Tag Archives: 6038(b)

Fahry Appeal Court Rules IRC 6038(b) Is An Assessable Penalty Without Regard To IRC 6201

Part A Prologue Fahry, the issue and the tax court decision:

The significance of the Fahry decision in the Tax Court – Per Arnold Porter commentary:

“Many penalties related to income tax filings are not assessable penalties. The IRS took the position that Section 6038 penalties are assessable penalties under IRC Section 6201(a). Farhy argued that the IRS had no authority for treating Section 6038 penalties as assessable penalties. The Tax Court agreed with Farhy, reasoning that Section 6038, which establishes the reporting requirement regarding foreign corporations and the consequent penalties, does not specify a mode of assessing the penalties. Notably, as the Tax Court observed, there are other code provisions establishing penalties that explicitly state that the respective penalties are assessable. Thus, the Tax Court found that the penalties for failure to file Form 5471 are not subject to the deficiency procedures.”

https://www.arnoldporter.com/-/media/files/perspectives/publications/2023/05/howforeign-info-return-penalty-case-may-benefit-t.pdf

The issue in the Tax Court: IRC 6201 and the issue of assessable penalties – dose 6201 imply that some penalties are NOT assessable and that some penalties are assessable?

26 U.S. Code ยง 6201 – Assessment authority

(a) Authority of Secretary The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:

https://www.law.cornell.edu/uscode/text/26/6201JR Note: If “assessable penalty then IRS can assess the penalty.

How does one determine whether a penalty is assessable?

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