Alon Farhy v. Commissioner of Internal Revenue

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 14, 2024 Decided May 3, 2024
No. 23-1179
ALON F ARHY ,
APPELLEE
v.
C OMMISSIONER OF INTERNAL R EVENUE,
APPELLANT
Appeal from the United States Tax Court
Francesca Ugolini, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Jennifer M. Rubin and Robert J. Wille, Attorneys.
Edward M. Robbins argued the cause and filed the brief
for appellee.
Before: P ILLARD and WILKINS , Circuit Judges, and
R OGERS , Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge P ILLARD.

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P ILLARD, Circuit Judge: Section 6038(a) of the Internal
Revenue Code requires U.S. persons to file information returns
reporting their control of any foreign business. Alon Farhy
acknowledges that he violated that statutory obligation when
he failed to report to the Internal Revenue Service his
ownership of Belizean corporations and thus owes the United
States government nearly $500,000 in penalties under section
6038(b), which imposes a fixed-dollar penalty for failure to
comply with the requirements of section 6038(a). Farhy disputes
only the method by which the Internal Revenue Service sought
to collect that sum: assessing the penalties owed and notifying
Farhy that it will levy his property if he fails to pay them. He
contends that the IRS lacks statutory authority for its decades-
long practice of assessing and administratively collecting
section 6038(b) penalties. As he reads the statute, the
government must sue him in federal district court to collect
what he owes under section 6038(b). The Tax Court agreed,
concluding that the Code does not empower the Service to
assess and administratively collect section 6038(b) penalties.
We hold that the text, structure, and function of section 6038
demonstrate that Congress authorized assessment of penalties
imposed under subsection (b), and so reverse and remand to the
Tax Court with instructions to enter decision in favor of the
Commissioner.
BACKGROUND
A.
This case is a dispute over the process available to the IRS
to enforce U.S. persons’ obligations to file tax returns
regarding their foreign interests. Can the penalty for failure to
file be assessed by the Internal Revenue Service (IRS or
Service), or must the Department of Justice sue and obtain a
judgment from a federal district court before it can enforce the

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penalty? To appreciate what is at stake, it helps to understand
that the Treasury Secretary’s power of “assessment” is the
cornerstone of the government’s tax collection authority. An
“assessment” is the “official recording” of the amount a
taxpayer owes the federal government. Polselli v. IRS, 598
U.S. 432, 438 (2023); see also I.R.C. § 6203. The federal tax
system largely relies on each taxpayer’s self-assessment,
meaning the taxpayer’s calculation of the amount she owes in
a tax return filed with the IRS along with the indicated tax
payment. The Commissioner of the Service, to whom the
Treasury Secretary’s assessment authority is delegated,
typically accepts the taxpayer’s calculation and formally
executes the assessment by “record[ing] the liability of the
taxpayer” and crediting payments to that amount. United
States v. Galletti, 541 U.S. 114, 122 (2004); accord Direct
Mktg. Ass’n v. Brohl, 575 U.S. 1, 9 (2015). When a taxpayer
fails to file the requisite return or misstates the amount owed,
the Commissioner determines the assessment: It “calculates
the proper amount of liability and records it in the
Government’s books.” Galletti, 541 U.S. at 122.
An assessment’s unassuming form as a “bookkeeping
notation,” Hibbs v. Winn, 542 U.S. 88, 100 (2004) (quoting
Laing v. United States, 423 U.S. 161, 170 n.13 (1976)), belies
its importance. “[I]t is the assessment, and only the
assessment, that sets in motion the collection powers of the
IRS, powers that include the seizure of assets, the freezing of
bank accounts and the creation of liens, all without judicial
process.” Phila. & Reading Corp. v. United States, 944 F.2d
1063, 1064 n.1 (3d Cir. 1991). Within 60 days of the IRS’s
assessment of a liability not already paid, the Service must
“give notice to each person liable for the unpaid tax, stating the
amount and demanding payment thereof.” I.R.C. § 6303(a).
Then, if the amount remains unpaid, the IRS “can employ
administrative enforcement methods to collect the tax,”

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including liens and levies. Galletti, 541 U.S. at 122. An IRS
assessment thus serves as “the trigger for levy and collection
efforts.” Hibbs, 542 U.S. at 102.
It is the rare federal tax that can only be recovered through
a government-initiated lawsuit. Generally, “all taxes” imposed
under the Internal Revenue Code (IRC or Code) are assessable.
I.R.C. § 6201(a). That includes “assessable penalties,” id.,
such as those authorized by Chapter 68 of the Internal Revenue
Code (titled “Additions to the Tax, Additional Amounts, and
Assessable Penalties”), see I.R.C. Ch. 68; see also id.
§ 6665(a)(1). Chapter 68 penalties cover a range of conduct
such as the failure to include required reportable transactions
on returns, id. § 6707A, and the failure to file information with
respect to certain foreign trusts, id. § 6677(a). But not every
tax-related penalty is assessable. The IRC specifies, for
example, that civil penalties for willful failure to pay excise
taxes related to tobacco products are “to be recovered, with
costs of suit, in a civil action.” Id. § 5761(a).
Collection actions ensuing from IRS assessments operate
largely in the administrative realm with limited opportunities
for taxpayers to seek judicial review. Generally, taxpayers can
obtain judicial review of an assessed liability by paying the
amount in full and then filing a refund suit in federal district
court. See Flora v. United States, 362 U.S. 145, 157-58 (1960).
Recognizing that the pay-first, challenge-later model put
judicial review out of reach of taxpayers who could not pay,
Congress provided for pre-collection review of assessments in
two main circumstances.
First, if an unpaid tax is a “deficiency,” the IRS is required
to provide the taxpayer an opportunity for judicial review
before assessment. The Code defines a deficiency as “the
amount by which the [income, gift, estate, or excise] tax

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imposed . . . exceeds” the sum of “the amount shown as the tax
by the taxpayer upon his return” plus any previous deficiency,
less “the amount of rebates . . . made.” I.R.C. § 6211(a). It
thus “does not include all taxes owed by a taxpayer, but only
those that are both owed and not reported.” Laing, 423 U.S. at
173 n.18. Upon receipt of a notice of deficiency, a taxpayer
generally has 90 days within which to petition the Tax Court
for a redetermination of the deficiency. I.R.C. § 6213(a). Tax
Court decisions are reviewable in federal courts of appeals. Id.
§ 7482(a)(1). The Service cannot assess the deficiency until
the Tax Court’s decision is final (or until expiration of the 90-
day window to seek Tax Court review). Id. § 6213(a).
Many penalties, however, are not included in the statutory
definition of “deficiency.” Those exactions are not subject to
deficiency procedures, so the IRS can assess them without
awaiting judicial review. The IRS must notify the taxpayer of
the amount due per its assessment and demand payment. I.R.C.
§ 6303(a). If the taxpayer fails to pay, the amount due “shall
be a lien in favor of the United States upon all property and
rights to property, whether real or personal, belonging to such
person.” Id. § 6321. When the IRS files public notice of the
federal tax lien on the taxpayer’s property, it must again
provide notice to the taxpayer. Id. § 6320(a). Similarly, if the
IRS chooses to collect the liability by levying (i.e., seizing) a
taxpayer’s property or rights to property, it must provide notice
to the taxpayer. Id. § 6331(d).
Those lien and levy notices trigger the second main path
to pre-collection judicial review. Upon notice of the IRS’s
filing of a lien or intention to levy property, the taxpayer is
entitled to request a Collection Due Process (CDP) hearing,
I.R.C. §§ 6320(b)(1), 6330(b)(1), the result of which the
taxpayer may challenge in Tax Court, id. §§ 6320(c),
6330(d)(1). A CDP hearing proceeds before the IRS Office of

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Appeals, id. §§ 6320(b)(1), 6330(b)(1), and lacks the typical
hallmarks of a judicial hearing. There are no formal discovery
procedures, and the taxpayer has no right to subpoena
documents or witnesses. See Treas. Reg. § 301.6330-1 (2006).
The hearing may occur through written or oral correspondence
rather than a single in-person event. Id. “Indeed, far from
constituting a formal hearing,” a CDP hearing simply provides
the taxpayer “an opportunity for an informal oral or written
conversation with the IRS before he must pay a tax.” Our
Country Home Enters., Inc. v. Comm’r, 855 F.3d 773, 780 (7th
Cir. 2017).
In a CDP hearing, the taxpayer may raise “any relevant
issue relating to the unpaid tax or the proposed levy,” including
“appropriate spousal defenses,” “challenges to the
appropriateness of collection actions,” and “offers of collection
alternatives” to facilitate his payment of the amount due. I.R.C.
§ 6330(c)(2)(A). If the taxpayer had no prior opportunity to
dispute the tax liability—such as through deficiency
proceedings—she may also challenge the “existence or amount
of the underlying tax liability.” Id. § 6330(c)(2)(B). The
appeals officer conducting a CDP hearing must consider (1) the
verification from the Service that the agency followed
applicable laws and procedures, (2) any challenges raised by
the taxpayer, and (3) whether “any proposed collection action
balances the need for the efficient collection of taxes with the
legitimate concern of the person that any collection action be
no more intrusive than necessary.” Id. § 6330(c)(3). An
Appeals Office decision is appealable to the Tax Court and,
from there, to a federal court of appeals. Id. §§ 6330(d)(1),
7482(a)(1).

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B.
At issue in this case is section 6038(a), which requires U.S.
persons to file information returns reporting their control of any
foreign business. It is one of dozens of provisions across the
Internal Revenue Code that require taxpayers and other third
parties to file certain information returns with the IRS or face
penalties. Those required disclosures facilitate the IRS’s
verification of taxpayers’ income and tax liabilities and assist
the Service in detecting tax evasion. See Michael I. Saltzman
& Leslie Book, IRS P RACTICE & P ROCEDURE ¶ 7B.10. Many
required informational filings relate to U.S. taxpayers’ foreign
interests: Activities including the receipt of large gifts from
foreign persons, transfers of property to foreign businesses or
persons, ownership of foreign financial assets, and creation of
foreign trusts all trigger reporting requirements enforceable
with civil penalties—even if no taxes are owed in connection
with the requisite information. See I.R.C. §§ 6039F, 6038B,
6038D, 6048. Those requirements are designed to inform the
Service of activities not subject to withholding that might
generate tax revenue. They deter the use of international
schemes to evade taxes, which are estimated to cost the U.S.
government over $100 billion per year. See Jane G. Gravelle,
Cong. Rsch. Serv., R40623, TAX HAVENS : INTERNATIONAL
TAX AVOIDANCE AND EVASION 1, 21, 29-30 (2022).
When Congress initially enacted section 6038 in 1960, the
sole penalty for the failure to file the information required by
section 6038(a) was a 10 percent reduction of the violator’s
foreign tax credit. See Act of Sept. 14, 1960, Pub. L. No. 86-
780, § 6(a), 74 Stat. 1010, 1014-16 (initially applying the
reporting requirement only to domestic corporations that
controlled foreign businesses); see also Revenue Act of 1962,
Pub. L. No. 87-834, § 20(a), 76 Stat. 960, 1059-60 (amending
section 6038 to apply to all U.S. persons with control over a

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foreign business). Now codified at subsection 6038(c), the
foreign tax credit reduction is assessable by the Service. Its
assessability is intrinsic to how the subsection (c) penalty
works: By reducing a taxpayer’s foreign tax credit, it increases
the amount of tax he owes. The penalty amount is thus
necessarily reflected in a tax liability. Taxes are categorically
assessable under section 6201(a), which states that “[t]he
Secretary is authorized and required to make . . . assessments
of all taxes . . . .” Indeed, for this reason, Farhy concedes that
subsection (c) penalties are assessable. See Oral Arg. Rec.
54:40-57.
In 1982, Congress amended section 6038 to bolster its
enforcement. See Tax Equity and Fiscal Responsibility Act of
1982, Pub. L. No. 97-248, Title III, § 338, 96 Stat. 324, 631.
“Despite complaints about inadequate reporting with respect to
controlled foreign corporations,” enforcement of the penalty
for failure to file was persistently lax. S. Rep. No. 97-494, vol.
1, at 299 (1982). At the time, the foreign tax credit penalty was
overly “complicated” and rarely imposed. Id. The penalty
could be “unduly harsh” in response to minor violations, even
as it was “of no use” to penalize violators who paid no foreign
income tax, so were due no credit in the relevant year. Id.
Congress responded by adding alongside subsection (c) a
streamlined, uniform penalty for the same failure to file an
informational return for a controlled foreign business: a flat
$1,000 subsection (b) penalty, which it has since increased to
$10,000. See § 338, 96 Stat. at 631; Taxpayer Relief Act of
1997, Pub. L. No. 105-34, Title XI, § 1142(a), 111 Stat. 788,
982. The subsection (b) penalty escalates by standard
increments in response to persistent and knowing non-payment
to a maximum total of $60,000 per year. See I.R.C.
§ 6038(b)(1)-(b)(2). And section 6038 coordinates the
penalties imposed under subsections (b) and (c) to avoid

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double-charging for the same violation. The amount of the
subsection (c) penalty—the percentage-based reduction of the
taxpayer’s foreign tax credit—is itself offset by the amount of
any fixed-dollar penalty authorized for the same period under
subsection (b). See id. § 6038(c)(3).
C.
In 2004, U.S. permanent resident Alon Farhy developed a
scheme to falsely underreport to the IRS his income from
exercising certain stock options he received from his then-
employer. Seeking to fabricate losses to reduce his U.S.-
reportable income, he transferred more than $2 million to a
sham foreign entity, which then transferred the funds to a bank
account in the name of a Belize-based corporation Farhy
created solely for that purpose. Farhy’s scheme violated a
variety of tax-related obligations beyond his duty to correctly
report and pay the income tax he owed. Most relevant to this
case, he also failed to report to the IRS his control of foreign
financial accounts and foreign corporations he used in the
scheme. In 2012, Farhy signed a non-prosecution agreement
with the Tax Division of the U.S. Justice Department that
immunized him from criminal prosecution for his failure to
disclose his offshore accounts, provided he cooperated fully
and truthfully with tax enforcement efforts and paid all
applicable taxes, interest, and penalties.
But the non-prosecution agreement did not absolve Farhy
of civil liabilities arising from tax code violations. On
February 9, 2016, the IRS mailed Farhy notice that, between
2003 and 2010, he had failed to file forms to disclose his
ownership of the Belizean corporations, as required by I.R.C.
§ 6038(a). More than two years later, when Farhy still had not
filed the required forms, the IRS assessed initial and
continuation penalties pursuant to I.R.C. § 6038(b), totaling

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$60,000 per year of Farhy’s non-compliance. After the IRS
sent Farhy notice of its intent to levy his property to collect the
penalties owed, Farhy requested a CDP hearing. The Appeals
Office upheld the proposed levy of Farhy’s property.
Farhy petitioned the Tax Court to invalidate the proposed
levy, arguing only that the IRS was not authorized to assess
penalties imposed under section 6038(b). He claimed that the
IRS was instead required to collect liabilities for such penalties
through a civil action brought in federal district court under 28
U.S.C. § 2461(a). Section 2461(a) establishes a general cause
of action authorizing the government to sue to collect any civil
penalty “prescribed for the violation of an Act of Congress.”
The Tax Court granted Farhy’s petition. See Farhy v.
Comm’r, Dkt. No. 10647-21L, 2023 WL 2752459, at *1 (T.C.
Apr. 3, 2023). It held that the IRS could not proceed with its
proposed levy because the Secretary lacked statutory authority
to assess the penalties. Id. at *4. The court concluded that,
although Congress explicitly authorized assessment with
respect to many penalty provisions across the tax code, it did
not do so for section 6038(b). Id. at *4-5. That meant that the
IRS could collect section 6038(b) penalties only through a civil
suit filed by the U.S. Department of Justice, not through the
administrative collection methods that it had used to enforce
the penalties for more than forty years. Id. at *5. The
government appeals.
DISCUSSION
We review the Tax Court’s legal rulings de novo. Lissack
v. Comm’r, 68 F.4th 1312, 1322 (D.C. Cir. 2023). The only
question on appeal is what mechanism Congress authorized for
the Secretary of the Treasury to collect the fixed-dollar
penalties authorized in I.R.C. § 6038(b) against a U.S. person

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who fails to file the requisite information returns regarding
foreign businesses under her control.
The text of section 6038 does not explicitly say whether
the penalties imposed for violating section 6038(a) are
assessable. The parties principally argue from dueling
presumptions that they contend generally apply to all penalties
across the Internal Revenue Code. Each claims support from a
distinct reading of I.R.C. § 6201(a), which grants the Treasury
Secretary broad authority to assess “all taxes (including
interest, additional amounts, additions to the tax, and
assessable penalties).” Although none of the terms in section
6201(a)’s parenthetical are defined by the statute, the three
categories of penalties listed after “interest” in the text
correspond with—but are not necessarily limited to—the
penalties that are set out in I.R.C. Subtitle F, Chapter 68, which
is titled “Additions to the Tax, Additional Amounts, and
Assessable Penalties.” All exactions in Chapter 68 are
explicitly directed to “be assessed . . . in the same manner as
taxes” by a subsection contained therein. I.R.C. § 6665(a)(1).
In relying on section 6201(a) to argue that the disputed
penalty is assessable, the Service emphasizes that section’s text
as well as “its role in the Code, its history, and the absurdities
that would result from a narrower interpretation.” Reply Br. 2.
The Service starts by treating the exactions listed in the section
6201(a)’s “including” parenthetical as both non-exhaustive
and, together with “all taxes,” illustrative of every type of
exaction the tax code authorizes. It does not only claim that the
term “assessable penalties” in the section 6201(a) parenthetical
encompasses section 6038(b) penalties and others located
“outside of Chapter 68.” IRS Br. 18. Rather, the Service
contends section 6201(a) is written to “cover the waterfront,”
Reply Br. 12, by making all exactions assessable as taxes
unless the Code expressly requires a different process as to a

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given exaction. The Service explains that section 6201(a)’s
parenthetical lists “interest” and three broad types of penalties
that appear in the Code. Because the word “including”
precedes that list, the Service contends that list is illustrative
rather than exhaustive, and was meant to encompass penalties
generally, thereby comfortably including section 6038(b)
penalties. It claims support for that position in the immediate
predecessor to section 6201(a), which empowered and
obligated the Commissioner “to make the inquiries,
determinations, and assessments of all taxes and penalties
imposed by this title, or accruing under any former internal
revenue law, where such taxes have not been duly paid . . . ,”
I.R.C. § 3640 (1940) (emphasis added), which Congress
recodified as 6201(a) with no apparent intention to
circumscribe its applicability to all penalties.
For his part, Farhy interprets section 6201(a) to stand for
the reverse presumption: He reads it to confirm that a penalty
must be explicitly characterized as a “tax” or designated as
“assessable” (or, presumably, an “additional amount” or
“addition to the tax”) elsewhere in the tax code for the
Secretary to assess it per section 6201(a). Farhy reads section
6201(a)’s reference to “assessable penalties” to carry a
negative implication that some penalties are not assessable,
section 6038(b) penalties among them. More broadly, Farhy
sketches out an exclusive schema of four overlapping ways the
Code renders penalties assessable and insists penalties outside
these categories are not assessable:
First, “[s]ome penalties are designated as taxes for
assessment purposes,” thereby authorizing their assessment
under section 6201(a). Farhy Br. 7 (emphasis omitted). This
category encompasses all penalties contained in Subtitle F,
Chapter 68 of the IRC, which states that those penalties “shall

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be assessed . . . in the same manner as taxes.” I.R.C.
§ 6665(a)(1).
Second, “[s]ome penalties have a stand[-]alone assessment
authority” in the section of the tax code imposing them, Farhy
Br. 7 (emphasis omitted), because they describe a penalty that
“shall be assessed,” see, e.g., I.R.C. § 527(j)(1), or provide,
through cross-reference to Chapter 68, that a statutory violation
authorized outside that Chapter is subject to a penalty provided
therein. Farhy Br. 7-8.
Third, “[s]ome penalties have a group assessment
authority,” which occurs when the tax code “authorize[s]
assessment of a penalty belonging in a designated group.” Id.
at 8 (emphasis omitted). Farhy again cites the penalties located
in subchapter B of Chapter 68 (titled “Assessable Penalties”),
which are explicitly directed to be “assessed and collected in
the same manner as taxes,” I.R.C. § 6671(a).
Fourth, “[s]ome penalties result from a designated
procedure,” such as deficiency proceedings. Farhy Br. 8-9
(emphasis omitted).
Because section 6038(b)’s penalties fall into none of those
categories, Farhy contends, they are not “assessable penalties”
and section 6201(a) cannot be read to encompass them and
thereby make them so.
We need not embrace either party’s tax code-wide default
rule to resolve this case. We accordingly do not pass on those
broader theories beyond explaining why Farhy’s does not
preclude assessment of section 6038(b) penalties. Instead, we
conclude that a narrower set of inferences suffices to show that
Congress intended to render those penalties assessable. Read
in light of its text, structure, and function, section 6038 itself is
best interpreted to render assessable the fixed-dollar monetary

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penalties subsection (b) authorizes. As a result, the
Commissioner’s authority to assess all “assessable penalties”
encompasses the authority to assess penalties imposed under
section 6038(b).
A.
A close reading of section 6038 with an eye to the role of
subsection (b) within it reveals that the Congress that amended
the Code in 1982 intended the subsection (b) penalty to be
assessable. For the same underlying failure to file, the section
originally authorized only a percentage-based, assessable
penalty imposed as a reduction of the taxpayer’s foreign tax
credit (now codified as subsection (c)). Two changes effected
by the amendment are particularly relevant: First, in response
to difficulties experienced in applying that original penalty,
Congress added (as subsection (b)) a fixed-dollar penalty that
could be more simply and consistently collected. Second,
Congress required (in subsection (c)(3)) that the two penalties
be coordinated. The subsection (b) penalty must be offset from
any subsection (c) penalty in cases in which both penalties
apply. All agree the IRS may assess subsection (c) penalties,
and those two objectives of the amendment—that recovery of
subsection (b) penalties be more streamlined than recovery of
subsection (c) penalties, and that any subsection (c) penalty be
reduced by the amount of the subsection (b) penalty—make
plain that subsection (b) penalties must also be assessable.
Section 6038’s express authorization of the IRS rather than a
district court to evaluate a taxpayer’s defense to penalties
imposed under the section reinforces that conclusion.
1.
Reading subsection (b) to require the government to sue
taxpayers to collect its fixed-dollar penalty, as Farhy does,
treats Congress as having enacted a supplemental penalty

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process that is less streamlined, not more, than the preexisting
collection process for subsection (c) penalties. Again, the IRS
may assess and collect a subsection (c) penalty without
entering a courtroom. All assessable exactions, including
penalties under subsection (c), are subject to litigation only if a
taxpayer opts for judicial review, such as by challenging a
notice of deficiency in Tax Court pursuant to I.R.C. § 6213. If
penalties imposed under subsection (b) are likewise assessable,
as the government contends, the taxpayer may opt for judicial
review of those penalties, too, by requesting a CDP hearing
and, if dissatisfied with its result, obtaining Tax Court review
under I.R.C. § 6330(d)(1).
If subsection (b) penalties are not assessable, the IRS
cannot collect them at all without going first to court in each
and every case. But it is unlikely the government will file
lawsuits to recover from taxpayers the flat, $10,000 penalty
authorized by subsection (b). Farhy concedes as much: As his
counsel put it, the “Justice Department wouldn’t touch that
with a ten-foot pole.” Oral Arg. Rec. 57:52-55. If subsection
(b) penalties are that hard to recover, they may not be worth the
candle. It would be “highly anomalous” for Congress to have
responded to the identified problem of the underuse of
subsection (c) penalties by promulgating a penalty that, while
simpler to calculate, is much harder to enforce. IRS Br. 21; see
also S. Rep. No. 97-494, vol. 1, at 299. Farhy has no persuasive
rebuttal to that point. To the contrary, he suggests that
Congress purposely made section 6038(b) penalties non-
assessable—and therefore largely ornamental—because it
wanted to “withhold the IRS’s super-charged collection
powers” that flow from assessment. Oral Arg. Rec. 44:32-42.
That view is contradicted by the clear congressional purpose
behind the enactment of subsection (b).

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Further, the subsection (c)(3) coordination provision
shows Congress contemplated that section 6038’s tandem
penalties could be imposed at the same time. When they are,
treating the subsection (b) penalties as non-assessable would
make recovering subsection (c) penalties even more, rather
than less, complicated. That is because the amount by which
the reduction of the taxpayer’s foreign tax credit, calculated
under section 6038(c)(1), should be offset per section
6038(c)(3) is set by subsection (b). It is thus fair to assume that
Congress intended the subsection (b) penalty to be routinely
assessed, but credited back in cases in which the Service also
imposes a subsection (c) penalty. Under Farhy’s reading,
however, the subsection (b) penalty must await a federal
court’s entry of judgment. If both subsection (b) and
subsection (c) penalties were sought in the same case, the
Secretary would be forced to wait for the conclusion of the
federal court action regarding the subsection (b) penalty before
she could coordinate the subsection (b) and subsection (c)
penalty amounts and then collect the correct subsection (c)
penalty amount. To agree with that reading, we would have to
conclude that, in enacting subsection (b), Congress not only
failed in its avowed quest to streamline, but also
counterproductively threw sand in the gears of section 6038’s
existing enforcement scheme.
2.
Another feature of the process contemplated in section
6038 drives home that Congress expected the IRS, not a federal
district court, to assess subsection (b) penalties. Consider what
section 6038 says about the determination of specified defenses
to the penalties the section imposes. As with many penalties
imposed across the tax code, penalties under sections 6038(b)
and (c) are subject to a “reasonable cause” affirmative defense,
which courts describe as requiring the taxpayer to establish that

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she “exercised ordinary business care and prudence” in
attempting to adhere to her reporting obligations. Flume v.
Comm’r, Dkt. No. 15772-14L, 2017 WL 394541, at *5 (T.C.
Jan. 30, 2017) (quoting United States v. Boyle, 469 U.S. 241,
246 (1985)). And section 6038 empowers the Service—not a
court—to grant or deny that defense. See I.R.C.
§ 6038(c)(4)(B) (requiring reasonable cause to be “shown to
the satisfaction of the Secretary”).
Various IRC provisions excuse taxpayers for conduct
otherwise subject to penalty based on a showing of “reasonable
cause” for the noncompliance. If a taxpayer experienced a
debilitating health condition constituting “reasonable cause”
severe enough to interfere with her ability to file, for example,
the IRS could not impose penalties unless the taxpayer’s non-
compliance persisted once she had recovered. See, e.g.,
Remisovsky v. Comm’r, Dkt. No. 11945-20L, 2022 WL
3755390, at *3-4 (T.C. Aug. 30, 2022). Putting the IRS in
charge of determining whether a taxpayer has demonstrated
reasonable cause only makes sense in circumstances in which
it is the IRS that assesses the penalty. Where Congress requires
the government to file a civil action to enforce a violation of
the tax code, the court rather than the Service would decide
whether the taxpayer proved that the defense excuses his or her
violation.
Section 6038(c)(4)(B) expressly treats the reasonable
cause showing for failure to file the relevant informational
returns as within the purview of the Service. A taxpayer facing
a subsection (b) penalty may submit to the IRS a written
statement attesting that reasonable cause excused the filing
failure, see Treas. Reg. § 1.6038-2(k)(3)(ii), and “provide a
reasonable cause narrative during the CDP hearing” to an IRS
employee acting with delegated authority from the Secretary,
who makes a determination that can be appealed to the Tax

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18
Court. Flume, 2017 WL 394541, at *6; see Treas. Reg.
§ 1.6038-2(k)(3)(ii). The 1982 Senate Report confirms that the
reasonable-cause defense to subsection (b) penalties was
intended to operate “[a]s under present law,” meaning as under
subsection (c); in either case, a showing made “to the
satisfaction of the Secretary” would mean that “no penalty is
due.” S. Rep. No. 97-494, vol. 1, at 299.
If the subsection (b) penalty were not assessable, there
would be no post-assessment administrative process in which
the taxpayer could make a reasonable cause showing to the
Secretary. On Farhy’s reading, it would be for the district court
rather than the Secretary to determine the taxpayer’s liability
for the penalty, subject to any reasonable-cause defense. It is
hard to see what purpose would be served by the statutory
requirement that the taxpayer’s reasonable-cause defense be
“shown to the satisfaction of the Secretary” if the claim subject
to that defense must be decided in the first instance by a district
court judge. I.R.C. § 6038(c)(4)(B).
Congress’s specification that the Secretary, not the district
court, evaluates taxpayers’ assertions of reasonable-cause
defenses to section 6038(b) penalties dovetails neatly with
section 6201(a). In addition to empowering and requiring the
Secretary to make assessments, section 6201(a) calls on the
Secretary to “make the inquiries [and] determinations . . . of all
taxes (including . . . assessable penalties).” As just discussed,
one familiar set of secretarial “determinations” is whether a
taxpayer has “shown to the satisfaction of the Secretary” that
he had reasonable cause for failing to file required information,
per I.R.C. § 6038(c)(4)(B). Farhy’s insistence that section
6201(a) is inapplicable to section 6038(b) penalties would
leave the Secretary without power under section 6201(a)
regarding not only the assessment of section 6038(b) penalties,
but “inquiries” and “determinations” into them as well. Section

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6038’s express contemplation that the Secretary will determine
the reasonable-cause defense—whether penalty is sought
under subsection (b) or (c)—supports treating both section
6038 penalties as assessable. The unworkability of rendering
inquiry-and-determination authority not equally applicable to
the penalties under those tandem subsections bolsters our
conclusion that Congress intended both penalties to be
assessable within the meaning of section 6201(a).
3.
Finally, the potential bifurcation of the review of penalties
arising from the same violation underscores the anomalous
implications of interpreting subsection (c), but not subsection
(b), penalties to be assessable. Farhy’s reading would create
parallel and substantively overlapping judicial tracks for
determination of twinned penalties for the same
noncompliance: federal district court for the subsection (b)
penalties, and Tax Court for the subsection (c) penalties.
Interjecting a federal district court into a penalty process
already subject to IRS administrative determinations
reviewable by the Tax Court introduces an inexplicable
asymmetry and potential for inconsistent doctrinal
development. If both penalties were sought in the same case,
it could even generate duplicative court proceedings on
common issues. Both courts might have to decide, for
example, whether the taxpayer who failed to disclose his
controlling stake of the foreign businesses owned those
businesses during the years for which the IRS seeks penalties,
and review or decide whether the taxpayer had a reasonable-
cause defense to the section 6038(a) violation.
Treating the subsection (b) penalty as non-assessable
could also raise potential preclusion issues when both penalties
are imposed for the same conduct. Provided other

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requirements of collateral estoppel are met, the first-issued
judgment as to a common issue between the parallel
proceedings would have binding effect on the other court. See,
e.g., Burrows v. United States, 945 F.2d 408 (9th Cir. 1991)
(unpublished table decision). Reading section 6038 to call for
dual-track subsection (b) and (c) judicial proceedings could stir
concerns about gamesmanship, incentivizing parties to push
forward more quickly in the forum they perceive to be more
favorable.
We decline to adopt a reading of section 6038(b) that
attributes to Congress the intent to respond to the problem it
identifies in a manner that is not only ineffective, but
counterproductive.
B.
It is hardly anomalous that section 6038(b) penalties are
assessable even though the text of section 6038 does not
explicitly label them as such. Farhy’s contention that Congress
may only authorize assessment of a penalty by using certain
formulations that he has identified overlooks the realities of the
Internal Revenue Code—an ever-changing statutory
patchwork that contains nearly 10,000 code sections. See
NAT’L TAXPAYER ADVOCATE, ANNUAL R EPORT TO C ONGRESS
45 (2022). Scattered across the tax code are more than one
hundred penalties applicable to diverse forms of
noncompliance and set forth in varied ways. Discerning the
operation of each penalty is necessarily a context-dependent
exercise.
Farhy argues that, because the Internal Revenue Code has
“explicitly authorized assessment regarding myriad penalty
provisions in the Code” in the four ways he deems to be
exclusive, Congress’s putative failure to fit section 6038(b)
penalties into his framework means they are non-assessable.

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Farhy Br. 9; see Farhy, 2023 WL 2752459, at *4. But Farhy is
incorrect that Congress can only render a penalty assessable
through the standardized methods he identifies.
Nothing establishes Farhy’s categories as exhaustive of the
ways the Internal Revenue Code designates penalties as
assessable. Consider I.R.C. § 6038D, which requires U.S.
persons to report to the IRS any interest exceeding $50,000 in
certain foreign financial assets, such as financial accounts and
foreign entities. Much like section 6038(b), section 6038D(d)
imposes a fixed-dollar penalty of $10,000 for violating the
statutory obligation. I.R.C. § 6038D(d)(1). And, like section
6038(b) penalties, penalties under section 6038D(d) escalate in
response to continuing failure to comply after notice from the
IRS. Id. § 6038D(d)(2). The penalty imposed under section
6038D(d) lacks all of the explicit indications of assessability
Farhy insists are needed: Section 6038D is not within Chapter
68, all of which the Code explicitly renders assessable; it does
not identify the penalty imposed therein as assessable; and it
does not say its penalty corresponds to any penalties listed in
Chapter 68. Consequently, Farhy urges that this penalty, too,
is not assessable. See Farhy Br. 10 n.1.
But section 6038D(e) spells out a presumption, binding on
the Commissioner “for purposes of assessing the penalties
imposed under this section,” that foreign financial assets not
disclosed or sufficiently described meet the threshold amount
required for the penalties to apply. I.R.C. § 6038D(e)
(emphasis added). We do not rule on the point, as it is not
before us, but specifying a default rule for the Commissioner
to apply in penalty assessment would seem to make it quite
plausible that section 6038D(d)’s penalties are assessable.
Section 45(b)(7)(B) provides another example of a
provision that Farhy categorizes as not assessable within his

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schema, even though its text suggests that the penalty it
authorizes is assessable. See Farhy Br. 10 n.1. That section
imposes penalties for the failure to pay required wages to
laborers who construct or repair renewable energy facilities.
I.R.C. § 45(b)(7)(B)(i)(II). It does not appear in or cross-
reference Chapter 68, or directly state that the penalty is
assessable, as Farhy insists is required. It states only that
deficiency proceedings “shall not apply with respect to the
assessment or collection of any penalty imposed by this
paragraph.” Id. § 45(b)(7)(B)(ii) (emphasis added). Again, we
make no holding on the point, but the implication is clear that,
although the penalties imposed are not deficiencies, the
Commissioner can summarily assess them. And Farhy
ultimately concedes as much. Oral Arg. Rec. 49:10-20.
Thus, Congress renders penalties assessable in more ways
than Farhy’s proposed schema contemplates: The absence of
the penalty from Chapter 68 and the lack of either a cross-
reference to Chapter 68 or explicit language directing that the
penalty “shall be assessed” is not determinative. Congress can
make a penalty assessable by implication, and it did so here.
***
We conclude, based on the statute’s text, structure, and
function, that penalties imposed under section 6038(b), like the
related penalties under section 6038(c), are assessable. This
conclusion is buttressed by more than forty years of
congressional acquiescence to the IRS’s practice of assessing
section 6038(b) penalties. “It is well established that when
Congress revisits a statute giving rise to a longstanding
administrative interpretation without pertinent change, the
‘congressional failure to revise or repeal the agency’s
interpretation is persuasive evidence that the interpretation is
the one intended by Congress.’” Commodity Futures Trading

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Comm’n v. Shor, 478 U.S. 833, 846 (1986) (quoting NLRB v.
Bell Aerospace Co., 416 U.S. 267, 274-75 (1974)); see also
Wash. All. of Tech. Workers v. U.S. Dep’t of Homeland Sec.,
50 F.4th 164, 182-85 (D.C. Cir. 2022). Since adding
subsection (b) in 1982, Congress has amended section 6038
seven times; each time, it has left undisturbed the IRS’s
practice of assessing and administratively collecting penalties
imposed under section 6038(b).
For the foregoing reasons, we reverse the judgment of the
Tax Court and remand with instructions to enter decision in
favor of the Commissioner.
So ordered.

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