You open your mail and an IRS notice shows up with a penalty on it. There is a dollar figure. There is a name for the penalty. What is often missing is any math showing how the IRS arrived at the penalty number.
Most taxpayers assume the IRS has to show its work. And there is a statute that says exactly that. Section 6751(a) says the IRS shall include a computation of the penalty with each notice of penalty. It is a command. But the statute stops there. It says nothing about what happens when the IRS ignores it.
So what is that violation actually worth? Is the penalty void? Or is it just a paperwork problem the IRS gets to shrug off?
The tax court took up that question in Groves v. Commissioner, T.C. Memo. 2026-86. The case provides an opportunity to consider when a missing penalty computation gets a taxpayer something, and when it gets them nothing at all.
Facts & Procedural History
Groves organized and sold investment transactions that the IRS characterized as “distressed asset debt deals.” The IRS viewed Groves a “promoter.”
In 2013, the IRS agent sent Groves’ attorney a Form 5701, Notice of Proposed Adjustment, along with a Form 886-A, Explanation of Items, and a stack of exhibits.
The IRS position was that the taxpayer was a tax shelter organizer under Section 6111, that the transactions had to be registered, and that the failure to register them triggered a penalty under Section 6707. The proposed penalty for the 2001 tax year was about $5.8 million. The Form 886-A showed the math. The penalty was one percent of ~$583 million in aggregate amounts invested. There was also a spreadsheet with the computation with it.
The Section 6707 penalty in this situation was imposed jointly and severally against everyone involved in the transactions. Each person was on the hook for the whole penalty, even though the IRS could only collect it once. Other participants settled and made payments. This brought the balance down.
In 2016, Groves’ attornney met with IRS LB&I division employees and with IRS Appeals. A presentation at that meeting included a reduced penalty of about $4.35 million, calculated by taking the original penalty and subtracting what others had paid.
Days later, the IRS issued a Form CP15, Notice of Penalty Charge, assessing the reduced amount. The notice did not include a computation of the reduced figure.
The IRS then filed a notice of federal tax lien and mailed the Letter 3172 that goes with it. The taxpayer filed a Form 12153 requesting a collection due process hearing. In the request, Groves’ attorney challenged the underlying liability and raised other arguments. He did not mention Section 6751(a) which imposes requirements that the IRS has to meet with respect to penalties.
After years of agreed postponements, the hearing finally happened in 2020, with new tax counsel. That is when the Section 6751(a) argument was raised for the first time. The notice does not include a penalty computation, so the taxpayer argued that the assessment is invalid.
The Settlement Officer disagreed. Her case activity record said the IRS fully complied because the computation had been provided through the Form 886-A and the exhibits. Appeals issued a notice of determination sustaining the lien filing.
Groves petitioned the U.S. Tax Court to contest the determination. He then moved for summary judgment on this one narrow ground.
What Does Section 6751(a) Actually Require?
So what does Section 6751(a) actually require?
The statute is short. It says the IRS shall include with each notice of penalty information about the name of the penalty, the section of the tax code under which the penalty is imposed, and a computation of the penalty.
Three items. Name, code section, math. This is not a new provision. Congress added it in 1998, and the legislative history says the point was to make sure taxpayers actually receive an explanation of the penalties being imposed on them. But the IRS had never really complied with these long standing requirements until a crafty tax attorney in another case pointed it out, and that resulted in a plethora of litigation confirming that penalties were in fact invalid because the IRS failed to follow these rules.
Section 6751 is better known for subsection (b), its other half for this reason. It is the part involved in that plethora of litigation. Subsection (b) is the supervisory approval requirement, and it has generated a mountain of litigation over the last decade. Subsection (a) is the neglected sibling. It gets raised far less often, which is part of what makes this case worth reading.
Here is the drafting problem. The statute says “shall.” It does not say what happens if the IRS does not. There is no invalidation clause. No abatement remedy. Nothing. Congress wrote a duty and then walked away from the consequences. This brings me back to my tax procedure class in law school, where the professor had us look for items in the tax code like this–maybe requirement with no teeth. There are a lot of these in our tax code.
What Happens When a Statute Says “Shall” and Stops There?
Courts have a default answer for this, and taxpayers generally do not like it.
When a statute imposes a requirement on the government but specifies no consequence for breaking it, courts often do not invent one. The Supreme Court has said that if a statute does not specify a consequence for noncompliance, federal courts will not in the ordinary course impose their own coercive sanction. That principle does a lot of work in tax procedure cases.
The tax court had already applied it to Section 6751(a) in Graev v. Commissioner, 147 T.C. 460 (2016). The taxpayers there challenged an accuracy-related penalty partly on Section 6751(a) grounds. The court found the IRS had complied. But it went further and said that even if the IRS had failed to include a computation, that failure would not invalidate the notice of the penalty. Procedural errors or omissions do not invalidate an administrative act unless the complaining party was prejudiced.
That is the rule. And it is a general rule, not an absolute one. There are situations where a statutory violation is treated as fatal regardless of harm. But absent something in the text pointing that direction, prejudice is the gate.
Is a Missing Computation a Defect or Just a Mistake?
The court found a useful comparison in Section 6631. This section requires the IRS to include a computation of interest with interest notices. The two provisions are structured the same way. They were enacted at the same time. Neither one says what happens on noncompliance.
In a prior case the court held that the IRS’s failure to include an interest computation did not invalidate the interest assessment where the taxpayer showed no prejudice. The court found that reasoning instructive here. It also pointed to earlier cases applying a prejudice analysis when the IRS failed to hand over an assessment record at a CDP hearing, and when the IRS left the petition deadline out of a notice of deficiency.
The pattern across those cases is consistent. A missing piece of required information in an IRS notice is a procedural error. It becomes a legal problem when it costs the taxpayer something.
The court made one more point that deserves attention. Congress enacted Section 6751(a) so taxpayers would get an explanation of their penalties. That does not mean every disagreement about how a penalty was calculated is a violation of the statute. Arguably there is a difference between “the IRS never told me how it got this number” and “the IRS told me and I think the number is wrong.” Only the first is a Section 6751(a) problem. The second is a fight about the merits. Or so one might think.
Why Prejudice Was the Whole Ballgame
The court agreed with the taxpayer on the threshold point. The Form CP15 did not include a computation of the reduced penalty. That was a procedural error. The IRS did not really contest it.
Then the analysis turned to harm, and the taxpayer had a problem. He never alleged that he was prejudiced. Not in his motion papers. Not anywhere.
His argument was that prejudice should not matter. Compliance with Section 6751(a), he said, is an element of the IRS’s penalty case and part of the IRS’s burden of production, so the IRS should not get to demand a showing of prejudice. The court rejected that as contrary to its caselaw. It also noted a simpler problem with the framing. Whoever carries the burden of production at trial, the party moving for summary judgment carries the burden of showing it is entitled to judgment right now.
And the record made the absence of prejudice hard to miss. The taxpayer had the original computation from 2013, spreadsheet included. He had the reduced computation explained to him at the 2016 conference, in person, days before the notice went out. He had been arguing the merits of the penalty for years. He never asked the IRS for an explanation of the reduced figure. As the court put it, he had no need to.
That is a hard fact pattern for a taxpayer. The statute exists to make sure you understand your penalty. It is difficult to claim you did not understand a penalty you had been fighting in detail for seven years.
What Would Prejudice Actually Look Like?
The court did not say, and that is the more interesting question for everyone else.
Start with the opposite fact pattern. A taxpayer receives a Form CP15 with a bare number on it. No Form 886-A. No proposed adjustment letter. No conference. Just an assessment. That taxpayer cannot evaluate whether the penalty is correct, cannot decide intelligently whether to pay or fight, and cannot frame a specific challenge in a collection due process hearing. That is real harm traceable to the missing computation, and it is a much stronger case than the one described by the court here.
There is a second scenario buried in these facts that the court passed over. This penalty was joint and several, and the assessed amount depended on credits for payments made by other people. The taxpayer did raise that at the hearing. He argued the IRS never explained how amounts paid by others were calculated or credited. That is arguably a pure notice failure. Without the computation, a jointly liable taxpayer has no way to verify the credits, and the credits are the only thing separating the original number from the assessed number.
The court did not treat that as a Section 6751(a) argument. It read the objection as a substantive dispute about the amount of the penalty, which belongs at trial and not in a notice-defect motion. The line between the two is narrower than the opinion makes it sound. A taxpayer who wants to preserve the notice-defect version of that argument would probably need to plead it as a failure to explain rather than as a disagreement with the result, and raise it in the hearing request rather than four years later.
Does Appeals Have to Verify Compliance at All?
There is an unresolved question sitting underneath all of this.
Under Section 6330(c)(1) and (3)(A), the Appeals Officer must verify that the requirements of applicable law and administrative procedure have been met before sustaining a collection action. The parties both assumed that duty covers Section 6751(a). The court accepted their position for purposes of deciding the motion. It did not hold that the duty exists.
That is noteworthy. A court of appeals recently held that the Section 6751(b) supervisory approval requirement is encompassed by the verification duty and is reviewed for abuse of discretion. Whether subsection (a) is included with it has not been squarely decided. Taxpayers should not assume it is settled.
On the facts, the Settlement Officer had verified compliance and explained why in her case activity record. Her reasoning tracked the court’s reasoning. The taxpayer had everything he needed to understand the calculation. So even under the taxpayer’s own framing of the duty, there was no abuse of discretion. And the court noted in passing that even a botched verification would not necessarily end the matter. The usual fix is a remand so Appeals can redo the verification, and there is no point in remanding when the outcome is not in doubt.
The Takeaway
Taxpayers reading a statute that says the IRS “shall” do something tend to assume a violation buys them relief. Usually it does not. When Congress imposes a duty on the IRS without stating a consequence, courts require a showing of harm before they will undo the assessment. A missing penalty computation is a procedural error, not an automatic defect. The practical instruction is to build the prejudice record early. Raise the missing computation in the hearing request, ask the IRS in writing to explain the number, and document what you could not evaluate without it. A notice defect you cannot tie to actual harm is worth very little.
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