119-HR-5346 Investigative Journalist Impact Analysis

Summary

H.R. 5346 (Fair and Accountable IRS Reviews Act) would amend 26 U.S.C. §6751(b)(1) so that no penalty may be assessed unless, before any written communication about that penalty is sent to the taxpayer, the initial determination is personally approved in writing by the individual’s immediate supervisor (or a designated higher official). It also defines “immediate supervisor” as the person to whom the employee reports and applies beginning after December 31, 2025. This moves approval earlier than the current regulations’ deadlines in many cases and narrows who may approve by default. [1]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Fai…

Today’s regulations permit approval by specific milestones (e.g., before assessment for non‑deficiency penalties, on or before the date a notice of deficiency is mailed for deficiency cases) and define “immediate supervisor” more flexibly as anyone with responsibility to review the penalty proposal; the bill would override those timing and definitional choices. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…

Given that the IRS assessed $84.1 billion in civil penalties in FY2024, shifting approval earlier could materially affect internal workloads and dispute rates, though most automated penalties remain exempt under §6751(b)(2). Overall environmental impacts are negligible. [3]Internal Revenue Service — IRS Data Book – Collections, activities, penalties a…[4]Legal Information Institute — 26 U.S.C. §6751 – Procedural requirements (statut…

Economic Effects

Likely effects on businesses, households, and administrative costs, with emphasis on evidence chains and scope limits.

• Administrative workload shifts to earlier in the exam cycle. Requiring written approval before any letter about a penalty (including early proposals) means agents must obtain supervisory sign‑off earlier, increasing near‑term managerial time per case and necessitating workflow/system updates. Current IRS procedures tie approval to later milestones; the bill accelerates that gate. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…
• Reduced litigation risk and fewer invalid penalties. Earlier, well‑documented approvals address the timing controversies that fueled cases like Chai and Kroner and the IRS’s subsequent rulemaking, likely lowering reversal/abatement rates tied to §6751(b) defects. [5]FindLaw — Chai v. Commissioner (2d Cir. 2017) – opinion[6]FindLaw — Kroner v. Commissioner (11th Cir. 2022) – opinion[7]Internal Revenue Service — Internal Revenue Bulletin 2023-17 – Preamble discuss…
• Scope is narrower than it appears because many penalty categories are exempt. Additions to tax under §§6651, 6654, 6655, certain §6662 items, and penalties automatically calculated by computer are excluded under §6751(b)(2); H.R. 5346 does not change those exceptions, limiting revenue or workload effects for the high‑volume automated stream. [4]Legal Information Institute — 26 U.S.C. §6751 – Procedural requirements (statut…[2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…
• Potential short‑run revenue effects from fewer or slower proposals. Front‑end approvals may reduce the number of penalties proposed as bargaining chips and delay assessments while managers review files. Given the scale of penalties ($84.1B assessed in FY2024), even small percentage changes could be material to receipts timing, though no CBO score is available yet. [3]Internal Revenue Service — IRS Data Book – Collections, activities, penalties a…[8]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Bil…
• Downstream savings from fewer abatements and disputes. GAO has long highlighted high assessment and abatement volumes and limited evaluation of penalty efficacy; tighter approval may save rework costs for both IRS and taxpayers. [9]U.S. Government Accountability Office — GAO-09-567 – Tax Administration: IRS Sh…
• Business compliance planning. For examinations involving complex accuracy‑related or information‑reporting penalties that are not purely automated, earlier supervisory scrutiny may yield clearer issue framing earlier, potentially shortening negotiation cycles but also deferring proposals until files are complete. [10]Internal Revenue Service — IRM 20.1.5 – Return Related Penalties (supervisory-a…

Social Effects

Distributional and equity considerations for communities and taxpayer segments.

• Small businesses and unrepresented taxpayers could see fewer premature or incorrectly proposed penalties in audit letters, reducing anxiety and representation costs. The National Taxpayer Advocate has criticized premature or automated penalty proposals and the burden on less sophisticated taxpayers; earlier supervisory review may mitigate that dynamic. [11]Web search · turn 1 #2
• Low‑ and moderate‑income filers are frequently touched by automated notices; those remain largely exempt from §6751(b)(1). Equity gains therefore depend on how often non‑automated penalties are proposed in these populations and how effectively IRS implements the earlier approval gate. [4]Legal Information Institute — 26 U.S.C. §6751 – Procedural requirements (statut…[2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…
• Signals of penalty policy volatility (e.g., COVID‑era failure‑to‑pay penalty relief affecting ~5 million accounts) show that process choices materially affect households; clearer approval standards may reduce surprises and foster trust if consistently applied. [12]Associated Press — IRS to waive $1 billion in penalties for 2020–2021 back taxe…

Environmental Effects

Direct and indirect environmental considerations.

• No direct environmental impacts are expected from procedural changes to IRS penalty approvals.
• Indirect effects (e.g., via behavior around environmental tax credits) are speculative and not evidenced in the record; the bill does not alter credit eligibility rules or enforcement priorities.

Temporal Analysis

Short‑term implementation versus long‑term systemic consequences.

1. Immediate term (effective for notices issued and penalties assessed after December 31, 2025): policy, training, and IT updates to block any outgoing correspondence that references a penalty until supervisory approval is recorded; possible exam backlogs during transition. [1]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Fai…
2. 1–3 years: stabilization as managers calibrate threshold for proposing penalties; expected decline in penalty challenges premised on §6751(b) timing/authority defects given that approval will predate any written communication. [7]Internal Revenue Service — Internal Revenue Bulletin 2023-17 – Preamble discuss…
3. 3+ years: potential steady‑state with lower litigation over §6751(b), with total penalty volumes still dominated by automated categories exempt from approval rules; macroeconomic effects likely minimal. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…

Key Metrics

Sources: IRS Data Book FY2024; GAO-09-567 (historical benchmarking); AP report on 2020–2021 penalty relief. [3]Internal Revenue Service — IRS Data Book – Collections, activities, penalties a…[9]U.S. Government Accountability Office — GAO-09-567 – Tax Administration: IRS Sh…[12]Associated Press — IRS to waive $1 billion in penalties for 2020–2021 back taxe…

Unintended Consequences and Risks

Where process changes can backfire or create new disputes.

• Definition conflict could spawn new challenges. Current regulations define “immediate supervisor” functionally (anyone with responsibility to review the penalty proposal). The bill locks it to the person the employee reports to, narrowing flexibility and inviting disputes if the signatory was not in the direct reporting chain. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…[1]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Fai…
• Interplay with court‑raised penalties. Regulations now allow timely approval when penalties are raised after a petition; the bill’s “before any written communication is sent to the taxpayer” standard should still be satisfied, but coordination between Exam and Counsel must ensure approvals precede pleadings served on taxpayers. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…
• Abatement workflow. IRS policy already requires supervisory approval for certain abatements; earlier approval at assertion may reduce later abatement volume, but added check‑points could also slow relief when penalties should be removed. [13]Internal Revenue Service — IRM 4.10.6 – Penalty Considerations (timing, 2025 up…
• Limited effect on automated programs. Because §6751(b)(2) exempts computer‑generated penalties unless contested, CP2000‑style proposals will be largely unaffected at the initial stage, tempering expectations of across‑the‑board change. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…

Assessment

Analytical bottom line (not advocacy).

Overall stance: neutral. The bill clarifies timing and authority in a way that likely reduces defective penalty assertions and related litigation while front‑loading managerial work and potentially slowing some examinations. Because major automated penalties are exempt, aggregate penalty volumes and receipts may not change substantially; distributional effects are modest and mainly benefit taxpayers facing non‑automated, exam‑driven penalties. Execution quality at IRS (training, staffing, and IT gating) will determine whether benefits (accuracy, trust) outweigh transitional frictions. [2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…[7]Internal Revenue Service — Internal Revenue Bulletin 2023-17 – Preamble discuss…[3]Internal Revenue Service — IRS Data Book – Collections, activities, penalties a…

Sourcing

Primary materials and data used for this analysis.

• Bill text and status: Congress.gov entry and actions for H.R. 5346 (119th Congress). [1]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Fai…[8]Congress.gov (Library of Congress) — H.R.5346 — 119th Congress (2025–2026): Bil…
• Current law and regulations: 26 U.S.C. §6751; 26 C.F.R. §301.6751(b)-1 (final, effective Dec. 23, 2024); IRS IRM updates. [4]Legal Information Institute — 26 U.S.C. §6751 – Procedural requirements (statut…[2]Legal Information Institute (e-CFR) — 26 C.F.R. §301.6751(b)-1 – Supervisory an…[13]Internal Revenue Service — IRM 4.10.6 – Penalty Considerations (timing, 2025 up…
• Judicial context: Chai v. Commissioner (2d Cir. 2017); Kroner v. Commissioner (11th Cir. 2022); IRS preamble summarizing case law. [5]FindLaw — Chai v. Commissioner (2d Cir. 2017) – opinion[6]FindLaw — Kroner v. Commissioner (11th Cir. 2022) – opinion[7]Internal Revenue Service — Internal Revenue Bulletin 2023-17 – Preamble discuss…
• Scale and trends: IRS Data Book FY2024 (civil penalties $84.1B); GAO historical analysis of assessments and abatements; AP reporting on pandemic‑era penalty relief. [3]Internal Revenue Service — IRS Data Book – Collections, activities, penalties a…[9]U.S. Government Accountability Office — GAO-09-567 – Tax Administration: IRS Sh…[12]Associated Press — IRS to waive $1 billion in penalties for 2020–2021 back taxe…
• Topic insights: IRS IRM for return‑related and information‑return penalties and supervisory‑approval exceptions. [10]Internal Revenue Service — IRM 20.1.5 – Return Related Penalties (supervisory-a…