Safdieh v. Commissioner - Tax Court Decision Appeal

25-501- cv Safdieh v. Comm ’r 1 In the 1 United Sta tes Co urt o f App eals 2 For the S ec ond Circ uit 3 ________ 4 A UGUST T ERM 2025 5 No. 25-501- cv 6 7 J OSEPH S AF DI EH, 8 Petitioner-Appellee, 9 10 v. 11 12 C OMMISSIONER OF I N TERNA L R EV ENUE, 13 Respondent-Appell a nt. 14 ________ 15 16 Appeal from the United States Tax Court. 17 ________ 18 19 A RGUED: D ECEMB ER 17, 2025 20 D ECIDED: F EBRUARY 27, 2026 21 ________ 22 23 Before: J ACOBS, C ABRANES, an d L OHI ER, Circuit Judges. 24 25 ________ 26 27 Respondent - Appellant, the Commissioner of Internal Revenue, 28 appeals from a Dece mber 5, 2024, order of the United States Tax Cour t 29

2 (Mark V. H olme s, Judge) gra ntin g su mmar y judgme nt t o Peti tioner - 1 Appell ee Joseph Safdieh. 2 The Commissioner assess ed Safdieh $50,000 in pen alties for 3 allege dly failing to r eport contro l of a foreign bus iness in tax years 4 2005–09. See I.R.C. § 6038(b). But th e Tax Cour t gran ted S afdieh 5 summary judg ment, reaso ning th at Congress did not empower the 6 Commissioner to collec t the penalties thr ough assessmen t, an 7 administrative pr ocess. If the Comm issioner wanted to collect the 8 pena lties, the Tax C ourt ruled, he had to g o to federal district court. 9 Seeing thing s differently, we hold th at the Comm iss ione r ma y 10 assess penalties under § 6038(b). Acc ordingly, we V ACATE the Tax 11 Court’s o rder granting Safdieh summary jud gmen t and REMAND 12 for furthe r proceedings consist ent with thi s opinion. 13 ________ 14 15 R OBERT J. W ILLE (Jennifer M. Rub in, on the brief), 16 T ax Division, Department of J ustice, W ashington, 17 DC, for Respondent-Appellant. 18 19 P ARKE R R I DER -L ONGM AI D (S hay Dvoretzky, 20 Armando Gomez, Sy lvia Tsakos, Eman Cuyler, 21 Sherry M. Ta nious, on the brief), Skadden, Arps, 22 Slate, Meagher & F lom LLP, Wash ington, DC, 23 and New York, N Y, for Petitioner-App ellee. 24 25

3 A UDREY P AT TEN, Legal Services Cent er of 1 Harvard Law Sch ool, Jamaica Pla in, MA, for 2 Amicus Curiae Center for Taxpayer Righ ts. 3 ________ 4 5 J OS É A. C ABRANES, Circuit Judg e: 6 The questi on presented is w hether Respondent - Appe lla nt, th e 7 Commissioner of Internal Revenue, can collect penalties under 8 Internal Revenue Code (“ I.R.C.”) § 6038(b) 1 through administ rative 9 assessment, or ins tead mus t obta in a judgment in fed eral district 10 court. 11 The C ommis sione r appeals from a Dece mber 5, 2024, orde r of 12 the United S tate s Tax Court (Mark V. Holmes, Judge) granting 13 Petitione r - Appellee Joseph Safdieh su mmary judg ment. 2 14 Safdieh allegedly fail ed to re port control of a foreign business 15 in violation of I.R.C. § 6038. Tha t provision carries a $10,000 pen alty 16 for each year durin g which s uch a reporting failure exi sts. 3 For 17 Safdieh, who allegedly fai led to report in tax years 2005– 09, the 18 pena lties add up to $ 50,000. 19 1 I.R.C. § 6038 requires “[e] very United State s per son [t o] fu rnis h, with respect to any foreign bu siness entity which suc h person co ntrols, su c h information as t he Secretary may p rescribe. . . .” I.R.C. § 6038(a). Thou gh the statute speaks o f the Secretar y of the Treas ury, the Secretary has delega ted his authority to administer and enforce the I.R.C. to the Commission er. See gene ral l y Treas. Reg. §§ 301.7 701-9, 301.6201-1(a), 301.7601- 1. 2 Safdieh v. Comm ’r, No. 11680-20L (T.C. Dec. 5, 2024). 3 I.R.C. § 6038(b)(1).

4 When Safdieh d id n ot pay the pe nalties, the Commissioner 1 filed notice of a feder al tax lien. Safdieh cha llenge d t he l ien before the 2 Independent Office of Appeals in a Collecti on Due Proce ss hearing. 4 3 When he los t that appeal, he petitioned the Tax Court for relief. 4 The Tax C ourt s ided with Safd ieh, gra nting hi m su mmar y 5 judgmen t. Its rationale was purely legal. It held that Congres s had 6 not statutori ly authorized t he Co mmissioner to collect the § 6 038(b) 7 penalt y through assessment, the administ rative process that records 8 a taxpayer’s liabilit y and triggers the Internal Revenue Servi ce’s 9 collec tion powe rs. 5 If the Commissi oner wished to pen alize Safdieh’s 10 reporting failures, the Cou rt held, he had to go to federal district 11 court. 12 In th is Court, w hether the Comm iss ione r may assess the 13 penalty for fail ure to report con trol of a foreign business unde r 14 § 6038(b) is a new question. Like the D.C. Circui t, 6 the only o the r 15 court of appeals to h ave decided the issue, w e hold that he can. 16 DISCUSSION 17 The IRS normally does n ot have to go to federal distr ict co ur t 18 to ta ke taxpayers’ money, though some might w ish it did. Only in 19 4 See general ly Farhy v. Comm'r, 100 F.4th 22 3, 227 (D.C. Cir. 2024). A Collection Due Process hearing gi ves the taxpayer a chanc e for a hi ghly “ informal oral or written convers ation with the IRS befo re he must pay.” Id. (citation omitted). 5 See Safd ieh, No. 11680- 20L at 1–2. 6 Farhy, 100 F.4t h at 223.

5 rare insta nces is a lawsuit necessary. 7 T he agency can instead usually 1 collec t taxpa yer s’ li ab ilities th roug h “ass essment.” T he power of 2 assessment is vit al, handing the Commissioner the too ls needed to 3 collec t “ a ll taxes.” 8 As such, assessment is commonplace in tax 4 collec tion. 5 Take the familiar exa mple of a taxpayer a dding up how much 6 she owes Un cle Sam and mailin g of f her re turn with the payment due. 7 This process i s “se lf - assessment,” 9 which one Co mmiss ione r c alle d a 8 “marvel of the world.” 10 T he Co m missi one r w ill norma lly accep t the 9 taxpayer’s self - asses sment. But if the t axpayer doe s not file a tax 10 return or m isstates what she owes, th e C omm ission er w ill c alc ulat e 11 the tax lia bility on her behalf and reco rd it in the government’s 12 books. 11 13 A ssessment does much more than kee p the IRS’s books in good 14 order. It pla ys the sin gular role of triggerin g an all - impor tant pr ocess: 15 collec tion. “[I] t is the assessment, and onl y the assessment, that sets 16 in motion the collection powers of the IRS.” 12 Those powers allo w the 17 7 Id. at 226. 8 I.R.C. § 6201(a) (emp hasis added). 9 United S tates v. G allett i, 541 U.S. 114, 122 (2004). 10 Bob K uttner, The Taxing T rials o f I.R.S., N.Y. Times, Jan. 6, 1974, https://www.nytimes. com/1974 /01/06/archives/t he- tax in g - trials - of - irs - wh ite - ho use - heat -and-artful- do dging.html. 11 Galletti, 5 41 U.S. at 122. 12 Phila. & Reading Corp. v. United S tates, 944 F.2d 1063, 106 4 n.1 (3d Ci r. 1991).

6 IRS to seize assets, fre eze bank accounts, an d create liens — all w ithou t 1 setting f oot in a court room. 13 2 We have noted that these tools, “ wh ich quite ob vio usly p lace 3 the Gov ernment in a better positi on to collect o n alleged tax debts 4 than individuals see king to col lect on pr ivate debts, are said to be 5 necessary because. .. ‘ taxes are the l ife - blood of gove rnmen t, and 6 their prompt and certain availabi lity an imperious need.’” 14 7 Critical to this case, the Commissioner’s assessment power 8 extends beyond “all taxes” to include “assessable penalties.” 15 There 9 is no q ues tion that the dollar amount at issue here is a “penalty”: t he 10 statute says so outr igh t. 16 The only dou bt is whether th is penalty is 11 “ assessable.” Though the great Professor Boris Bittker an d his 12 coauthors observed t hat “[v]irtually al l civil penalties are as sessed,” 17 13 Safdieh contends tha t § 6038(b) is an ex ception. 14 Section 6038(b)’s te xt is s ile nt as to wh ether the pena lty is 15 assessable. 18 In this s e nse, it is u nlik e the pr ovis ions in the I.R.C. th at 16 13 I d. That said, the IRS may have to go to court if the taxpayer challenges the assessment. Se e gener ally Farh y, 100 F.4th at 226–28. 14 Uni te d St ates v. Fo rma, 42 F.3d 759, 766 (2d Cir. 1994) (qu oti ng Bull v. United S tates, 295 U.S. 24 7, 259 (1935)). 15 I.R.C. § 6201(a). 16 Id. § 6038(b) (“s uch person shall pay a penalty of $10,000”). 17 Boris I. Bittker, Martin J. McMahon & Lawrence Zelenak, Fede ral Income Taxat ion of In div idua ls ¶ 5 0.03 (3d ed. 2002). 18 The core of the pe nalty pr ovision reads:

7 expressly allow, or b ar, assessment. 19 Section 6201(a), which cove rs 1 the Commissioner’s assessment authority, is like wis e si lent. Tha t 2 ambiguity has not stopped the part ies from claiming the text s of t hese 3 provisions for thems elves. B ut b ecause the ir argumen ts stru ggle to 4 make sense out of si lence, we do not parse the m here. 5 We inste ad focus on § 6038(b)’s history, purpose, a nd 6 structure 20 — including the text of a key co ordination clause — which 7 l ead us to hold that th e p enalt y is assessable. 21 There are three reason s 8 why. 9 I. 10 First, the history of § 6038(b) strong ly sug gests that the pena lty 11 is assessable. 12 If any person fai ls to furnish, within the time prescribed under paragraph (2) of subsection (a), any informatio n with res pect to any for eign busin ess entity required under par agraph (1) of subsecti on (a), such person sh all pay a penalty of $ 10,000 for eac h annual accounting period with respect to which such failure e xists. I.R.C. § 6038(b)(1). Despite t he parties’ attemp ts at exegesis, the text simp ly does not say whether t he penalty is, or is not, assessabl e. 19 C ontrast, e.g., I.R.C. § 527(j)(1) (“shall be asse ssed”), with id. § 7 269 (“to be recovered .. . in a civil ac tion”). 20 Accor d, e.g., Concrete P i pe & P rods. of Cal., Inc. v. Constr. L aborers Pen sion Tr. for S. Cal., 508 U.S. 60 2, 627 & n. 16 (1993). 21 Our rev iew is de novo. Maier v. C omm ’r, 360 F.3d 361, 363 (2d Cir. 2004).

8 Start by unde rstand ing the r eason for § 6038(b) ’s existence. At 1 the time of its enact ment in 1982, there already existed a pena lty for a 2 taxpayer’s failure to r eport control of a fore ign business: a 10 - percent 3 reduction of the v iolator’s foreign tax cr edit. 22 This pr ov isio n w as 4 assessable, mean ing that the Comm issioner did not have t o go to 5 court to c ollec t it. 23 6 Even so, the pro vision was too hard to us e. As a Senate report 7 put it, “penalties ge nerally are not impos ed.” 24 This wa s par tly 8 “because the penalt y is complicated.” 25 It was “ unduly har sh” to 9 taxpayers who “co uld incur a substa ntial pena lty for a m inor 10 failure.” 26 And it was toothless in the case s of taxpayers who paid no 11 foreign taxes, and s o had no foreig n tax cre dit to reduce. 27 12 Under- enforcement resul ted, and t he Senate heard “co mplaints 13 about i nadequate report ing with respect to cont rolled foreig n 14 corporations.” 28 In other words, even though t he Commissioner did 15 not have to go to district court and cou ld assess the penalty, the 16 22 Farhy, 100 F.4th at 228 (ci tin g Act of Sept. 14, 19 60, Pub. L. No. 86 - 780, § 6(a), 74 Stat. 1010, 1014 –16; Revenue Act of 1962, Pub. L. No. 87 - 834, § 2 0(a), 76 Stat. 960, 1059–60)). This pro vision is now cod ified at I.R.C. § 6038(c). 23 Farhy, 100 F.4th at 23 1; see also Appellee’s Letter (Jan. 7, 2026) at 2 (conceding that the § 6038(c) penalty is assessable). That the existing pena lty was assessable may explain why Congress did not spe cify that the new, supplemental penalty was also to be assessable. 24 S. Rep. No. 97 -494(I), at 299 (1982), as rep rinted in 1982 U.S.C.C.A.N. 781, 1042. 25 Id. 26 Id. 27 Id. 28 Id.

9 process was cumber so me. To supple ment this assessable tax - credit 1 penalty, Congress enacted § 6038(b)’s do llar penalty. 2 As the Senate report makes cle ar in noting the problem of 3 under - enforcement, Congress want ed to make it easier, not harder, 4 for the IRS to penalize report ing failures. If an assessab le penalt y was 5 too “complicated” to impose (as the Se nate report sa id), a non - 6 assessable one wou ld be even more so. 7 Yet Safd ieh ar gues t hat Congress made t he new dol lar pena lty 8 non- assessable anyway. In his view, Congress required the tax 9 collector to make a de tour to the nearest f ederal district court to wage 10 a legal battle for the money. T hat se e ms imp laus ib le. It is u n like ly 11 that Con gress would have wished to put even more logs in the way 12 of the tax harves ter when its stated a im was to c lear the road. 29 13 Indeed, the IRS got t he message fr om the start and has asse ssed 14 the penal ty ever si nce it s e nactment in 1982. 30 Given Congress’s aim 15 29 This c onclusion finds further su pport in a Committee Pr int accompanying the Tax Compliance Act of 1982, a bill whi ch contained the same language that would w ork its way in to § 6038(b). Compare Ta x Compliance Act of 1982, H.R. 6300, 97t h Cong. § 41 1(b) (1982), with Tax Equity and Fiscal Responsibility Ac t of 1982, H.R. 49 61, 97th Co ng. § 338(b) (1982). The Committee Print indicates that t he fixed doll ar penalty was meant to “simplify the penalty for failure to f urnish inform ation” by “giv[ing] I nternal Reven ue Service ag ents a simple straight- forward penalty to impose where reports. . . are not f iled or a re inadequate.” Staff of Joint Comm. o n Taxatio n, Comparative Descr iption of H.R. 6300 and H.R. 5829 at 30 (Comm. Pri nt 1982). Safdieh asks us to co nclude that the § 6038(b) pe nalty can be coll ected onl y through a civil suit filed by the Department of J ustice. This is h ardly a “simple st raight- forward penalty” that “Internal Reven ue Service agents” ca n “impose.” 30 Farhy, 100 F.4t h at 229– 30, 236.

10 in enacting the prov ision, the IRS’s ear ly (and consistent) vie w of the 1 statute is unsur prisin g. As evidence of the statute’s origina l meaning, 2 it deserves substantial weight. 31 3 What is more, in the forty - three years sinc e enacting the 4 provision, Congres s has ne ver, to our knowledge, q uestione d the 5 IRS’s practice. In fact, it has acqu iesced. “The failure of Cong ress to 6 alter or amen d [a statu te], no twithstanding this consistent 7 construc tion by the department charged with its enforcement, creates 8 a presumption in fav or of the administra tive interpretat ion, to which 9 we should give g reat weight.” 32 Congress has amended § 6038 seven 10 times since first enacting the dollar penalty in 1982, most recently i n 11 2017. 33 Yet, on each amendment, it has do ne nothing to curb the use 12 of assessment. 13 31 To be clear, we can not and do not “defer” to the IRS’s interpretatio n of the provisio n. Con t ra Chevron, U.S.A., Inc. v. Na t. Res. De f. Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enters. v. Ra imondo, 603 U.S. 369 (2024). Rather, in ou r de novo quest to sa y what the la w is, we look to the IRS ’s contempor aneous understanding o f the statute as evide nce of its ori ginal meani ng. To a sk what t he law meant to its intend ed audience at the time of enactment is a well - worn interpretive tool in the face of te xtual ambiguity, one that p redates C hevr on. See, e.g., F.T.C. v. Mandel Bro s., Inc., 359 U.S. 385, 391 (1959) (collecting cases); Shen v. Esperdy, 428 F.2d 293, 30 1–0 2 (2d Cir. 1970). It is no t unique to administrati ve law, either. See, e.g., Consumer Fin. Prot. Bureau v. Cmty. Fin. Servs. As s'n of Am., Ltd., 601 U.S. 416, 432 (2024) (constitutional law); Ch octaw Na tion of Indian s v. United States, 318 U.S. 423, 431–32 (1943) (treaty law); Clark v. Ca rolina & Yad kin River Ry. Co., 122 N.E. 453, 454 (N.Y. 1919) (contract law). Nothing in Loper Br ight forecloses courts from considering this kind of evidence. 32 Costanzo v. Ti llingha st, 287 U.S. 341, 34 5 (1932); accord, e.g., Commodity Futures T rading Co mm'n v. Schor, 47 8 U.S. 833, 84 6 (1986). 33 I.R.C. § 6038; see al so Farhy, 100 F.4th at 236.

11 And contrary to Safdieh’s cla im, Congress’s acquiescence was 1 not born of ignoranc e. The le gislature knew of the C ommiss ioner’s 2 view that he co uld assess penalti es under § 6038(b). 34 Congress’s 3 decisi on not to challenge the Commi ssioner’s assessm ent power over 4 the course of four de cades and seven a mendments thus se ems to be a 5 choice. 6 Other histor ical con text backs up our conclusion that the 7 penalty is assessable. At the time of the penalty’s enactme nt, the 8 backlog of pen din g c ivil cases in federal district court had surg ed to a 9 record high. 35 The sa me year that § 603 8(b) became law, C on gr ess 10 enacted t he Federal Courts I mprovement Act with t he overriding aim 11 of clearing that p ile up. 36 It seems improbable tha t amid this cr isis 12 Congress requi red the Commissioner t o mount a potentially 13 protracted fede ral cas e to stand any ch ance of col lecting a modest 14 penalty. 15 That conclusion is reinforced by the fact t hat the penalty was 16 magnitudes l ower then than now, both in real and nominal terms. 17 34 See, e.g., Treasury an d Gen eral Gov ernmen t Appro priati ons for F iscal Y ear 1998: Hearings B efore a Su bcomm. o f the S. Co mm. o n Appropr iations, 105t h Cong. 254 (1998) (discussing a pr oposal to “allow ta xpayers an ad minis tra tive appeal prior to the payment of the pe nalty”) (emphas is added). An administrative app eal before payment would mak e sense i f the admin istrative agency, a nd not an Ar ticle III court, were to impose t he penalty. 35 Administrative Office of the United Stat es Courts, Rep ort of the Proceed ings of t he Judic i al C onference of t he Un ited States: Marc h 11 – 12, 1982, at 4 (1982), https://share.g oogle/SWT3p20g ILYLEDsfT [https:/ /perma.cc/XN 5Q- BT3V ]. 36 R. Anthony Howard, Jr., Note, The Fed eral Cou rts I mprove ment Ac t of 1982: No Re lief for th e D isapp oin ted B idde r, 11 J. Legis. 403, 418 (1 984).

12 The original pen alty was $1, 000 (that’s $3,400 in today’s money). 37 Fo r 1 perspecti ve, at that time a diversity case could get into federal court 2 only if it was worth at least ten times the penalty’s amoun t — a floor 3 that, in just six ye ars, Congres s would raise to fif ty times the 4 amount. 38 Saddling th e Commissione r with a fe deral case over such 5 a small s um would hamper the federal courts and the Commissioner 6 at a tim e when the evidence su ggests that Congress wi shed to reliev e 7 both. 39 8 Safdieh responds that go ing to feder al cour t for the pena lty, 9 which now stands a t $10,000 a year, could nonetheless be worth th e 10 Comm issio ner’ s t ro uble, s ince “ [r] eporting failures across several 11 years can result in pe nalties of more than $100,000.” 40 But Safdieh 12 points to no evidence showing that Congres s meant to make it 13 worthwhile to p ursue on ly serial offende rs. Such an appro ach woul d 14 37 See Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97 - 248, § 338, 96 Stat. 324, 631 (1982); CP I Inflation Calc ulato r, U.S. Bureau of Labor Statistics, https:// www.bls.gov/data/i nflationcalculator. htm. 38 Ju dicial Improveme nts and Access to Justice Act, Pub. L. No. 100 - 70 2, § 201 (a), 102 Stat. 46 42, 4646 (1988) (raising the amount - in - controversy requirement for divers ity jurisdict ion from $10,0 00 to $50,000). 39 At first glance, it seem s that the Internal Revenue Code makes lesser penalties recover able in a civil action only. See I.R.C. § 5761 (a) ($1,000); § 7269 ($500). First glances mislead. Wh en Congress set those penalties in 1954, they were, in i nflatio n - adjust ed terms, 3.6 and 1.8 times higher respectively than the origina l $1,000 § 6038 (b) penalty t hat Congress enacted in 1982. See Inte rn al Revenue Code of 1954, 6 8A Stat. 3, 736, 8 65 (1954); CPI Inflat ion Calc ulator, U.S. Bureau of Labor Statistics, https: //www.bls.gov /data/inflationcalc ulator.htm. 40 Appelle e’s Br. at 63; c f. Mukhi v. Comm'r, 163 T. C. 150, 173 (202 4).

13 allow tax - reporting failures — so long as ther e were not too m any of 1 them. We have no re ason to bel ieve that was Congress’s inten t. 41 2 II. 3 Second, requiring the Com missi oner to sue for § 6038(b) 4 pena lties wou ld ba dly d isr upt the sec tion’s overall enforcement 5 scheme, defeating C ongress’s des ign. 6 To see why, und erstand that Congress expect ed § 6038(b) to 7 work in concert with another provision, § 6038(c). That provision, 8 briefly noted above, penalizes fai lure to repor t control of a fore ign 9 business with a 10- percent reduction of the taxpayer’ s foreign tax 10 credit. 42 But that pena lty does not work in isola tion. A coordination 11 clause red uces “ [t] he amount of the red uction. . . by the a mount o f 12 the penalty imposed by subse ction (b) ”— that is, by the ye arly doll ar 13 penalty. 43 14 The coordination clause sugges ts that C ongress meant for the 15 Commissioner to be able to impose the sub section (b) and (c) pe nalties 16 41 Similarly, we are not swayed by Safdieh’s claim t hat the Department of Ju sti c e “ generally collect s” another $10,000 p enalty by suing i n district court. See Appellee’s Br. at 64 (citing 31 U.S.C. § 5321(a)(5)(B)(i)). To st art, this other penalty is in fact also asses sable, as S afdieh concedes. S ee id. (citing 31 U.S.C. § 53 21(b)). It is thus undisp uted that C ongress gave t he Executive a c hoice betwee n assessing that penalty or goi ng to court. And wh ile it is true that the Execut ive sometimes does go to court, the cases in which it does so ro utinely have more than $10,000 at stake. See Mukh i, 163 T.C. at 174 n.12 (collect ing cases). A federal ca se may not be worthwhile when le sser amou nts are in controver sy. See F arhy, 100 F.4th at 232. 42 I.R.C. § 6038(c)(1). 43 Id. § 6038(c)(3).

14 at the same time. Under S afdieh’s argument, however, that w ould be 1 impossible. Before the Commissioner could coordin ate the two 2 penalties, he would have to aw ait a fe deral d istrict court’s entr y of 3 judgment for the su bsection (b) penalty. Only then could he know 4 “the amount of the pe nalty imposed by subsection (b)” an d reduce 5 the subsection (c) penalty accordingly. 6 “ To agree with that reading, we would h ave to conclude that, 7 in enacting subs ection (b), Congress n ot only failed in its avowed 8 quest to streamline, but also counterprod uctively threw san d in the 9 gears of section 6038’s e xisting enforcement sche me. ” 44 We giv e 10 Congress more c redit than that. 11 Safdieh’s view of th e law woul d greatly co mplicate the 12 penalt y’s collecti on. If the Com missioner were t o seek pen alties 13 under subsections (b) and (c), there migh t be proceedings in f ederal 14 distri ct court for the former and in the T ax Court for th e latter. 45 Both 15 courts might have to address the same q uestions. D id the taxpayer 16 really control the business d uring the relevant years? Did the 17 business count as a “forei gn business ent ity”? Were t here any 18 defenses, such as r easonable cause? 46 The duplication of effort would 19 be wasteful. 20 44 Farhy, 100 F.4t h at 232 – 33. 45 Id. at 234. Safdieh argues that i t is unlike ly that th e Commissioner would use subsections (b) a nd (c) at once. But l ikelihood is beside the point since Congress intended the dual option to be available. 46 Id.

15 Once one of the two relevan t courts res olves the issue s, 1 questions of prec lusion may arise. It has long been the law that 2 “w here a quest ion of fact essential to the ju dgment is act ually lit igated 3 and determi ned in the first t ax proceeding, the parties are boun d by 4 that determination in a subsequent proceeding.” 47 Taking no te of 5 this, parti es may try to game the proceedings b y rushing to judgment 6 in the “rig ht” court and erect ing barri ers to judgment in the “wrong” 7 one. 8 All this complicates the penalization of t ax - reporting fai lures 9 and promotes games manship. Could that have been the known effect 10 of a provis ion that aimed to simplify things — to ma ke a penalty less 11 “complicated” and the tools of enforcement ea sier to wield? We 12 doubt it. 13 III. 14 Third, if the Commissioner cannot ass ess the § 6038(b) penalty, 15 what litigation auth ority does he have to s ue for it? 16 Safdieh cites 28 U.S. C. § 2461(a) as the Commissioner ’s “only” 17 collec tion auth ority. 48 This provision pr ovides that “[w] henever a 18 civil fin e, penalty or pecuniary fo rfeiture is prescribed for the 19 47 Comm'r v. Sunnen, 333 U.S. 591, 6 01 (1948) (citing The Evergreens v. Nu nan, 141 F.2d 927 (2d Cir. 1944) (L. Ha nd, J.)); se e also Farhy, 100 F.4t h at 234 (citing Burrows v. United S tates, 945 F.2d 408 (9th Cir. 199 1) (unp ublis hed tabl e decis ion)). 48 Appellee’s Br. at 38.

16 violation of an Act of Congress with out specifying the mode of 1 recovery or enf orcement thereo f, it may be recovered in a civil acti on. ” 2 One pr oblem w ith this ar gumen t is that § 2461(a) is not in the 3 I.R.C. Congress inste ad directed that it be codified in Title 28, which 4 concerns the judiciary. 49 That plac emen t is tell ing. 50 5 Even more rev ealingly, in t he thirty - four years betw een this 6 provision’s enact ment in 1948 and the dollar penalty ’s enactment in 7 1982, the provision was never used to co llect a tax or tax pe na lty. 51 It 8 is doubtful t hat Congress silently mean t to require the Commission er 9 to look for the firs t ti me to this provis ion outside the I.R.C. to be able 10 to do his job. 11 In su m, § 6038(b)’s h istory, pur pose, and structure a ll point in 12 the same direction: the penalty is assessa ble. 13 CONCLUSION 14 For the reasons se t out above, we hold that the C ommissioner 15 can assess pen alties incurred under § 6038(b). Accor dingl y, we 16 49 A n Act to revise, cod ify, an d enact into law title 28 of the United Sta tes Code entitle d “Judicial Code and Judiciary,” Pub. L. No. 80 - 773, § 2461(a), 62 Stat. 869, 974 (1948). 50 See, e.g., Yates v. Uni ted St at es, 574 U.S. 528, 5 41 –42 (2015) (plurality opinio n). 51 Neither the Court nor the parties have been able to find any such example. App ellant’s Letter (Jan. 7, 2026) at 1; Appellee’s Lette r (Jan. 7, 2026) a t 2.

17 VACATE the judgment of the Tax Court and REMAND for further 1 proceedings consistent wi th th is op inio n. 2