The Internal Revenue Code contains over 100 provisions penalizing taxpayers for various acts of noncompliance. Certain penalties are expressly subject to “assessment” by the Internal Revenue Service (IRS) and therefore governed by administrative collection procedures, including the imposition of liens and levies. By contrast, other penalties can only be collected through a civil action in federal district court. Given the burden on the government in bringing such actions, penalties that are not assessable are far less likely to be pursued.
In Farhy v. Commissioner, 160 T.C. No. 6 (April 3, 2023), the United States Tax Court held that the statutory penalty for failure to file certain information reports was not assessable. The decision was widely applauded by tax practitioners representing clients with similar, if not identical, forms of noncompliance. On May 3, 2024, however, the U.S. Court of Appeals for the District of Columbia Circuit examined the statutory scheme at issue in Farhy and reversed the Tax Court’s decision. Farhy v. Commissioner, ___ F.4th ___, 2024 WL 1945977 (D.C. Cir. 2024).
