Summary
The Second Circuit held that the Commissioner of Internal Revenue may administratively assess penalties under I.R.C. § 6038(b) for failing to report control of a foreign business entity. The court vacated the Tax Court’s order granting Joseph Safdieh summary judgment and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether the Commissioner of Internal Revenue may collect penalties imposed under I.R.C. § 6038(b) through administrative assessment.
- Whether the Commissioner must obtain a judgment in federal district court before collecting penalties under I.R.C. § 6038(b).
Holdings
- The Commissioner may assess and administratively collect penalties incurred under I.R.C. § 6038(b) for failure to report control of a foreign business.
- The Commissioner is not required to obtain a federal district court judgment before collecting a penalty imposed under I.R.C. § 6038(b).
Key quotations
“Seeing things differently, we hold that the Commissioner may assess penalties under § 6038(b).” (at 3)
“It plays the singular role of triggering an all-important process: collection.” (at 4)
“We instead focus on § 6038(b)’s history, purpose, and structure—including the text of a key coordination clause—which lead us to hold that the penalty is assessable.” (at 6)
“For the reasons set out above, we hold that the Commissioner can assess penalties incurred under § 6038(b).” (at 16)
Factual background
Safdieh allegedly failed to report his control of a foreign business as required by I.R.C. § 6038 during tax years 2005 through 2009. The Commissioner assessed five $10,000 penalties under § 6038(b), totaling $50,000, and filed a federal tax lien after Safdieh failed to pay. Safdieh challenged the lien through a Collection Due Process hearing and obtained summary judgment in the Tax Court on the ground that the penalties could not be collected administratively.
Procedural history
The Commissioner assessed $50,000 in penalties against Safdieh for allegedly failing to report control of a foreign business during tax years 2005 through 2009 and filed a federal tax lien after Safdieh did not pay. Safdieh challenged the lien in a Collection Due Process hearing and then petitioned the Tax Court. The Tax Court granted Safdieh summary judgment, concluding that the Commissioner lacked authority to collect the penalties through administrative assessment and instead had to sue in federal district court. The Second Circuit reviewed the legal issue de novo.
Remand instructions
Vacate the Tax Court's order granting Safdieh summary judgment and remand for further proceedings consistent with the opinion.