of first impression defense may be useful in the wake of tax reform. The Tax Cuts and Jobs Act of 2017 (TCJA) contains many provisions that are ripe for dispute between taxpayers and the IRS. Many of these issues will involve cases of first impression (for example, IRC Section 199A), but the IRS may still assert penalties based on positions taken in regulations that many taxpayers believe are invalid.

Wait, There’s a Penalty for Seeking Too Much Refund?

IRC Section 6676(a) imposes a twenty percent penalty to the extent that a claim for refund or credit with respect to income tax is made for an “excessive amount.”²⁰ An “excessive amount” is defined as the difference between the amount of the claim for credit or refund sought and the amount that is actually allowable.²¹ For example, if the taxpayer claims a refund of $1 million and the IRS allows only $100,000, the taxpayer can be penalized $180,000 (twenty percent of the difference between the $1 million claim and the $100,000 allowance) pursuant to IRC Section 6676. The legislative history for IRC Section 6676 is sparse, but the statute was enacted in response to reports of high numbers of meritless refund claims that strained IRS resources and created impediments to effective tax administration.²²

IRC Section 6676, however, does not require the IRS to show any fault or culpability on the part of the taxpayer. Indeed, the penalty is mechanical and “automatic.” The penalty, however, can be abated if the taxpayer can show it had “reasonable cause”²³ to claim too much refund or credit. Neither the Code nor the regulations provide for any other defense to the IRC Section 6676 penalty.

IRC Section 6676 does not define “reasonable cause.” The meaning of the term “reasonable cause” in IRC Section 6676(a) should be construed under the standards set forth in Treasury Regulations Section 1.6664-4. The reasonable cause defense, however, is not available if any excessive amount is attributable to a transaction lacking economic substance within the meaning of IRC Section 7701(o).²⁴

The IRS’ New Speed Trap

On November 21, 2018, LB&I issued a directive²⁵ advising its personnel to consider asserting the penalty in IRC Section 6676 on erroneous refund claims premised upon IRC Section 199. Given that Section 199 was removed from the Code as part of the TCJA, many taxpayers have filed claims seeking refunds. The IRS apparently intends to penalize taxpayers who overreach by inflating their refund claims in the wake of tax reform.

Interestingly, there are no reported opinions on the application of IRC Section 6676, and no regulations have been promulgated.²⁶ We are seeing, however, an uptick in audit activity, and pending litigation indicates that Section 6676 may become the IRS’ speed trap to ensure refund claims are reasonable.²⁷ There is scant IRS guidance on Section 6676. For example, in IRS Chief Counsel Advice memorandum (CCA) 201727004 (July 7, 2017), the IRS included a brief discussion of Section 6676, because the allowance of a deduction for deficiency dividends could, in some situations, result in overpayment of tax. The liability for the penalty depends on the merits of the claim and, if the claim is disallowed, whether the taxpayer can establish reasonable cause for making the excessive claim.²⁸

Recent guidance and audit experience suggest that the IRS is becoming increasingly aggressive and will assert the Section 6676 penalty against taxpayers more frequently. For example, there is litigation in U.S. District Court involving disallowed refund claims in which the IRS has asserted a significant IRC Section 6676 penalty.²⁹ In that case, the IRS assessed an IRC Section 6676 penalty of approximately $200 million.

How Do You Fight the IRC Section 6676 Penalty?

The Internal Revenue Manual explains that if the IRS asserts an IRC Section 6676 penalty, the Exam team will explain the issue and offer a meeting with the IRS examiner’s manager to discuss the penalty.³⁰ If the penalty sticks, the IRS will issue a thirty-day letter giving the taxpayer an opportunity to go to IRS Appeals.³¹ If you cannot settle with IRS Appeals, the next stop is court.

The IRC Section 6676 penalty is immediately assessable, meaning that, once the IRS determines the penalty, it will officially “assess” the penalty, send you a notice demanding payment, and, when the penalty is not paid within thirty days, begin the process to file a lien or levy against a taxpayer’s property.³² This occurs before a judge has agreed with the IRS’ determination.

To fight the penalty, you will have to pay the penalty, file a claim for refund (what, another refund claim?) with the IRS, and (assuming the claim is denied or the requisite six-month period has elapsed) file suit in the appropriate U.S. District Court or the U.S. Court of Federal Claims to get your money back.

So the IRS Has Asserted a Penalty—Now What?

The first question you should ask yourself is, How did I get here? Was there something I could have done to avoid all of this mess? The answer is yes, and we provide several suggestions at the end of this article. The next question you should ponder is, What’s my excuse for messing up? Did someone on my staff have a bad day and make a mistake? Or did I rely on my tax attorney or accountant for the erroneous tax position on that triangular D reorganization with the 1,000-page step-plan? And the next question is, If I rely on a defense to abate the penalty, are there negative side effects? We address these questions in turn.

Throwing Your Tax Professional Under the Bus Comes With a Cost

If your staff (or you—shhh, we won’t tell the CFO) messed up, that’s not typically a good reason to abate a penalty.³³ If falling on your sword will not help you, perhaps you might think, Let’s blame the tax attorney or accountant, they can take it! All joking aside, generally your “get out of a civil tax penalty card” is to claim that you relied on a learned tax professional, because, as discussed above, reliance on the advice of tax counsel or your accountant may help you to escape the penalty. So you may be able to rely on a “reasonable cause” defense for most penalties if you can show that your reliance on the counsel or accountant’s advice was in good faith.

Asserting the reasonable cause defense, however, brings with it privilege concerns, because typically raising this defense results in the waiver of the privilege. For example, a taxpayer generally waives the attorney-client privilege by asserting claims or defenses that put the attorney’s advice or the taxpayer’s state of mind at issue.³⁴ This implied waiver doctrine reflects the well-entrenched view that the attorney-client privilege may not be used as both a “sword and a shield.”³⁵ In one illustrative case, an appellate court held that because one party claimed that its tax position was reasonable and based on the advice of its counsel, it could not thereafter rely on the attorney-client privilege to deny the other party access to the very information it must refute in order to prevail.³⁶

An Ounce of Prevention Is Worth a Pound of Cure

So, you have decided you want to avoid having to tell your CFO that the IRS just asserted a huge civil tax penalty that you may have to put in your financial reports and for which you may have to set up a reserve. The key is to protect yourself before you take a position on the return. Here are some tips on how to do so:

• Get prepared. You know the soft spots in your return, so anticipate an IRS audit and the additional scrutiny. Take measures to protect your confidential and privileged communications. Segregate business advice from legal and tax advice to avoid cross-contamination and privilege waiver.
• Understand the factual and legal or tax bases for your positions. Develop the facts and legal analysis that you will need to justify and support your positions. Create “audit-ready” files for all positions that may be subject to additional scrutiny.
• Analyze and document the narrative you would tell the IRS. Know the full gamut of the issue (the good, the bad, and the ugly) before the IRS comes knocking. For example, do your contemporaneous documents support your story? For document-intensive issues, create a database or “data room.” Make sure that your story is consistent, reasonable, and plausible.
• If you anticipate fighting with the IRS on an issue, obtain legal advice as to whether you have a duty to preserve documents and information and whether you should issue a litigation hold notice.
• Loose lips sink ships! Identify who, including consultants, has contemporaneous knowledge of your issues. What will they say if the IRS interviews them? Counsel should interview potential fact witnesses and prepare privileged summaries for future reference in case of employee turnover.
• Expect the IRS to reach out to third parties, including former employees, consultants, vendors, and customers. At the beginning of the audit, send the IRS a “third-party contact” letter to determine whom they are contacting and ask third parties to advise you of any communication with the IRS.
• Expect significant involvement of LB&I field counsel. LB&I counsel will advise the IRS examination team on both issue and factual matters.
• Know all of your facts before giving them to the IRS. The IRS requests information from a taxpayer by issuing an Information Document Request or IDR. Realize that whatever you say in response to an IDR can and will be used against you in the future, because your responses are considered admissions.
• Don’t waive privilege. The IRS likes to challenge whether communications are privileged and, for example, will ask for your tax opinions. The IRS uses its power to seek an administrative summons to force taxpayers to disclose the legal tax advice. Make it difficult for the IRS, and do not mistakenly waive privilege by sharing confidential communications with people outside of the sphere of confidentiality.
• Think strategically about whether and when to waive privilege. Be mindful that privilege protection will be waived if you claim a reasonable cause defense based on your reliance on the advice of a professional. And waiver extends not only to the confidential communication disclosed but also to all communications on the same subject matter.
• When asked, analyze the pros and cons of whether to extend the statute of limitations for assessment. Without an extension, the IRS has three years from the date of filing to audit your tax return. If you want to be the lead case on an issue, consider options to accelerate the audit.
• If settlement is a possibility, consider using the IRS’ successful Alternative Dispute Resolution techniques like Fast Track Mediation, IRS Appeals, or Post-Appeals Mediation. Recently, the IRS has been expressing its desire to settle cases as early as possible. Use that sentiment to your advantage.

Andrew Roberson and Kevin Spencer are partners at McDermott Will & Emery LLP

Endnotes

1. “Few Accuracy-Related Penalties Are Proposed in Large Business Examinations, and They Are Generally Not Sustained on Appeal,” Treasury Inspector General for Tax Administration, May 31, 2019, www.treasury.gov/tigta/auditreports/2019reports/201930036fr.pdf.
2. Pub. L. 105-206, Title III, Section 3306(a), 112 Stat. 744 (July 22, 1998).
3. IRC Section 6751(b)(1). This rule does not apply to additions to tax under IRC Section 6651, 6654, or 6655, or to any other penalty automatically calculated through electronic means. IRC Section 6751(b)(2).
4. See, for example, Chai v. Comm’r, 851 F.3d 190, 219 (2d Cir. 2017); Clay v. Comm’r, 152 T.C. No. 13 (April 24, 2019); Graev v. Comm’r, 149 T.C. 495 (2017); Endeavor Partners Funds v. Comm’r, T.C. Memo. 2018-96.
5. For other types of taxpayers, a substantial understatement occurs if the amount of the understatement for the taxable year exceeds the lesser of ten percent of the tax required to be shown on the return for the taxable year or $5,000.
6. Treas. Reg. Section 1.6662-3(b)(1).
7. IRC Section 6662(d)(2)(B)(ii); Treas. Reg. Section 1.6662-3(c)(1).
8. IRC Section 6662(d)(2)(B)(i).
9. IRC Section 6664(c)(1). This is true even if a return position does not satisfy the reasonable basis standard. See Treas. Reg. Section 1.6663-2(b)(3).
10. Treas. Reg. Section 1.6662-3(b)(3).
11. Id.
12. Treas. Reg. Section 1.6662-4(d)(2).
13. Treas. Reg. Section1.6662-4(d)(3)(i). The following items are authority for purposes of determining whether there is substantial authority for the tax treatment of an item: applicable provisions of the Internal Revenue Code and other statutory provisions; proposed, temporary, and final regulations construing such statutes; revenue rulings and revenue procedures; tax treaties and regulations thereunder, and Treasury Department and other official explanations of such treaties; court cases; congressional intent as reflected in committee reports, joint explanatory statements of managers included in conference committee reports, and floor statements made prior to enactment by one of a bill’s managers; General Explanations of tax legislation prepared by the Joint Committee on Taxation; private letter rulings and technical advice memoranda issued after October 31, 1976; actions on decisions and general counsel memoranda issued after March 12, 1981 (as well as general counsel memoranda published in pre-1955 volumes of the Cumulative Bulletin); Internal Revenue Service information or press releases; and notices, announcements, and other administrative pronouncements published by the IRS in the Internal Revenue Bulletin. Treas. Reg. Section 1.6662-4(d)(3)(iii).
14. Treas. Reg. Section 1.6662-4(d)(3)(iii).
15. Treas. Reg. Section 1.6662-4(d)(3)(ii); Dunnegan v. Comm’r, 82 F.3d 404 (1996).
16. Treas. Reg. Section 1.6664-4(b)(1).
17. Id.
18. See Treas. Reg. Section 1.6664-4(b)(1); Neonatology Assocs., P.A. v. Comm’r, 115 T.C. 43, 99 (2000), aff’d 299 F.3d 221 (3d Cir. 2002).
19. See, for example, Petersen v. Comm’r, 148 T.C. 463, 481 (2017); Curtis Inv. Co., LLC v. Commissioner, T.C. Memo. 2017-150.
20. IRC Section 6676(a).
21. IRC Section 6676(b).
22. See Treasury Inspector General for Tax Administration Semiannual Report to Congress (April 1, 2005, through September 30, 2005), available at www.treasury.gov/tigta/semiannual/semiannual_dec2005.pdf; Staff of Joint Committee on Taxation, Description of Revenue Provisions Contained in the President’s Fiscal Year 2008 Budget Proposal, JCS-2-07 (March 2007).
23. Protecting Americans From Tax Hikes Act of 2015, Pub. L. No. 114-113, Section 209(c)(3), Div. Q. In addition, as originally enacted, IRC Section 6676 did not apply to disallowed claims relating to the earned income credit. However, Congress removed this limitation as part of the 2015 amendments to IRC Section 6676.
24. IRC Section 6676(c) (referencing IRC Section 6662(b)(6)
    transactions); see also IRS Notice 2014-58, 2014-44 I.R.B. 746, October 9, 2014 (“For purposes of the penalty for an erroneous claim for refund or credit of an excessive amount, section 6676(c) provides that any excessive amount (within the meaning of section 6676 (b)) that is attributable to any transaction described in IRC section 6662(b)(6) is treated as not having a reasonable basis [now required to having reasonable cause]”).
25. LB&I-04-1118-016, LB&I Directive on Amended Return/Claim for Refund Relating to Internal Revenue Code Section 199 (November 21, 2018), www.irs.gov/businesses/lbi-directive-on-amended-return-or-claim-for-refund; see also IRS Practice Unit, IRC 179D Energy Efficient Commercial Buildings Deduction (January 28, 2019), available at www.irs.gov/pub/irs-utl/dce_p_250_05_01.pdf (instructing IRS personnel to consider whether to apply penalties, including the Section 6676 penalty, if an adjustment to a Section 179D deduction results in a tax adjustment).
26. However, there are a few unreported opinions. See, for example, United States v. Thomas, No. 3:14–cv–318, 2015 WL 1324379 (N.D. Ohio February 17, 2015).
27. In 2009, the IRS directed that the IRC Section 6676 penalty needs to be addressed in all cases where research credit claims are disallowed in whole or in part. See LMSB-4-0608-035 (January 15, 2009).
28. See also CCA 201640016, September 30, 2016 (“The appropriate penalty for this type of situation—where the taxpayer makes a false claim for refund that is not paid—is the [IRC] section 6676 penalty on erroneous claims for refund”).
29. See Natalie Olivo, “IRS Defends Response in Exxon $1.35B Refund Case” (September 20, 2017), www.law360.com/articles/965950/irs-defends-response-in-exxon-1-35b-refund-case, and Amy Lee Rosen, “Exxon Seeks to Argue IRS Lacked Approval For $200M Penalty” (November 28, 2018), www.law360.com/tax-authority/articles/1105674/exxon-seeks-to-argue-irs-lacked-approval-for-200m-penalty.
30. IRM 20.1.5.18.5(8) (04-22-2019). Written supervisory approval of the penalty is required pursuant to IRC Section 6751(b)(1). IRM 20.1.5.18.4(4) (04-22-2019).
31. IRM 20.1.5.18.5(10) (04-22-2019).
32. See, for example, Kahanyshyn v. Comm’r, Tax Court Dkt. No. 29697-14 (order dated September 4, 2015) (“The Section 6676 penalty is an assessable penalty under subchapter B of chapter 68 that is not subject to the deficiency procedures”).
33. IRM 20.1.1.3.2.2.4 (December 11, 2009).
34. Waiver of the accountant-client privilege in IRC Section 7525 should similarly occur if the taxpayer relies on the advice of its accountant as a defense against penalties.
35. United States v. Bilzerian, 926 F2d 1285, 1292 (2d Cir. 1991).
36. Chevron Corp. v. Pennzoil Co., 974 F2d 1156, 1162 (9th Cir. 1992); see also Ad Investment 2000 v. Comm’r, 142 T.C. 248 (2014) (taxpayers waived attorney-client privilege: “it would be unfair to deprive respondent of knowledge of the contents of the opinions and the opportunity to put those opinions into evidence”).