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Here are the facts of another taxpayer win under IRC 6751(b): A married couple’s civil fraud penalty was not timely approved by an IRS Revenue Agent’s (RA’s) supervisor as required under Code Sec. 6751(b)(1). The taxpayer’s joint return was examined by the IRS following which the RA had sent them a summons requiring their attendance at an in-person closing conference. The RA provided the taxpayers with a completed, signed Form 4549, Income Tax Examination Changes, reflecting a Code Sec. 6663(a) civil fraud penalty. However, the taxpayers declined to consent to the assessment of the civil fraud penalty or sign Form 872, Consent to Extend the Time to Assess Tax, to extend the limitations period. Thereafter, the RA obtained written approval from her immediate supervisor for the civil fraud penalty and sent the taxpayers a notice of deficiency determining the same. The taxpayers contended that the civil fraud penalty was not timely approved by the RA’s supervisor because the revenue agent report (RAR) presented at the conference meeting embodied the first formal communication of the RA’s initial determination to assert the fraud penalty.
Due to the use of a summons letter requiring the taxpayers’ attendance, the closing conference carried a degree of formality not present in most IRS meetings. The closing conference at the end of the taxpayers’ examination process was, like an IRS letter, a formal means of communicating the IRS initial determination that taxpayers should be subject to the fraud penalty. Therefore, the RA communicated her initial determination to assert the fraud penalty when she provided the taxpayers with a completed and signed RAR at the closing conference. Moreover, the RA had informed the taxpayers during the closing conference that they did not have appeal rights at that time, which was incomplete and potentially misleading. The completed RAR given to the taxpayers during the closing conference, coupled with the context surrounding its presentation, represented a “consequential moment” in which the RA formally communicated her initial determination that the taxpayers should be subject to the fraud penalty. Therefore, the taxpayers’ civil fraud penalty was not timely approved and their motion for partial summary judgment was granted.
* Reprint, Wolsters Kluwer, accessed March 2, 2021