Introduction: Why Section 6751(b) Matters More When You Live Abroad
Section 6751(b) of the Internal Revenue Code bars the IRS from assessing most penalties unless a supervisor personally approved the examiner's initial decision in writing. For a wealthy American in London, that one signature can decide a six-figure sum. Moreover, the date on it can matter even when the underlying tax is plainly owed.
Most pages on this rule treat it as a domestic audit defence. However, your position differs in three ways. First, your appeal route may run to a different court from that of a taxpayer in Texas. Second, your largest exposures often sit in international information returns, which follow separate timing rules. Third, your FBAR penalty falls outside the statute altogether.
At TaxYork, we prepare US and UK returns for high-net-worth Americans in Britain, including clients repairing missed US tax returns and missed FBAR filings. This guide applies the current regulations to that specific reader. It covers the law up to November 2026, a worked example with real figures, and a five-question test you can run on your own penalty notice.
What Section 6751(b) Says in Plain English
The operative words of section 6751(b) in the Internal Revenue Code are short. No penalty "under this title" may be assessed unless the initial determination is personally approved in writing by the immediate supervisor of the person who made it, or by a designated higher level official. Two limits follow immediately. The statute excludes a list of named additions to tax, and it excludes any other penalty "automatically calculated through electronic means".
Congress passed this rule to stop examiners using penalties as bargaining chips. Consequently, section 6751(b) is procedural rather than substantive. It does not ask whether you deserve the penalty. Instead, it asks whether the right person signed in time.
Why the Rule Sat Dormant for Almost Two Decades
Congress enacted the provision in 1998, yet it rarely decided cases until 2017. Then the Second Circuit ruled in Chai v. Commissioner, 851 F.3d 190, that compliance forms part of the IRS's burden of production against an individual. The Tax Court followed in Graev III, 149 T.C. 485. Since then, section 6751(b) has cancelled penalties on otherwise sound assessments.
That burden comes from section 7491(c), which applies in court proceedings against individuals. Therefore, a personal taxpayer starts with an advantage that a partnership or corporation does not have. Once the IRS produces an approval form, however, the burden moves. In Frost v. Commissioner, 154 T.C. 23, the Tax Court required the taxpayer then to show that the approval was late or defective.
Which IRS Penalties Section 6751(b) Actually Reaches for Americans in Britain
Sorting your penalties under section 6751(b) comes before any argument about dates. A penalty notice for an American abroad usually combines several regimes, and each answers to a different rule. Accordingly, we start every review by placing each charge in one of four groups.
Penalties the Statute Exempts by Name
The final regulation at 26 CFR 301.6751(b)-1-1) confirms that section 6751(b) does not cover penalties under sections 6651, 6654, 6655 or 6673, nor the two listed easement and similar charges in section 6662(b)(9) and (10). For you, that means failure to file, failure to pay and estimated tax penalties carry no signature defence.
These are often the first charges a late filer sees. So someone catching up on missed returns should look elsewhere for relief on them. Specifically, the Automatic Exemption from Penalty and reasonable cause matter here. Our guide to penalty abatement for Americans abroad explains how those routes work and where they stop.
Examiner-Determined Income Tax Penalties
This group holds the largest wins. It includes the 20% accuracy-related penalty and the 75% civil fraud penalty. Furthermore, it includes the charge that matters most to offshore investors: the 40% rate under section 6662(j) for an understatement linked to an undisclosed foreign financial asset.
An examiner chooses these penalties and a human decides the rate. Thus section 6751(b) applies in full. On a large offshore adjustment, the difference between 40% and nil can exceed the fees on a decade of compliance. Because the Tax Court reviews these penalties before assessment, approval must arrive before the notice of deficiency is mailed.
Why Offshore Files Attract the 40% Rate
The 40% rate applies where an understatement relates to a transaction involving an undisclosed foreign financial asset. The law treats an asset as undisclosed when a required return such as Form 8938 or Form 5471 was missed. Consequently, one forgotten form can double the accuracy penalty on the related tax.
An examiner must first choose that characterisation, so section 6751(b) attaches to the choice. We therefore read an approval form for the rate as well as the section. A UK investment account or an unreported company stake is the usual trigger in our files. Those are also the cases where missed reporting on a pension or investment account brings an examiner to the wider return.
International Information Return Penalties
The $10,000 charge under section 6038(b) for a missing Form 5471 and the matching charge under section 6038D(d) for a missing Form 8938 are penalties "under this title". As a result, they fall inside section 6751(b) unless a computer calculated them. Yet they follow a far later deadline, because the regulation requires approval only before assessment.
That single difference changes your tactics. An examiner may propose these penalties months before a supervisor signs, and nothing goes wrong. Our article on section 6038 penalties for a late Form 5471 sets out how they stack across several companies and years.
FBAR Penalties Sit Outside the Statute
The FBAR penalty arises under 31 USC 5321, not the Internal Revenue Code. Since section 6751(b) speaks of penalties "under this title", meaning Title 26, the wording does not reach Title 31. We have not found a court decision extending section 6751(b) to FBAR penalties, so you should not plan around one.
Here competitor guidance falls silent, and readers assume the defence travels with the rest of the notice. It does not. FBAR disputes run on their own track, set out in IRS Publication 5970, with their own letters and limitation period. There is, however, a separate compensation. Because a Title 31 penalty is not an internal revenue tax, one court has held that the full-payment rule does not stop an FBAR refund suit. Our Form 843 guide explains that contrast.
The Deadline: When Section 6751(b) Approval Must Exist
Treasury settled its own view of section 6751(b) in T.D. 10017, published on 23 December 2024. The regulation applies to penalties assessed on or after that date. It sets three clocks, and the right clock depends on how the penalty reaches you.
The Three Clocks in the Final Regulation
The first clock covers penalties that the Tax Court can review before assessment. Here, approval must occur on or before the date the IRS mails the notice of deficiency. The second clock covers penalties with no such review, including most information return charges. There, approval need only come before assessment. The third clock covers penalties first raised by IRS counsel in a Tax Court case, and approval must exist by the time the Commissioner asks the court to determine them.
Commenters asked Treasury to demand approval before the 30-day letter. Treasury refused. Consequently, an examiner can now, on the regulation's terms, send you a 30-day letter proposing a penalty that no supervisor has yet approved.
Penalties IRS Counsel Raises After You Petition
A petition can itself provoke a new penalty. IRS counsel may assert one in an answer or an amended answer, particularly where settlement talks have collapsed. Under section 6751(b), the signature must then exist by the time the Commissioner asks the court to determine the penalty.
Two points follow. First, a penalty raised this way is generally new matter, so the IRS carries the burden of proof on it. Second, the person who made the initial determination is often the trial attorney, which means the relevant supervisor is an attorney manager rather than an audit group manager. Check the right chain of command, because an examination form will not answer that question.
Who Counts as the Supervisor, and What Counts as Writing
The regulation defines the immediate supervisor by function: the person responsible for reviewing the proposal, with no intermediary's approval in between. Designated higher level officials also qualify. Meanwhile, the writing requirement is generous. It accepts any writing, including electronic, that shows assent, and it demands no signature or particular words.
Team audits raise a further section 6751(b) question, because several people may touch a file. The regulation looks for the individual who first proposed the penalty to you or to a supervisor. In Ivey Branch Holdings v. Commissioner, T.C. Memo. 2025-63, the Tax Court identified one revenue agent as that person and rejected the taxpayer's attempt to point at colleagues. Similarly, Sand Investment Co. v. Commissioner, 157 T.C. 136, shows that the identity of the supervisor at the relevant date can turn on the facts.
Rubber Stamps Pass the Test
Clients often ask whether section 6751(b) forces a supervisor to genuinely consider the penalty. Unfortunately, the answer is no. In Computer Sciences Corp., 165 T.C. No. 8, the Tax Court rejected the argument that the Administrative Procedure Act required reasoned decision-making by the approver. So a signature with no analysis beside it still counts.
Your attack should therefore target dates, identity and scope. By contrast, an argument that the manager "did not really think about it" will not succeed. Scope deserves attention here, because a form approving a 20% penalty does not obviously approve a 40% rate that appears later.
The Venue Trap: How Your US Legal Residence Changes Section 6751(b)
This section addresses the gap we see across every ranking page. Courts disagree on section 6751(b) timing, and the circuit that hears your appeal shapes the argument. For a domestic taxpayer, that circuit follows the home address. For you, it can follow something far less obvious.
Where an American in London Actually Appeals
Under section 7482(b)(1), an individual appeals from the Tax Court to the circuit of their legal residence on the date the petition is filed. If you have no US legal residence, the fallback is the D.C. Circuit. Your London flat does not place you in any regional circuit, so the question becomes whether you kept a US residence at that moment.
Many long-term residents of Britain never ask. Yet a retained Florida home or a California driving licence may point to a regional circuit, while a clean break points to Washington. Under the Golsen rule, the Tax Court follows a circuit's precedent only where that precedent squarely applies. So this factual question has legal consequences.
The Circuit Map for Timing
The Second Circuit in Chai requires approval by the notice of deficiency, or the answer that first asserts the penalty. The Ninth Circuit in Laidlaw's Harley Davidson, 29 F.4th 1066, requires it before assessment or, if earlier, before the supervisor loses discretion. The Eleventh Circuit in Kroner, 48 F.4th 1272, simply requires approval before assessment. Likewise, the Tenth Circuit agreed with the notice-of-deficiency approach in the unpublished Minemyer order.
The Tax Court's own precedent goes further than any of them. Clay, 152 T.C. 223, and Belair Woods, 154 T.C. 1, require approval before the first formal communication of the penalty, usually the 30-day letter. We have found no D.C. Circuit opinion deciding this timing point. Therefore an American with no US legal residence has the strongest available starting position, since no contrary circuit precedent displaces those Tax Court decisions.
Does the Regulation Close That Door?
The IRS will say yes. The section 6751(b) regulation adopts the later deadline for penalties assessed from 23 December 2024, and Treasury expressly rejected the Tax Court's formal communication approach. Your counter-argument rests on Loper Bright, which ended judicial deference to agency readings of ambiguous statutes. We found no Tax Court opinion resolving the regulation's validity as of November 2026.
So treat this honestly as a preserved argument rather than a settled win. The Supreme Court added no clarity when it denied review on 27 April 2026 in a challenge to roughly $345,000 of penalties that raised this timing question. Nevertheless, a real litigation hazard has value at IRS Appeals, particularly where the penalty is large. Plead it, document it and price it.
Legal Residence Is Not a Tax Residence Test
Legal residence for appeal purposes differs from your UK tax residence and from your residence under the treaty. It looks to where you actually live with an intention to stay. Therefore passing the Statutory Residence Test proves little by itself, though it does help.
Assemble evidence before you file the petition, including your UK lease or title, UK electoral registration and the date you gave up any US home. In section 6751(b) litigation a clean file protects your position if the IRS questions venue. Remember also that your petition states your legal residence on its face. Complete that entry deliberately, since it may later decide which precedent governs.
The Farhy Twist for Form 5471
Venue also cuts against you. In Farhy, the D.C. Circuit held in May 2024 that the IRS may assess section 6038(b) penalties directly. The Tax Court then declined to follow that ruling in Mukhi, 163 T.C. No. 8, for cases appealable elsewhere. An American whose section 6751(b) appeal lies to Washington, however, sits squarely under Farhy.
In short, the same absence of a US legal residence that strengthens your timing argument weakens your Form 5471 assessment argument. We have not seen any competitor page make this point, yet it should shape your strategy. Never change your domicile to chase either result, because state tax consequences usually dwarf the benefit. For instance, our guide to leaving California for London shows how expensive a retained residence can become.
The Computer Exception and Your Offshore Paperwork
The second exclusion in section 6751(b) covers any penalty automatically calculated through electronic means. It matters to cross-border filers because the IRS now processes many information return penalties by machine. The National Taxpayer Advocate has criticised weakened approval practice, but the exception remains law.
What Automatically Calculated Now Means
Under the regulation, a penalty qualifies when an IRS computer program automatically generates a notice proposing it. The status ends if you challenge the penalty or the tax in response, and an IRS employee considers that response before assessment or before a notice of deficiency includes the penalty. Walquist, 152 T.C. 61, and Piper Trucking, 161 T.C. No. 3, supported this approach before Treasury codified it.
The word "before" deserves your attention. A response that reaches a human before assessment switches section 6751(b) on. A response after assessment does not obviously do so, because the penalty has already been assessed on an automated footing.
The Holding Letter That Forfeits the Argument
Example 6 in the regulation describes a CP2000 notice from the Automated Underreporter system. The taxpayer replied only to ask for more time. Since that reply did not challenge the penalty or the tax, the penalty stayed automated and escaped section 6751(b).
Many people abroad send exactly that letter. Post is slow, documents sit with a UK broker and the deadline feels close. Consequently, your first reply to a CP2000 should state in one sentence that you dispute the proposed penalty and the related tax, then ask for time. That wording costs nothing. It also keeps section 6751(b) available if the IRS later issues a notice of deficiency.
Form 5471 Filed Late and the CP15
A Form 5471 attached to a late return can trigger a penalty with no examiner involved. You may first learn of it from a CP15 notice. At that stage the penalty has already been assessed, so the pre-assessment response route has gone. Your realistic tools become a reasonable cause request, Appeals and, in time, a collection hearing.
So section 6751(b) is rarely the first argument on a systemic charge. It becomes useful where a human intervened: for example, where an examiner set up the penalty by hand, or where a campus employee reviewed a pre-assessment reply. Requesting the file establishes which of those happened. Our guide to collection due process hearings explains the later forum.
A Worked Example: $349,608 of Proposed Penalties
The following case is illustrative, and the name is invented, but the mechanics reflect the files we review. Morgan is a US citizen and private equity partner who has lived in London since 2014. Morgan sold a Florida apartment in 2019 and has no US home, no US driving licence and no intention of returning.
The Facts and the Penalty Stack
An IRS examination of Morgan's 2022 return finds $600,000 of additional tax linked to an unreported UK holding company interest. A further $150,000 of additional tax arises from a misreported US partnership item. The examiner proposes a 40% penalty on the first amount, which is $240,000, and 20% on the second, which is $30,000. Those two charges total $270,000.
The examiner then adds $20,000 for two missing Forms 5471 and $10,000 for a missing Form 8938. Finally, a separate FBAR file proposes non-wilful penalties at the current $16,536 inflation-adjusted figure for three years, which comes to $49,608. Morgan's total penalty exposure therefore reaches $349,608.
The Timeline That Creates the Argument
The IRS sends a 30-day letter proposing the $270,000 on 19 June 2025. The group manager signs the penalty approval form on 1 July 2025, twelve days later. The notice of deficiency follows on 30 January 2026, addressed to London. As a result, Morgan has 150 days to petition, as our guide to the notice of deficiency for Americans abroad explains.
Under the final regulation, approval on 1 July 2025 is timely, because it precedes the notice of deficiency. Under the Belair Woods reading of section 6751(b), it is late, because the 30-day letter went first. With no US legal residence, Morgan's appeal lies to the D.C. Circuit, which has not ruled on the point. So Morgan pleads the Tax Court's formal communication rule and challenges the regulation under Loper Bright.
What Is Actually at Stake
Only $270,000 depends on this section 6751(b) argument, which is 77% of the total. The $30,000 of information return penalties survives, because section 6751(b) approval only had to precede assessment. Likewise, the $49,608 of FBAR penalties never engaged section 6751(b). Also, the $750,000 of underlying tax and its interest remain owed whatever the court decides.
Had Morgan kept a Florida residence, Kroner would have ended the timing argument, because approval still preceded assessment. Thus Morgan's position on this one point is worth up to $270,000 more than a neighbour's with a Miami condominium. At Appeals, a settlement officer might weigh that hazard at, say, 50%, which would remove $135,000. That percentage is purely illustrative, and no Appeals officer is bound to accept it.
A Five-Question Test for Your Penalty Notice
We built this section 6751(b) test to replace the generic checklists on other pages, because it runs in the order a cross-border file demands. Work through the questions in sequence, and stop where the answer closes the route.
Questions One and Two: Coverage and Automation
First, ask which title and section impose each penalty. If the answer is Title 31, sections 6651, 6654 or 6655, section 6751(b) offers nothing, so move those charges to reasonable cause or other relief. Second, ask whether a person or a program generated the proposal. A CP2000 or CP15 with no examiner suggests automation, whereas a Form 5701 or an examiner's report points to a human decision.
Questions Three and Four: Forum and Clock
Third, ask where you held your US legal residence, if any, on the day you will file a petition. That fact sets the circuit and therefore the case law. Fourth, ask which of the three regulatory clocks applies, then compare it with the Tax Court's formal communication date. Write both dates down, because the gap between them defines your argument.
Question Five: Does the Paper Match the Penalty?
Finally, compare what the supervisor approved with what the IRS asserted. Check the section, the rate, the tax year and the person named. Also check that the approver actually supervised the examiner on that date. A form approving a 20% negligence penalty for 2021 does not comfortably support a 40% offshore penalty for 2022. Beland v. Commissioner, 156 T.C. 80, shows that the sequence of a closing conference and a signature can also defeat a penalty.
How to Obtain the Approval Documents
During an examination, ask the examiner in writing for the penalty lead sheet, any Form 5701 and any Form 8278. At Appeals, request the administrative file. Outside those routes, a Freedom of Information Act request can recover the record, though it can take months. Meanwhile, formal discovery in the Tax Court allows requests for the underlying metadata, which helps where a date looks inconsistent.
Do this early but raise any section 6751(b) defect with care. An examiner who learns of a missing signature before the deadline can usually cure it. For that reason, we request the file and quietly note the position, then raise the argument once the relevant clock has run. Our guide to an IRS field audit of a wealthy American describes the wider process.
Where to Raise the Argument
The right forum depends on the penalty. For a deficiency penalty, plead section 6751(b) expressly in your Tax Court petition. Before that, raise the point at Appeals, where a litigation hazard can translate into a settlement. Also treat the 150-day limit for notices addressed abroad as absolute.
For an assessable penalty such as section 6038(b), there is no deficiency notice to petition. Your choices are Appeals, a refund claim after payment or a collection due process hearing if you never had an earlier chance to dispute the liability. Remember, too, that the Eighth Circuit in Wells Fargo held the rule was not engaged where the government raised a penalty only as a refund suit offset. A refund action therefore carries its own risks, and we weigh them before anyone pays.
Legislation, HMRC and the Limits of the Defence
Three further points affect how much weight you should place on section 6751(b). Congress may change it, HMRC handles the same issue differently, and a procedural win never cures the compliance failure behind it.
Pending Bills That Would Move the Deadline
The House passed H.R. 5346 on 1 December 2025. It would require approval before any written communication about the penalty reaches the taxpayer, and it would define the immediate supervisor as the person to whom the individual reports. In February 2026, Senate Finance Committee leaders introduced a broader administration package with its own approval language. We found no enactment of either as of November 2026, so the regulation still governs.
If either passes in that form, the 30-day letter argument would move from contested to statutory for covered penalties. Keep your dates documented in the meantime, because the effective date wording will matter.
How HMRC Handles the Same Question
Britain has an internal equivalent to section 6751(b) but, as far as we can identify, no matching statutory bar. HMRC's Compliance Handbook at CH271500 requires an authorising officer's agreement before certain inaccuracy penalties and prohibits self-authorisation. HMRC's own overview of penalties focuses instead on behaviour and disclosure.
The practical lesson is simple. A dual filer facing parallel enquiries should not assume a US procedural win carries across the Atlantic. A cancelled IRS penalty leaves any HMRC penalty on the same facts untouched. Similarly, neither country gives you a foreign tax credit for the other's penalty.
Reasonable Cause Runs Alongside the Signature Point
Never run section 6751(b) as your only defence. Under section 6664(c), reasonable cause and good faith can defeat most accuracy penalties, including the 40% rate. A taxpayer who relied on a qualified preparer after full disclosure of the facts has a substantive case, and that case survives even if the supervisor signed on time.
The two arguments also support each other at Appeals. The procedural point prices the risk for the IRS, while the substantive point gives the officer a reason to concede. Likewise, reasonable cause is often the only answer to the information return penalties that the signature rule leaves standing. Under section 6501(c)(8), it also matters because a missing form can keep the whole return open unless you show reasonable cause.
Interest on the Penalty Falls Away Too
A cancelled penalty removes more than its face value. Under section 6601(e)(2), interest on an accuracy penalty generally runs from the return due date, including extensions. On an audit that takes several years, that interest becomes a meaningful share of the bill.
Therefore a win under section 6751(b) removes the penalty and the interest charged on it. Your computation should show both figures for any Appeals discussion. Conversely, the interest on the underlying tax continues to run throughout the dispute. For that reason, many clients make a deposit against the tax while they contest the penalty.
Why the Better Plan Is Avoiding the Examiner
A section 6751(b) defence rewards luck in someone else's paperwork. In most files, the supervisor signs in good time, and Chief Counsel has instructed its lawyers to check approval for years. So never treat a possible signature error as a reason to delay filing.
A filer who comes forward early usually never needs section 6751(b) at all. For those with non-wilful lapses, the offshore disclosure and FBAR route remains far cheaper than an examination. Equally, a qualified amended return filed before IRS contact can remove the accuracy penalty on the corrected amount altogether, with no reliance on any supervisor's date.
How TaxYork Can Help With Section 6751(b) Exposure
TaxYork provides comprehensive US and UK tax preparation and compliance for high-net-worth Americans, dual nationals and company owners. On a penalty file, we start by mapping every proposed charge against section 6751(b), then by establishing your US legal residence position and collecting the approval record.
Alongside that review, we prepare the delinquent or corrected returns that any resolution needs, including Forms 5471, 8938 and FinCEN 114. In our experience, clients gain most from a single team that sees the US and UK files together. Our US tax return preparation for expats and cross-border tax compliance services work from the same set of facts, so your positions stay consistent. Where a dispute needs litigation, we coordinate the tax computations and records with your US counsel.
Conclusion: Treat Section 6751(b) as a Date Problem
Section 6751(b) gives you a precise, document-based way to challenge the largest IRS penalties, including the 40% offshore rate. However, it does not touch failure-to-file penalties, most automated charges or FBAR penalties, and it never removes the tax itself.
For Americans in Britain, the decisive detail often sits outside the penalty file. Your US legal residence on the petition date selects the case law, and that choice can strengthen your timing argument while weakening your Form 5471 argument. Therefore sort your penalties, fix your dates and reply to every automated notice with a real challenge. Above all, keep filing compliant returns, because the best penalty defence is never needing one.
Contact Us
If you hold an IRS penalty proposal, a 30-day letter or a notice of deficiency, time matters. Please contact us for a confidential review of your position. You can also email hello@taxyork.com or call 020 3488 8606, and we will explain which of your penalties can be challenged and what your next deadline is.
Disclaimer
This article provides general information about US and UK tax rules as understood in November 2026 and does not constitute legal or tax advice for your specific circumstances. The worked example is illustrative, and its figures and outcomes are not a prediction of any result. Tax law, regulations and court decisions change, and several points discussed here remain unsettled. Please consult a qualified professional before acting, and refer to the IRS and HMRC for official guidance.