## Facts

- Planned Investments, Inc. (PI), a Michigan corporation, sold 115 interests in a tax-shelter investment (a master recording lease arrangement) in December 1982 and earned $64,000 in commissions, reported on its return for its fiscal period ending November 30, 1983.
- PI’s attorney advised in January 1983 that continued marketing could trigger an I.R.C. § 6700 promoter penalty; PI stopped selling.
- By late 1984 PI learned the IRS had classified the shelter as abusive, and PI met with the IRS in February and September 1985 to discuss PI’s sales and potential § 6700 liability.
- In March 1986 the IRS sent notice assessing a $64,000 § 6700 penalty, but the notice (1) stated an incorrect tax period ending in December 1985, (2) misstated the computation formula, and (3) did not describe the specific penalized activity.
- PI made a $150 partial payment and sought abatement/refund, asserting the notice was defective; the IRS disallowed the request in a letter again referencing tax year 1985.
- The district court granted summary judgment to PI, ordered the penalty abated, and found the notice did not provide fair notice because of the wrong period and other errors; the United States appealed.

## Issues

1. Whether an IRS notice assessing an I.R.C. § 6700 penalty is legally sufficient when it misstates the tax period, contains other clerical errors, and does not detail the underlying conduct.
2. Whether technical defects in the notice invalidate the assessment when the taxpayer had actual knowledge of the basis for the penalty and was not misled or prejudiced.

## Decision

- The Sixth Circuit reversed the summary judgment for PI and upheld the assessment.
- The court held the notice satisfied the statutory requirements for a § 6700 assessment and that any unfairness from the incorrect time period was cured by the parties’ prior dealings showing PI knew what conduct was targeted.
- The case was remanded for further proceedings consistent with sustaining the penalty and rejecting PI’s abatement/refund claim.

## Legal Principles

- An IRS notice of assessment for a § 6700 penalty need not follow a detailed format; substantial compliance is sufficient if the notice provides fair notice of the assessment.
- Fair notice is evaluated functionally and may be informed by the parties’ prior communications and dealings, not solely the face of the notice.
- Technical errors (including an incorrect tax period or flawed computation description) do not automatically invalidate a penalty assessment absent misleading effect or prejudice to the taxpayer.
- A taxpayer’s actual knowledge of the basis and amount of the assessment can cure clerical defects in the notice where the taxpayer retains a meaningful opportunity to contest the penalty.

## Conclusion

The Sixth Circuit held that clerical and technical errors in a § 6700 penalty notice did not void the assessment because PI had been discussing the same 1982 tax-shelter promotion with the IRS and therefore was not misled or prejudiced, making the notice adequate under a practical fair-notice standard.


Planned Invs., Inc. v. United States, 881 F.2d 340 (6th Cir. 1989)