Opinion
30791-21
11-30-2022
GREEN COVE ROCK, LLC, GH MANAGER, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph Robert Goeke Judge
On May 20, 2022, respondent filed a Motion for Partial Summary Judgment that he complied with the supervisory approval requirements of section 6751(b)(1), and on October 19, 2022, filed a First Supplement to Motion for Partial Summary Judgment. On November 10, 2022, petitioner filed a Response to First Supplement to Motion for Partial Summary Judgment, objecting to the respondent's Motion.
All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure
Standards for Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Id. However, the nonmoving party may not rest upon the mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
Background
The following background is based on the parties' pleading, motion papers, declarations and exhibits attached thereto. In the Petition, petitioner asserted that Green Cove Rock, LLC, had a mailing address in Georgia and a principal place of business in Florida when the Petition was filed. Accordingly, this case would be appealable to the Eleventh Circuit. See § 7482(b)(1)(E).
In a Notice of Final Partnership Administrative Adjustment (FPAA) dated August 24, 2021, respondent determined a fraud penalty under section 6663(a), and alternatively, penalties for a gross valuation misstatement under section 6662(h), a reportable transaction understatement under section 6662A, a substantial valuation misstatement under section 6662(e), and negligence or substantial understatement under section 662(a) (exam penalties).
Revenue Agent (RA) Kenneth G. Klein made the initial determination to assert the exam penalties, and his immediate supervisor, Supervisory RA Loretta Mills, approved the determination in writing on June 20, 2019, with an electronic signature on a penalty leadsheet and Form 5701, Notice of Proposed Adjustment. By Letter 1807, dated June 24, 2019, which enclosed a copy of the RA's summary report, respondent first formally communicated the exam penalty determinations to petitioner.
Anita Gill, Senior Counsel with the Office of Chief Counsel, reviewed a draft FPAA, and prepared a penalty recommendation memorandum for her immediate supervisor, Associate Area Counsel Mark Miller, that recommended assertion of the fraud penalty. Mr. Miller signed the memorandum on July 18, 2021. Ms. Gill communicated her recommendation that the fraud penalty be asserted to RA Klien. On July 22, 2021, RA Klein and RA Mills issued a penalty assessment memorandum to Ms. Gill, with their signatures affixed, in which they concurred that the fraud penalty should be asserted. Respondent first formally communicated the fraud penalty determination to petitioner in the FPAA.
Discussion
Section 6751(b)(1) provides that "No penalty ... shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate."
On September 13, 2022, the Court of Appeals for the Eleventh Circuit held in Kroner v. Commissioner, 48 F.4th 1272, 1274 (11th Cir. 2022), rev'g in part, T.C. Memo. 2020-73, that section 6751(b)(1) requires supervisory approval to occur before the penalty is assessed. By Order dated September 29, 2022, the Court directed the parties to address the applicability of Kroner to the facts of this case. See Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970) aff'd, 445 F.2d 985 (10th Cir. 1971).
Assessment has not yet occurred with respect to the penalties. However, the Eleventh Circuit suggested in Kroner that section 6751(b)(1) may require approval before the supervisor loses discretion over whether to approve the penalty determination. The Eleventh Circuit left that issue unresolved. Kroner, at 1279, n.1.
There is no genuine dispute of material fact that respondent has complied with section 6751(b)(1) with respect to the exam penalties. Accordingly, he is entitled to summary adjudication on that issue.
When the facts and inferences therefrom are viewed in the light most favorable to petitioner, respondent has established through declarations and exhibits attached thereto the facts relating to initial determinations and written supervisory approval for the exam penalties, and there is no genuine dispute of material fact that respondent has complied with the section 6751(b)(1) supervisory approval requirements as set forth by this Court. See Belair Woods, LLC v. Commissioner, 154 T.C. 1 (2020); Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 83 (2019). Petitioner has made various allegations concerning initial determinations and supervisory approval which this Court has repeatedly rejected. See Patel v. Commissioner, T.C. Memo. 2020-133, at *9; Raifman v. Commissioner, T.C. Memo. 2018-101, at *21.
In his Motion, respondent asserts that Ms. Gill made the initial determination to assert the fraud penalty and that her supervisor, Mr. Miller, personally approved the determination. Respondent has not established which individual had authority to make an initial determination to assert the fraud penalty after the exam had progressed to the stage where a FPAA had been drafted for review by the Office of Chief Counsel. Nor has he established which individual had authority to provide written supervisory approval at that administrative stage. Our decision to sustain the fraud penalty determination could cause the appropriate supervisor to lose discretion to approve it before assessment. Accordingly, there is a genuine dispute of material fact with respect to whether respondent has complied with section 6751(b)(1) for the fraud penalty under Kroner.
Respondent may renew his Motion provided that he demonstrates by citation to the Internal Revenue Manual (IRM) or other authority that Ms. Gill had authority to make an initial determination of the fraud penalty after an FPAA had been drafted for review by the Office of Chief Counsel. He must further demonstrate by such citation that her supervisor had authority to give written supervisory approval at that administrative stage. Alternatively, if respondent determines that RA Klein and/or his supervisor were the individuals with authority to act, he must demonstrate by citation to the IRM or other authority that they retained control over the fraud penalty determination after an FPAA had been drafted for review by the Office of Chief Counsel. Finally, under Kroner, respondent has a third option, to obtain written supervisory approval at this time provided that such approval is given by the individual with authority to act where an FPAA has been issued and a case has been docketed with this Court as established by citation to the IRM or other authority.
Upon due consideration, it is
ORDERED that respondent's Motion for Partial Summary Judgment, as supplemented, is granted in part, that respondent complied with section 6751(b)(1) for the exam penalties, and denied in part on the issue of whether he has complied with section 6751(b)(1) for the section 6663 fraud penalty. It is further
ORDERED that respondent is directed on or before January 6, 2023, to file with the Court a report indicating his intentions about renewing his motion.