A penalty recommendation report is the internal CRA document in which an auditor sets out the facts and reasoning supporting a proposed gross negligence penalty under subsection 163(2) of the Income Tax Act. Because the burden of proving such a penalty rests on the CRA, the report is central to any defence.
If the report contains a defect, or if no report was prepared at all, the penalty can be dismissed. A taxpayer challenging a gross negligence penalty should always request the penalty recommendation report, which often reveals that the penalty was recommended on thin or generic grounds that cannot meet the high legal threshold the provision requires.