When It Comes To Penalties: Some Penalties Are ”Assessable” And Some Are Not And Why It Matters

<p>April 17, 2023 - Participants include:</p> <p>Virginia La Torre Jeker - <a href='https://www.twitter.com/vljeker'>@VLJeker</a></p> <p>John Richardson - <a href='https://www.twitter.com/expatriationlaw'>@Expatriationlaw</a></p> <p>Prologue - Some Penalties are "assessable" and some are not</p> <p>An excerpt from the 2023 Taxpayer Advocate Report included a discussion of "assessable" penalties which included:</p> <p> </p> <p>"These “assessable” penalties are generally those that are due and payable upon notice and demand. Unlike penalties subject to deficiency procedures, assessable penalties carry no rights to a 30-day letter, agreement form, or notice requirements prior to assessment. Internal Revenue Manual 20.1. 9.1."</p> <p><a href='https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/01/ARC22_PurpleBook_03_ImproveAssmtCollect_11.pdf'>https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/01/ARC22_PurpleBook_03_ImproveAssmtCollect_11.pdf</a></p> <p>Not all penalties are the same! Notably this excerpt makes a distinction between "assessable" penalties and penalties "subject to deficiency" procedures.</p> <p>Generally, "assessable" penalties are payable because they are assessed and cannot be challenged without first paying the penalty and then using the judicial process to seek a refund.</p> <p>Penalties "subject to deficiency procedures" can be challenged in tax court before they are paid. Although no taxpayer likes ANY penalty clearly penalties that are NOT "assessable" afford the taxpayer with more options for response.</p> <p>Chapter 61 - Form 5471, Form 5472, Form 8938, Form 926 Form Penalties</p> <p>These are significant penalties for taxpayers generally and especially for U.S. citizens living outside the United States. On April 3, 2023 in the <a href='https://scholar.google.com/scholar_case?case=4456182817045444996&hl=en&as_sdt=6&as_vis=1&oi=scholarr'>Fahry</a> case, the Tax Court ruled that Form 5471 penalties were NOT "assessable" penalties and that therefore the IRS had no jurisdictio