IRS Must Get Supervisor OK Before Sending Penalty Notices: New Rule Aims to Protect Taxpayers

This bill, the IRS Accountability and Taxpayer Protection Act, introduces a significant procedural hurdle for the Internal Revenue Service before it can hit you with a penalty or start disallowing certain tax credits. Specifically, the IRS cannot formally notify a taxpayer about a penalty or a “disallowance period” (the time you can’t claim a credit like the Child Tax Credit or EITC after an error) unless the employee making the initial decision first gets written approval from their immediate supervisor. This sign-off must happen before the notice leaves the IRS office.

The New Two-Step Rule for Tax Penalties

Think of this as a mandatory double-check for the IRS. Right now, if an IRS agent determines you owe a penalty, that determination often goes straight into the system, leading to a notice in your mailbox. Under this new rule (SEC. 2), that agent must first go to their boss and get the green light. If the IRS sends you a penalty notice without that prior supervisor approval, the penalty is invalid. This applies to any notice sent after the law takes effect.

For the average person, this is a clear win for due process. It means that an individual agent can’t unilaterally decide your fate regarding a penalty; there’s an internal check built in to prevent hasty or erroneous assessments. For example, if a small business owner is facing a penalty for a minor reporting error, this extra layer of review should ensure the penalty is actually warranted and calculated correctly before the notice creates unnecessary stress and legal fees.

The Administrative Bottleneck

While this is good news for taxpayers who value procedural safeguards, it’s going to add friction to the system. The IRS processes millions of returns and issues countless notices annually. Requiring a supervisor to review and approve every single “initial determination” of a penalty or disallowance period could create a massive administrative bottleneck. This could slow down legitimate enforcement actions, potentially delaying the resolution of tax issues for everyone. The bill clarifies that an “initial determination” is the first written notice offering a specific penalty amount, which means routine inquiries or questions won't trigger the supervisor sign-off—only when the IRS is ready to apply the hammer.

More Transparency, More Paperwork

Beyond the supervisor sign-off, the Act mandates a major transparency upgrade. Within two years of enactment, and every year thereafter, the Treasury Secretary must produce a public report detailing all penalties assessed by the IRS in the prior year. This report must break down the data by every IRS unit, tracking the penalties from the initial decision all the way through assessment and final outcome. This level of detail will give the public and watchdogs an unprecedented look at how and where the IRS is applying penalties, holding the agency much more accountable for its enforcement practices. For busy people who want to know if the IRS is playing fair, this annual report is the data they’ve been waiting for.