No Supervisory Approval Needed for Penalty Assessed by Computer Program

The Tax Court has determined that a failure to file information returns penalty, assessed by the IRS’ Combined Annual Wage Reporting (CAWR) computer program, doesn’t require supervisory approval under Code Sec. 6751(b)(1). (Piper Trucking & Leasing, LLC, (2023) 161 TC No. 3)

Failure to file W-2s.

Piper Trucking & Leasing, LLC, a single-member limited liability company, failed to file Forms W-2 for its employees with the Social Security Administration. The SSA sent Piper two notices regarding the missing forms, but the business never responded. The SSA then referred the matter to the IRS to enforce compliance and assess any penalties.

The referral from SSA and to IRS was conducted via the CAWR program, which automatically sends delinquent employers a Letter 98C asserting a failure to file information returns penalty. If the employer does not respond to the 98C letter, the IRS’ CAWR computer program, without any human intervention or supervisory approval, assesses the failure to file penalty.

Piper failed to respond to the IRS’ Letter 98C. So, the CAWR program assessed the failure to file information returns penalty against Piper. When Piper failed to pay the penalties, the IRS filed a lien notice, which Piper then protested in a CDP hearing. The Appeals Officer upheld the lien notice.

Note. Piper was represented throughout the proceedings by its single member. Piper failed to cooperate in the CDP process. And, while Piper timely filed its Tax Court petition protesting the CDP determination, it failed to respond to the IRS’ motions and to comply with other court requirements.

Penalty automatically calculated.

Generally, the IRS can’t assess penalties unless the initial determination to assert the penalties is approved in writing by the immediate supervisor of the person making the penalty determination. However, this rule doesn’t apply to penalties “automatically calculated through electronic means.”

The Tax Court determined that the failure to file penalty was automatically calculated through the CAWR program and, therefore, the penalty assessment didn’t require supervisory approval.

For more information about supervisory approval of penalties, see Checkpoint’s Federal Tax Coordinator ¶ V-1601.1.