CDP Verification Must Include § 6751(b)(1) Supervisory Approval—Even After Prior Liability Adjudication

1. Introduction

This consolidated Second Circuit decision addresses a recurring and practically significant tension in federal tax procedure: how far CDP hearings extend into the procedural regularity of penalty assessment when the underlying liability has already been determined in prior deficiency litigation (or stipulated decisions).

The six petitioners—Besicorp Group, Inc., Day Stores, Inc., Humboldt Shelby Holding Corporation, The Markell Company, Inc., Vance Finance and Holding Corporation, and Seashore Broadcasting Corporation (collectively, “Taxpayers”)—were assessed substantial deficiencies, penalties, and interest tied to transactions the IRS deemed “tax shelter” arrangements. The Tax Court had already upheld the deficiencies and penalties in earlier proceedings “not challenged here.”

After assessment, the IRS pursued collection through federal tax liens and proposed levies. Each Taxpayer requested a CDP hearing. The same Appeals Officer sustained the collection actions and stated in boilerplate fashion that he had “verified” compliance with “any applicable law or administrative procedure.” The Notices of Determination did not mention § 6751(b)(1) and the Commissioner did not contend that written supervisory approval had been obtained.

The central issue on appeal was narrow but consequential: Is § 6751(b)(1) “written supervisory approval” part of the § 6330(c)(1) verification the Appeals Officer “shall” obtain in a CDP hearing, notwithstanding final prior liability determinations and claim-preclusion principles?

2. Summary of the Opinion

The Second Circuit reversed the Tax Court’s acceptance of the IRS position (adopted from Warner Enters., Inc. v. Comm'r) that supervisory approval is not “applicable” at the CDP stage once penalties have been adjudicated. Reading the statutes “literally,” the court held:

• § 6330(c)(1) imposes a mandatory and broad verification obligation: the Appeals Officer shall verify that requirements of “any applicable law” have been met.
• § 6751(b)(1) is an “applicable law” whenever penalties subject to that section are being collected.
• The limitation in § 6330(c)(2)(B) (restricting taxpayers’ liability challenges in CDP) does not eliminate the Appeals Officer’s independent verification duty under § 6330(c)(1).
• Res judicata / preclusion does not bar a verification challenge because the verification issue arises only at the CDP collection stage and is distinct from a direct “existence or amount” challenge to underlying liability.
• The failure to verify (and the absence of proof of supervisory approval) invalidates the determination sustaining liens and proposed levies (without disturbing the previously adjudicated liabilities).

The court remanded for further proceedings, noting (by reference to Hoyle v. Comm'r (“Hoyle II”)) that remand can permit supplementation of the record for verification purposes, though it did not decide what happens if supervisory approval in fact existed but was not verified.

3. Analysis

3.1 Precedents Cited

The opinion’s reasoning is anchored in statutory text, but the court uses an interlocking set of precedents to define (i) the CDP framework, (ii) the scope/meaning of “verification,” (iii) the role of preclusion in CDP, and (iv) the meaning of § 6751(b)(1) within penalty litigation.

Case cited (exact title as in opinion)	How it was used	Influence on the holding
United States v. Bisceglia, 420 U.S. 141 (1975)	Describes U.S. taxation as relying on “self-reporting.”	Background only; situates deficiency/assessment mechanics but does not drive the verification holding.
Our Country Home Enters., Inc. v. Comm'r, 855 F.3d 773 (7th Cir. 2017)	Explains CDP hearings are informal and Appeals Officers act impartially; “hearing” can be misleading.	Supports the court’s realistic view of CDP while still treating statutory duties (verification) as enforceable and consequential.
Iames v. Comm'r, 850 F.3d 160 (4th Cir. 2017)	CDP’s “general focus” is collection of predetermined liability; explains preclusion principles embedded in CDP scheme.	Used to rebut IRS’s “this is a liability-stage issue” argument: the Second Circuit agrees CDP is collection-focused but treats verification as a collection-stage procedural safeguard, not a liability relitigation device.
Williams v. Comm'r, 718 F.3d 89 (2d Cir. 2013)	Sets standard of review: de novo for Tax Court summary judgment; abuse of discretion for Appeals Office determinations.	Frames appellate posture: the Appeals Officer’s failure to meet a statutory verification duty is an abuse of discretion.
Dinino v. Comm'r, 98 T.C.M. (CCH) 559, 2009 WL 4723652 (T.C. 2009)	Identifies “basic” verification elements under § 6330(c)(1).	Supports that verification is not limited to taxpayer-raised issues and can include multiple procedural prerequisites.
Ron Lykins, Inc. v. Comm'r, 133 T.C. 87 (2009)	Lists four core verification items: valid assessment, notice/demand, failure to pay, and proper lien/levy notice with hearing rights.	Shows § 6330(c)(1) verification reaches beyond what the IRS argued; sets baseline that verification checks procedural legality in collection.
Hoyle v. Comm'r, 131 T.C. 197 (2008) (“Hoyle I”)	Holds Appeals Officer must verify proper mailing of notice of deficiency as “applicable law” under § 6330(c)(1).	Strong analog: verification includes procedural prerequisites from earlier stages (notice of deficiency), undermining the IRS argument that earlier-stage requirements become irrelevant after adjudication.
Pfetzer v. Comm'r, 122 T.C.M. (CCH) 395, 2021 WL 6143712 (2008)	Stands for the proposition that failure to fulfill § 6330(c)(1) verification can invalidate sustaining a lien; also notes verification is “stand-alone” and independent of § 6330(c)(2) issues.	Reinforces the central distinction: verification is not itself an “underlying liability” challenge; it is a statutory condition for sustaining collection actions.
Warner Enters., Inc. v. Comm'r, 124 T.C.M. (CCH) 98, 2022 WL 3584090 (T.C. 2022)	Tax Court’s contrary view: where penalties were previously adjudicated, Appeals Officer need not verify § 6751(b)(1), only that penalty was assessed.	The Second Circuit rejects this reasoning as inconsistent with the text of § 6330(c)(1) and as improperly reading in an “adjudicated-liability” carveout.
Chai v. Comm'r, 851 F.3d 190 (2d Cir. 2017)	Holds § 6751(b)(1) written approval is an “element” of the IRS’s penalty claim and must be obtained by the notice of deficiency (or answer/amended answer) stage.	Critical to defining what compliance looks like and why late “cures” may be impossible; bolsters that § 6751(b)(1) is not a mere internal guideline but a substantive procedural prerequisite.
Republic of Iraq v. Beaty, 556 U.S. 848 (2009) (quoting United States v. Gonzales, 520 U.S. 1 (1997))	Used for the expansive meaning of “any.”	Supports plain-meaning textualism: “any applicable law” is broad enough to capture § 6751(b)(1) without implied limitations.
Bartenwerfer v. Buckley, 598 U.S. 69 (2023)	“We begin, as always, with the text.”	Methodological anchor for the opinion’s literal reading approach.
Bates v. United States, 522 U.S. 23 (1997)	Courts resist reading words/elements into a statute not on its face.	Used to reject importing a “no-longer-applicable-after-adjudication” limitation into § 6330(c)(1).
Commonwealth of Puerto Rico v. Franklin Calif. Tax-Free Tr., 579 U.S. 115 (2016)	Courts cannot rewrite statutes even to avoid undesirable results.	Rejects the IRS “no bona fide purpose/absurdity” framing as a basis for narrowing unambiguous text.
Jeffers v. Comm'r, 992 F.3d 649 (7th Cir. 2021)	Explains CDP as procedural protection against collection actions and discusses § 6330(c)(4)(A) preclusion.	Supports understanding CDP’s role as collection-process oversight; the Second Circuit notes § 6330(c)(4)(A) is inapplicable because § 6751 was not raised earlier.
ATL & Sons Holdings, Inc. v. Comm'r, 152 T.C. 138 (2019)	Describes penalties exempt from § 6751(b)(1) supervisory approval.	Used to emphasize Congress knew how to create exceptions; none fits these penalties, supporting inclusion under “any applicable law.”
Ruhaak v. Comm'r, 157 T.C. 103 (2021)	Notes the Appeals Office renaming (Independent Office of Appeals).	Context only.
Hoyle v. Comm'r, 136 T.C. 463 (2011) (“Hoyle II”)	On remand, Appeals Office may consider evidence beyond what the original Appeals Officer considered, to satisfy verification.	Important for remedy/administrability: verification failures can be cured via remand if underlying compliance existed.
Rivas v. Comm'r, 113 T.C.M. (CCH) 1268, 2017 WL 1224708 (T.C. 2017)	Collects cases remanding to allow Appeals to supplement record to meet § 6330(c)(1) verification.	Reinforces that verification is a required component of the administrative record and remand is a common fix.
Humboldt Shelby Holding Corp. & Subs. v. Comm'r, 606 F. App'x 20 (2d Cir. 2015)	Shows at least one taxpayer previously appealed liability and lost.	Highlights finality of underlying liability; underscores why the present dispute is framed as collection-process verification, not liability relitigation.

3.2 Legal Reasoning

A. The court’s textual chain: “shall” + “any” + “applicable law”

The court reads § 6330(c)(1) as a mandatory investigative duty:

“The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.”

Two features do most of the work:

• “shall” is compulsory, leaving little room for “harmless error” or “no bona fide purpose” narrowing.
• “any” is expansive (citing Republic of Iraq v. Beaty and United States v. Gonzales), resisting category-based exclusions.

From there, § 6751(b)(1) is plainly an “applicable law” in penalty cases:

“No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor….”

The IRS’s attempt to treat § 6751(b)(1) as no longer “applicable” after liability adjudication fails because the statute contains no timing-based carveout and because courts “resist reading words or elements into a statute that do not appear on its face” (citing Bates v. United States).

B. Separating three distinct ideas the IRS sought to fuse

A key contribution of the opinion is conceptual separation—treating three questions as distinct even if they feel related in practice:

Question	Governing provision	What it affects
Was written supervisory approval obtained before assessment of penalties?	§ 6751(b)(1) (as timed by Chai v. Comm'r)	Legality of penalty assessment as a matter of statutory procedure (in ordinary penalty litigation posture).
May the taxpayer dispute “existence or amount” of liability in CDP?	§ 6330(c)(2)(B)	Scope of taxpayer-raised issues; codified preclusion-like limitations in CDP.
Did the Appeals Officer verify compliance with “any applicable law” before sustaining lien/levy?	§ 6330(c)(1)	Validity of sustaining the collection action (lien/levy) and the determination itself (abuse-of-discretion review).

The IRS tried to collapse (3) into (2): if liability cannot be challenged in CDP, then (the IRS argued) supervisory-approval compliance need not be verified. The court rejects that move by holding verification is “freestanding” and exists “whether or not a taxpayer raises the issue.”

C. Why res judicata (as framed here) does not defeat verification

The Commissioner’s principal defense was preclusion: because penalties were previously adjudicated, the CDP stage cannot revisit them and therefore § 6751(b)(1) is not “applicable.” The court’s response has two steps:

1. Textual: § 6330(c)(1) contains “no res judicata carveout” and commands verification of “any applicable law.”
2. Doctrinal/structural: a verification claim is not the same as a liability challenge under § 6330(c)(2)(B), and it could not have been raised earlier because the verification duty “does not attach until the CDP hearing stage.”

The court also flags § 6330(c)(4)(A) (issue preclusion for issues “raised and considered” earlier) but declines to apply it because no one contended § 6751(b)(1) compliance was “raised or considered” in the prior cases.

D. Remedy logic: procedural violation limits collection tools, not liability

The Second Circuit emphasizes that the consequence is not erasing the tax debt. Instead, the IRS loses access to particular statutory collection mechanisms: federal tax liens and the expedited levy process, at least “insofar as they relate to the penalties.”

The court expressly leaves unresolved (footnote 18) whether a verification failure tied to penalty procedures could bar lien/levy collection of the entire balance (deficiency + penalties + interest) or only the penalty component. The opinion “question[s] why” it would bar collection of the underlying tax deficiencies, but does not decide.

The court also rejects the IRS’s “no bona fide purpose / absurdity / harmless error” framing, stressing that different statutory failures have different consequences:

• Failure to obtain § 6751(b)(1) approval goes to whether the penalty may be assessed (in the typical merits posture).
• Failure to verify under § 6330(c)(1) goes to whether lien/levy may be sustained as a collection measure.

Even if the IRS views that as cumbersome, the court cites the separation-of-powers principle from Commonwealth of Puerto Rico v. Franklin Calif. Tax-Free Tr.: courts may not rewrite unambiguous statutory commands.

3.3 Impact

A. Immediate doctrinal impact within the Second Circuit

• Rejects Warner Enters., Inc. v. Comm'r as a governing approach: within the Second Circuit, Appeals Officers and the Tax Court must treat § 6751(b)(1) as within § 6330(c)(1) verification whenever the penalty is of a type subject to supervisory approval.
• Constrains IRS “preclusion-based” defenses in CDP: even where taxpayers cannot dispute the underlying liability in CDP, they can still obtain relief if the IRS cannot show the Appeals Officer verified compliance with applicable procedural law.

B. Administrative and litigation consequences

• Record-building becomes essential: Appeals must be able to “obtain verification” (and then demonstrate it) that written supervisory approval exists. Boilerplate statements of verification, without underlying documentation, are riskier after this decision.
• More remands for supplementation: by pointing to Hoyle II and Rivas v. Comm'r, the opinion signals that failure-to-verify cases may be remanded to allow the government to establish verification—if underlying compliance in fact existed.
• Collection-tool displacement: where § 6751(b)(1) approval was not timely obtained (and cannot be retroactively cured under Chai v. Comm'r), the IRS may need to rely on alternative collection avenues (e.g., suit to reduce assessments to judgment), losing lien/levy efficiency for affected components.

C. Broader significance beyond the Second Circuit

The opinion is a strong textualist template other circuits may find persuasive: it aligns CDP verification with “any applicable law,” rejects policy-driven narrowing, and treats verification as an independent statutory safeguard at the collections stage. It also highlights a developing split-like tension with Tax Court reasoning exemplified by Warner Enters., Inc. v. Comm'r, making further appellate clarification likely.

4. Complex Concepts Simplified

Collection Due Process (CDP) hearings

A CDP hearing is a statutorily required review, conducted by the IRS Independent Office of Appeals, before (or after notice of) certain collection actions (liens and levies). It is informal—often document-based—but it carries concrete statutory duties, including verification of legal compliance.

Assessment, deficiency, liens, and levies

• Deficiency: roughly, the amount by which tax owed exceeds tax reported (as defined in § 6211).
• Assessment: the formal recording of the tax liability (§ 6203), which “fixes the amount payable.”
• Federal tax lien: a statutory encumbrance that attaches to a taxpayer’s property upon nonpayment after assessment and demand (§ 6321) and may be recorded via notice.
• Levy: the IRS’s power to seize property to satisfy the debt (§ 6331), generally more intrusive and operationally powerful than a lien.

§ 6751(b)(1) written supervisory approval

Congress required written approval by a supervisor for many penalties to prevent penalties from being used as “a bargaining chip.” Under Chai v. Comm'r, the approval must be timely—no later than when the IRS asserts the penalty in the notice of deficiency (or in an answer/amended answer).

Verification under § 6330(c)(1)

Verification is not merely a general “we followed the rules” statement. It is a statutory requirement that the Appeals Officer confirm that “requirements of any applicable law or administrative procedure” were satisfied before sustaining lien/levy collection action.

Res judicata / claim and issue preclusion in CDP

The Code limits when taxpayers can relitigate liability in CDP (e.g., § 6330(c)(2)(B), and § 6330(c)(4)(A) for issues raised and considered earlier). This case distinguishes between (i) relitigating the penalty’s correctness and (ii) insisting the Appeals Officer satisfy a collection-stage verification duty.

Abuse of discretion in CDP review

Courts typically review CDP determinations for abuse of discretion. Here, because verification is mandatory, failure to verify compliance with an applicable law is treated as an abuse of discretion requiring reversal of the sustaining determination.

5. Conclusion

Besicorp v. Commissioner of Internal Revenue establishes a clear Second Circuit rule: in CDP hearings, Appeals Officers must verify compliance with the written supervisory approval requirement of § 6751(b)(1) as part of § 6330(c)(1)’s mandate to verify “any applicable law or administrative procedure,” even where the Tax Court has already finally adjudicated the underlying penalties and liabilities.

The decision is significant because it (i) rejects a common-sense-but-nontextual “no purpose after adjudication” limitation, (ii) preserves the distinct role of CDP as procedural oversight of collection tools, and (iii) meaningfully conditions the IRS’s access to liens and levies on demonstrable compliance with statutory penalty procedures—without reopening the merits of the underlying liabilities.