§ 6038(b) Foreign-Reporting Penalties Are Administratively Assessable (No District-Court Suit Required)

I. Introduction

Safdieh v. Comm'r (2d Cir. Feb. 27, 2026) addresses a high-stakes but technical question of federal tax administration: whether the IRS may administratively assess the fixed-dollar penalty for failing to report control of a foreign business under I.R.C. § 6038(b), or whether the government must instead bring a civil action in federal district court to obtain a judgment before collecting it.

The Commissioner assessed Joseph Safdieh penalties totaling $50,000 for tax years 2005–2009 (a $10,000 penalty per year). When Safdieh did not pay, the IRS filed a federal tax lien. Safdieh pursued a Collection Due Process (CDP) challenge through the Independent Office of Appeals and then petitioned the Tax Court. The Tax Court granted Safdieh summary judgment on a purely legal ground: it held Congress did not authorize the IRS to collect the § 6038(b) penalty by assessment, requiring suit in district court instead.

The Second Circuit reversed, aligning with the D.C. Circuit’s approach in Farhy v. Comm'r.

II. Summary of the Opinion

The Second Circuit held that the Commissioner may assess penalties under I.R.C. § 6038(b). The court therefore vacated the Tax Court’s summary judgment order and remanded for further proceedings.

Because the text of § 6038(b) is silent on assessment, the court relied on statutory history, purpose, and structure—including how § 6038(b) coordinates with § 6038(c)—to conclude that Congress intended the penalty to be administratively assessable.

III. Analysis

A. Precedents Cited

The opinion is notable for how it uses precedent not to “fill in” missing statutory text with judicial policy, but to structure interpretive methodology and to situate assessment within the tax system.

1. Appellate alignment and the central comparator: Farhy v. Comm'r

The court explicitly follows the D.C. Circuit’s reasoning in Farhy v. Comm'r, 100 F.4th 223 (D.C. Cir. 2024), calling the issue “new” in the Second Circuit and recognizing Farhy as the only other court-of-appeals decision on point. Farhy is cited repeatedly for (i) the procedural posture of CDP and Tax Court review, (ii) the history of § 6038 penalties, and (iii) the structural argument about coordination between § 6038(b) and § 6038(c).

2. What “assessment” is and why it matters: United States v. Galletti and Phila. & Reading Corp. v. United States

To frame assessment as the key trigger for IRS collection powers, the court relies on:

  • United States v. Galletti, 541 U.S. 114 (2004), for the concept of “self-assessment” and for describing the government’s recording of liabilities in its books.
  • Phila. & Reading Corp. v. United States, 944 F.2d 1063 (3d Cir. 1991), for the proposition that “it is the assessment, and only the assessment, that sets in motion the collection powers of the IRS.”

3. The “life-blood of government” principle: United States v. Forma and Bull v. United States

The court situates assessment within the broader justification for robust tax collection tools by quoting: United States v. Forma, 42 F.3d 759 (2d Cir. 1994), which itself quotes Bull v. United States, 295 U.S. 247 (1935): “taxes are the life-blood of government.”

Importantly, the court uses this maxim descriptively—to explain the historical rationale for extraordinary collection powers—rather than as an independent basis to expand IRS authority beyond statutory limits. The holding is ultimately rooted in Congress’s design for § 6038.

4. Interpretive method beyond bare text: Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal.

The court invokes Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 508 U.S. 602 (1993) to support using history, purpose, and structure when statutory text is ambiguous or silent on the contested point.

5. Standard of review: Maier v. Comm'r

The opinion confirms de novo review of the Tax Court’s legal determination, citing Maier v. Comm'r, 360 F.3d 361 (2d Cir. 2004).

6. Agency “deference” rejected, but contemporaneous agency practice considered: Chevron and Loper Bright Enters. v. Raimondo

A significant methodological move is the court’s careful distinction between (i) deferring to an agency interpretation and (ii) considering long-standing agency practice as evidence of original public meaning and congressional acquiescence. It cites Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (noting it was overruled) and Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

The court emphasizes that post-Loper Bright Enters. v. Raimondo, it still may consider contemporaneous understanding as interpretive evidence—without treating it as binding deference.

7. Weight of consistent administrative interpretation and congressional acquiescence: Costanzo v. Tillinghast and Commodity Futures Trading Comm'n v. Schor

To support giving weight to a long-standing interpretation that Congress has repeatedly left undisturbed, the court cites Costanzo v. Tillinghast, 287 U.S. 341 (1932) and Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833 (1986). This provides the doctrinal footing for the “Congress amended the statute repeatedly without curbing assessment” argument.

8. Using placement and statutory context: Yates v. United States

In rejecting reliance on a general recovery statute outside the Internal Revenue Code, the court notes the significance of codification in Title 28 and cites Yates v. United States, 574 U.S. 528 (2015) as a reminder that statutory context and placement can inform meaning.

9. Issue preclusion in tax: Comm'r v. Sunnen and The Evergreens v. Nunan

To illustrate the downstream problems of splitting related § 6038 penalties between district court (for § 6038(b) under Safdieh’s theory) and the Tax Court (for other matters), the court cites Comm'r v. Sunnen, 333 U.S. 591 (1948), which cites The Evergreens v. Nunan, 141 F.2d 927 (2d Cir. 1944) (L. Hand, J.), for the principle that litigated facts essential to judgment can bind parties in later tax proceedings.

10. Additional interpretive support for considering contemporaneous understanding

The court lists decisions showing that contemporaneous or practical constructions can be relevant across domains: F.T.C. v. Mandel Bros., Inc., 359 U.S. 385 (1959) and Shen v. Esperdy, 428 F.2d 293 (2d Cir. 1970), and analogies beyond administrative law including Consumer Fin. Prot. Bureau v. Cmty. Fin. Servs. Ass'n of Am., Ltd., 601 U.S. 416 (2024), Choctaw Nation of Indians v. United States, 318 U.S. 423 (1943), and Clark v. Carolina & Yadkin River Ry. Co., 122 N.E. 453 (N.Y. 1919).

B. Legal Reasoning

1. The doctrinal starting point: assessment authority is broad, but not unlimited

The court begins from the central administrative fact of U.S. tax collection: the IRS ordinarily collects through assessment, not through filing lawsuits. Assessment is what “sets in motion” the IRS’s collection machinery, including liens and levies. Statutorily, I.R.C. § 6201(a) authorizes assessment of “all taxes” and “assessable penalties.”

The dispute turns on whether the § 6038(b) penalty is an “assessable” penalty. While § 6038(b) calls the amount a “penalty,” it does not expressly say “shall be assessed,” nor does it say “recovered in a civil action,” leaving the court to infer Congress’s chosen enforcement mechanism.

2. Why silence did not control: the court declines to “parse” competing inferences from silence

A key feature of the opinion is its refusal to treat statutory silence as a decisive textual hook for either side. Instead, it turns to “history, purpose, and structure,” expressly including the “text of a key coordination clause,” to reach a workable and coherent reading of § 6038 within the overall scheme.

3. History: § 6038(b) was enacted to fix under-enforcement, not to create new hurdles

The court’s first main reason is historical. When Congress enacted § 6038(b) in 1982, it already had an assessable penalty for the same reporting failure: a reduction of the foreign tax credit under what is now I.R.C. § 6038(c). The Senate report described that earlier penalty as (i) “complicated,” (ii) “unduly harsh” in minor cases, and (iii) toothless when no foreign tax credit existed. Congress heard “complaints about inadequate reporting,” so it added the fixed-dollar penalty to make enforcement simpler and more effective.

Against that background, the court finds it implausible that Congress intended to require the IRS to file a district-court action to collect the new penalty—an approach that would typically be slower and more resource-intensive than assessment.

The court then strengthens the historical inference with two forms of post-enactment evidence:

  • Consistent IRS practice since 1982 of assessing § 6038(b) penalties, treated as evidence of original meaning, not as Chevron-style deference.
  • Congressional acquiescence: Congress amended § 6038 multiple times (including in 2017) without limiting assessment, and the court concludes Congress was not ignorant of the IRS’s view.

Finally, the court adds practical historical context: in 1982 federal district courts faced record civil backlogs and Congress enacted reforms aimed at alleviating congestion. It was thus unlikely Congress simultaneously required the IRS to sue in district court to collect what was then a $1,000 penalty.

4. Structure: the § 6038(c)(3) coordination clause presupposes contemporaneous administrative imposition

The opinion’s structural argument is its most concrete textual integration of § 6038(b) with adjacent provisions. Section 6038(c) imposes the foreign tax credit reduction, and a coordination clause provides that the reduction is decreased by “the amount of the penalty imposed by subsection (b).” The court reasons that Congress expected the IRS to be able to calculate and apply both penalties in a coordinated way.

Under Safdieh’s theory, however, the IRS would need to obtain a district-court judgment first to know the “amount of the penalty imposed by subsection (b),” delaying and destabilizing the integrated operation of § 6038(c). The court adopts Farhy’s phrasing: Safdieh’s reading would “throw sand in the gears” of the existing enforcement scheme.

5. Administration and judicial economy: avoiding duplicative proceedings and preclusion games

The court also emphasizes systemic consequences. If § 6038(b) required district-court litigation while related issues could be litigated in Tax Court (e.g., as to § 6038(c) effects or CDP-related matters), two courts could have to resolve overlapping factual and legal questions about control, entity status, and defenses such as reasonable cause.

That creates waste and invites tactical behavior, including racing to judgment to gain preclusive advantage, a risk the court illustrates using the preclusion principle stated in Comm'r v. Sunnen.

6. Litigation authority: skepticism that 28 U.S.C. § 2461(a) silently became the collection route

The court’s third reason is institutional and jurisdictional: if § 6038(b) were not assessable, what is the source of the government’s authority to sue? Safdieh relied on 28 U.S.C. § 2461(a), a general statute permitting recovery of a civil penalty “in a civil action” when Congress prescribes a penalty “without specifying the mode of recovery.”

The court is unpersuaded for two main reasons drawn from context:

  • Title placement: § 2461(a) is codified in Title 28 (judiciary), not in the Internal Revenue Code, making it less plausible as the intended primary mechanism for tax-penalty collection.
  • Historical nonuse: between § 2461(a)’s enactment (1948) and § 6038(b)’s enactment (1982), the provision apparently was never used to collect a tax or tax penalty, undermining the claim that Congress silently redirected the IRS to it.

C. Impact

1. Immediate doctrinal effect: assessment is available for § 6038(b)

The new rule in the Second Circuit is clear: the IRS may use administrative assessment to collect § 6038(b) penalties. Taxpayers cannot defeat collection simply by arguing the IRS must file a district-court action first.

2. Broader administrative consequences: reinforcing assessment as the default for tax penalties absent clear contrary direction

Although the court does not announce a universal presumption that every penalty is assessable, its reasoning will likely be cited in future disputes about penalties where the statute is silent on the “mode of recovery.” The opinion suggests that courts should read penalty provisions in light of:

  • how Congress designed the penalty to function alongside related provisions,
  • legislative purpose (e.g., “simplify” enforcement),
  • consistent administrative practice and congressional inaction across amendments, and
  • administrability and avoidance of duplicative cross-forum litigation.

3. CDP and taxpayer procedure: collection will proceed through normal administrative channels

Because assessment triggers IRS collection tools (including liens), the decision strengthens the IRS’s ability to use the established CDP pipeline rather than shifting penalty enforcement into an initial merits trial in district court. Taxpayers remain able to challenge collection actions through the CDP framework and subsequent judicial review, but they will not be able to demand a district-court judgment as a prerequisite to collection.

4. Harmonization with other circuits

By aligning with Farhy v. Comm'r, the Second Circuit reduces inter-circuit inconsistency on a recurring international information-reporting penalty. This matters because § 6038 issues frequently arise in cross-border compliance contexts where taxpayers, assets, and enforcement resources span jurisdictions.

IV. Complex Concepts Simplified

  • Assessment: An administrative act recording a liability on the government’s books. In tax administration, assessment is the switch that turns on IRS collection tools (liens, levies) without needing a new lawsuit.
  • Assessable penalty: A penalty the IRS can place on its books and collect using administrative collection mechanisms, as opposed to needing to sue to obtain a judgment first.
  • Federal tax lien: A legal claim the government files against a taxpayer’s property to secure payment of assessed liabilities.
  • Collection Due Process (CDP) hearing: A taxpayer’s opportunity to challenge certain IRS collection steps (like liens) in an administrative proceeding before the Independent Office of Appeals, with the possibility of judicial review.
  • Coordination clause (I.R.C. § 6038(c)(3)): A statutory instruction ensuring two penalties for the same reporting failure work together; here, the foreign tax credit reduction is reduced by the amount of the fixed-dollar penalty.
  • Congressional acquiescence: The idea that when an agency applies a statute consistently over time and Congress repeatedly amends related provisions without changing that practice, courts may treat Congress’s silence as evidence (not conclusive proof) that the practice aligns with legislative intent.
  • Issue preclusion (collateral estoppel): Once a factual issue essential to a judgment is actually litigated and decided, the same parties may be bound by that determination in later litigation—creating strategic incentives if similar issues are split across courts.

V. Conclusion

Safdieh v. Comm'r establishes in the Second Circuit that the fixed-dollar penalty for failing to report control of a foreign business under I.R.C. § 6038(b) is administratively assessable. The court reached this result not by stretching text, but by reading § 6038(b) in light of its enactment purpose (simplifying and strengthening enforcement), its integrated structure with § 6038(c)’s coordination clause, and decades of consistent practice coupled with congressional inaction across multiple amendments.

The decision reinforces assessment as the central mechanism of federal tax administration, avoids a bifurcated enforcement regime that would create duplicative litigation and preclusion gamesmanship, and limits reliance on general non-tax recovery statutes like 28 U.S.C. § 2461(a) to do work the Internal Revenue Code’s enforcement architecture is designed to handle.