No, Not Non-Assessable

Alon Farhy,  160 T. C. 6, filed 4/3/23 owes the $10K per annum chop for willful nonfiling of Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations per Section 6038(b)(1), and $50K in continuations per Section 6038(b)(2) for the eight (count ’em, eight) years at issue. And Alon timely went to Appeals when he got the Letter 1153 NITL, and timely petitioned the NOD sustaining the levy. IRS Boss Hossed appropriately.

But ex-Ch J L Paige (“Iron Fist”) Marvel finds a wee problem, namely, viz., and to wit: IRS has no statutory authority to collect. IRS says these chops are assessable penalties, meaning they can enter them on their books per Section 6201 as a prelude to collection without the need for Section 6213 SNOD procedures, and collect as if they were taxes. But the statute doesn’t say that.

“Congress has explicitly authorized assessment with respect to myriad penalty provisions in the Code, but not for section 6038(b) penalties. Section 6671(a) provides that the numerous penalties found in subchapter B of chapter 68 of subtitle F (i.e., in sections 6671–6725) ‘shall be assessed and collected in the same manner as taxes,’ subjecting those penalties to the Secretary’s assessment authority under section 6201. Section 6665(a)(1) contains a similar statement that the additions to tax, additional amounts, and penalties provided in chapter 68 of subtitle F (i.e., in sections 6651–6751) “shall be assessed, collected, and paid in the same manner as taxes.’ Code sections outside of chapter 68 of subtitle F whose violations the Code specifically penalizes commonly  (1) contain their own express provision specifying the treatment of penalties or other amounts as a tax or an assessable penalty for purposes of assessment and collection, see, e.g., §§ 527(j)(1), 856(g)(5)(C),  857(f)(2)(A), 4980H(d)(1), 5000A(g)(1), 5114(c)(3), 5684(b), 5761(e),  9707(f); (2) contain a cross-reference to a provision within chapter 68 of subtitle F providing a penalty for their violation, see, e.g., §§ 1275(c)(4), 6033(o), 6043(d), 6046(f), 6046A(e), 6420(i)(2), 6421(j)(1), 6427(p)(1), 7501(b); or (3) are expressly covered by a penalty provision within chapter 68 of subtitle F, see, e.g., §§ 6652(c), 6674, 6675, 6677, 6679,  6685, 6686, 6688, 6689, 6690, 6692, 6693, 6695, 6698, 6699, 6704, 6705,  6706, 6707, 6707A, 6708, 6709(c), 6710, 6712, 6714, 6717, 6718, 6719, 6720. In contrast, section 6038 contains only a cross-reference to a criminal penalty provision, section 7203. § 6038(f)(1).

“Furthermore, 28 U.S.C. § 2461(a) expressly provides that ‘[w]henever a civil fine, penalty or pecuniary forfeiture is prescribed for the violation of an Act of Congress without specifying the mode of recovery or enforcement thereof, it may be recovered in a civil action.” 160 T. C. 6, at p. 7.

Ex-Ch J Iron Fist is “loath to disturb this well-established statutory framework by inferring the power to administratively assess and collect the section 6038(b) penalties when Congress did not see fit to grant that power to the Secretary of the Treasury expressly as it did for other penalties in the Code.” 160 T. C. 6, at p. 8.

So Janet Yellen will have to get Merrick Garland’s guys to sue, and in the meantime get Congress to amend Section 6038 (best of luck with that one).

A Taishoff “Good Job, First Class,” goes to Alon’s trusty attorney Edward M. Robbins, Jr.