Winning in Tax Court Isn't the End of the Story Anymore
Imagine you fought the IRS over a penalty, lost in Tax Court, and assumed the case was closed — the liability final, the only question left being how you'd pay it. Six corporations that owed a combined $380 million in penalties from a tax-shelter dispute discovered otherwise. On June 29, 2026, the Second Circuit Court of Appeals ruled that the IRS still can't collect those penalties through a lien or levy, because the Appeals Officer running their collection hearing never actually verified that a supervisor had signed off on the penalty before it was assessed.
The case, Besicorp Group, Inc. v. Commissioner, doesn't erase the underlying tax debt. But it draws a hard line around what the IRS has to prove — and re-prove — before it can start seizing property to collect a penalty, even years after a taxpayer has already lost the fight over whether the penalty was valid in the first place. For any small business owner who has ever received a lien notice or levy threat from the IRS, the ruling is a reminder that collection isn't automatic just because a liability is final — and that the procedural fine print can matter as much as the substantive dispute.
What Actually Happened in Besicorp
The taxpayers in this case were corporations involved in tax-shelter transactions between 1999 and 2003. After an audit, the IRS determined the transactions lacked economic substance and assessed penalties — ranging from roughly $13 million to as much as $200 million per entity — on top of the underlying deficiencies. The taxpayers challenged the penalties in Tax Court and lost; the liabilities became final.
That should have been the end of it. Instead, when the IRS moved to collect through federal tax liens and levies, the taxpayers requested Collection Due Process (CDP) hearings — a right guaranteed under IRC §§ 6320 and 6330 any time the IRS files a lien or threatens a levy. At that hearing, the assigned Appeals Officer is legally required to "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met" before the IRS can proceed with collection.
The taxpayers argued the Appeals Officer never actually verified one specific requirement: that a supervisor had personally approved the penalty in writing before it was assessed, as IRC § 6751(b)(1) requires. The IRS's position was straightforward — the penalties had already been fully litigated and upheld in Tax Court, so there was nothing left to verify. The Second Circuit disagreed, reviving the taxpayers' challenge and sending the case back for further proceedings.
Why "Shall" Means "Shall"
The court's reasoning turned on plain statutory language. Section 6330(c)(1) says the Appeals Officer "shall" obtain verification — not "may," not "should if convenient." The Second Circuit read that as an unmistakably mandatory duty, one that doesn't get satisfied just because a court somewhere else already ruled the penalty itself was valid.
That distinction matters because supervisory approval and penalty validity are two different questions. A penalty can be legally correct on the merits — the taxpayer really did underpay, the accuracy-related penalty really does apply — and still be procedurally defective if no supervisor signed off on it in writing before the notice of deficiency went out. Courts have been sorting through this since the Second Circuit's earlier decision in Graev and the Tax Court's Chai opinion established that § 6751(b) approval is a strict prerequisite to a valid penalty assessment, not a technicality. Besicorp extends that logic one step further: even after the underlying liability is final, the IRS still has to show its work on approval before it can enforce collection through a lien or levy.
Practically, timing is the trap. Supervisory approval has to happen no later than the date the IRS issues the notice of deficiency — it can't be obtained retroactively to patch a hole discovered later. If the IRS can't produce that paper trail, the verification requirement isn't met, full stop.
What This Doesn't Do
It's worth being precise about the limits of this ruling, because it's easy to overread a win like this. The Second Circuit did not:
- Erase the tax debt. The underlying deficiency and penalty are still legally owed. Besicorp only blocks one collection method — liens and levies pursued through the CDP process.
- Bar the IRS from collecting entirely. The IRS can still pursue a judgment through federal district court under IRC §§ 7401 and following, which is a separate track from the administrative lien/levy machinery.
- Reopen the merits. Res judicata still applies to the question of whether the penalty itself was correctly determined. What's back on the table is narrowly the procedural verification question — did anyone actually check the paperwork.
So this is a shield, not a sword. It buys time and leverage, and in some cases it forces the IRS to abandon collection through the easiest available channel. It doesn't make the debt disappear.
What a Small Business Should Actually Do With This
Most small businesses will never see a $380 million penalty, but the mechanics here apply just as much to a $40,000 payroll-tax penalty as to a nine-figure shelter case. If your business gets a Notice of Federal Tax Lien or a Final Notice of Intent to Levy:
- Don't miss the 30-day window. You have 30 days from the date on the notice to file Form 12153 and request a CDP hearing. Miss it, and you lose the right to a formal hearing — this protection only exists inside that process.
- Ask for the supervisory-approval documentation specifically. If a penalty is part of what's being collected, ask the Appeals Officer directly whether written supervisory approval was obtained, and when. Don't assume it was checked just because the liability is final.
- Separate the penalty from the tax and interest. Besicorp's verification argument only reaches penalties subject to § 6751(b) approval requirements — it has no bearing on the underlying tax or interest owed, which the IRS can still collect through normal channels.
- Get the paperwork, not just the phone call. If the IRS claims approval was obtained, ask for the actual signed approval form and the date. A verbal assurance from the Appeals Officer that "it was checked" is exactly the kind of gap Besicorp says isn't good enough.
- Loop in a tax professional before the hearing, not after. CDP hearings are informal but final — whatever record you build there is largely what an appellate court will review later if you need to escalate.
The Paper Trail Is the Whole Point
Cases like Besicorp keep landing the same way: not on whether a business owed money, but on whether the IRS followed its own rules while collecting it. That's a pattern worth internalizing beyond tax disputes — the businesses that come out ahead in any dispute with a regulator are usually the ones who can produce a clean, dated record of exactly what happened and when, and who can just as easily ask the other side to do the same.
The same discipline applies to your own books. If your business's financial records are a mess of screenshots, half-remembered bank transfers, and a spreadsheet nobody's updated since March, you're in a weak position the moment any of this becomes a dispute — with the IRS, a lender, or a business partner. Beancount.io gives you plain-text accounting with a full version history: every entry is dated, auditable, and traceable back to its source, so when someone asks "when did this happen and who approved it," you have an answer instead of a guess.
Simplify Your Financial Management
Fighting the IRS over penalty procedure is hard enough without also having to reconstruct your own transaction history under pressure. Beancount.io offers plain-text accounting that's transparent, version-controlled, and AI-ready, so your financial records are always audit-ready — no black boxes, no scrambling to piece together what happened months later. Get started for free and see why developers and finance professionals are switching to plain-text accounting.