House Approves Bills to Tighten IRS Penalty Requirements, Reform Tax Court Procedures

The House approved two bills by voice vote on December 1 that would reform Tax Court procedures and clarify the requirements for the IRS to assess penalties. The bills enjoy bipartisan support in the Senate, but could be caught up in a broader legislative effort to address tax administration issues.

The Fair and Accountable IRS Review Act (H.R. 5346) would clarify when the IRS must obtain supervisory approval to assert penalties. Section 6751(b) currently requires most penalty assessments to be approved in writing by an “immediate supervisor” before the “initial determination.” The requirement does not apply to several delinquency and accuracy-related penalties.

The statute does not define “initial determination” or “immediate supervisor,” and courts have disagreed on when written approval must be obtained in the penalty process. Several Tax Court decisions have been appealed to different circuits, which have reached different conclusions. The Ninth Circuit held in Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner (29 F.4th 1066) that penalty approval must come before both the assessment or the relevant supervisor loses discretion over whether to approve the penalty, while the Second Circuit held in Chai v. Commissioner (851 F.3d at 220–21) that the determination requires an analysis of when a “consequential moment” occurs in forming an IRS position on asserting a penalty.

H.R. 5346 would require written approval from “the person to whom such individual reports” before “any written communication with respect to such penalty (including proposal of a penalty as an adjustment) is sent to the taxpayer.” Such a standard would provide helpful clarity for taxpayers and make it more difficult for the IRS to threaten penalties as a negotiating tool.  

The Tax Court Improvement Act (H.R. 5349) would make a number of changes to Tax Court procedures, including expanding subpoena authority and clarifying that the Tax Court has jurisdiction over equitable tolling questions.

The bills are the latest in a series of bipartisan tax administration bills that have passed the House with overwhelming support. Two of the bills have also been approved in the Senate by unanimous consent and were signed into law by the president:

• H.R. 517: The Filing Relief for Natural Disasters Act increases the mandatory filing and payment relief period for natural disasters under Section 7508A from 60 days to 120 days and gives the IRS authority to postpone deadlines for state-declared natural disasters.
• H.R. 998: The Internal Revenue Service Math and Taxpayer Help Act imposes new restrictions on the IRS’s ability to use math error authority to make adjustments without using the regular deficiency procedures (see our full write-up for more information).

Several of the House-passed bills have not yet been considered in the Senate, including: 

• H.R. 1152: The Electronic Filing and Payment Fairness Act would extend the “mailbox” rule to electronic filings so timeliness would be determined based on when an electronic payment or form was sent rather than received. 
• H.R. 1155: The Recovery of Stolen Checks Act would allow the IRS to issue replacement checks for lost tax refund payments as electronic payments. 
• H.R. 997: The National Taxpayer Advocate Enhancement Act of 2025 would give the National Taxpayer Advocate Service authority to hire direct counsel.

The new bills covering IRS penalties and the Tax Court could be considered using unanimous consent procedures in the Senate, but may run into resistance from Senate tax writers pushing for more comprehensive tax administration legislation. 

Senate Finance Committee Chair Mike Crapo, R-Idaho, and Ranking Member Ron Wyden, D-Ore., have released a discussion draft and summary of the Taxpayer Assistance and Service Act. It includes similar provisions to the House-passed bills (including on IRS penalty procedures and Tax Court authority) but adds many additional proposals and would grant the IRS the authority to regulate return preparers.