TIGTA says IRS needs controls to prevent backdated penalty approvals
TIGTA report number 2026-300-021
IRS penalty approvals are still at risk because of poor documentation. TIGTA found that backdating has already led the IRS to give up over $68 million in penalties.
Findings
TIGTA found that IRS procedures did not do enough to stop or catch backdated penalty approvals under §6751(b), which requires written supervisory approval before some penalties can be assessed. The IRS accepted all five of TIGTA’s recommendations.
Why It Matters
This is not a routine paperwork issue. Backdating penalty approvals can make IRS penalty assertions legally defective.
The immediate financial impact was real. The IRS conceded more than $68 million in penalties in seven docketed cases.
The issue is concentrated in syndicated conservation easement cases, but the control weakness applies more broadly to penalty documentation.
TIGTA’s strongest practical point is simple: apparently, this needed to be said by an inspector general: penalty approval documents must be dated when signed, not after the fact.
Key Facts
TIGTA checked how the IRS followed §6751(b) after the LakePoint Land II, LLC v. Commissioner case. In that case, the Tax Court found that an IRS supervisor backdated penalty approval documents and that IRS Counsel gave the Court the wrong information about when they were signed.
The IRS and Chief Counsel reviewed 1,268 syndicated conservation easement cases. The review covered:
829 docketed Tax Court cases.
439 nondocketed administrative cases.
13 docketed cases with invalid supervisory approval.
7 cases involving backdated approvals.
More than $68 million in penalties conceded by the IRS.
TIGTA also found six cases without court dockets where missing records made it impossible to confirm that supervisory approval happened before letters were sent to taxpayers.
Statutory Framework
§6751(b) usually does not allow certain penalties to be assessed unless the initial decision gets written approval from the employee’s direct supervisor. This rule was created to stop penalties from being used as pressure during audits.
TIGTA’s Findings
TIGTA identified several control failures:
IRS employees used penalty lead sheets that were later altered.
Some documents had identical digital signatures across multiple versions.
Some penalty correspondence listed penalties that were not reflected on the approved lead sheets.
Some summary reports showed penalties without clear supervisory approval.
IRS Counsel had informal guidance for electronic document review, but had not formalized it in the Chief Counsel Directives Manual.
TIGTA also found five possible §6103 disclosure violations involving taxpayer information. While this is a separate privacy issue, it shows again that documentation controls were not as careful as they should have been.
IRS Response
The IRS agreed to:
Promote digital approvals on penalty approval documents.
Revise penalty procedures for SB/SE and LB&I cases.
Require Chief Counsel attorneys to verify §6751(b) compliance in docketed cases.
Tell employees that approving backdated penalties is not appropriate.
Require Chief Counsel review after Court sanctions against Counsel.
Conlcusion
TIGTA made five recommendations, and IRS management agreed to implement all of them.
The Takeaway
Tax professionals should see §6751(b) approval records as an ongoing legal issue, especially in cases with many penalties. The IRS might improve the process later, but current penalty files with weak approval records are still at risk.