Opinion
17379-19 17380-19 17381-19 17382-19
10-17-2023
GREEN VALLEY INVESTORS, LLC, BOBBY A. BRANCH, TAX MATTERS PARTNER, ET. AL., [1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler Judge
Petitioner timely petitioned this Court challenging the Internal Revenue Service's (IRS) notices of final partnership administrative adjustment (FPAAs) determinations regarding charitable deductions related to four syndicated conservation easement transactions. These consolidated matters are scheduled for trial beginning on November 13, 2023, in Winston-Salem, North Carolina, and by stipulation, trial will be limited to the issues and facts of the lead case, Green Valley v. Commissioner, with the other consolidated matters being bound by the Court's decision in this lead case.
In these consolidated cases Bobby A. Branch is the petitioner and tax matters partner for four entities: Green Valley, Vista Hill, Big Hill, and Tick Creek. We refer to these entities individually as "LLC" and collectively as "the LLCs." Since Mr. Branch is the tax matters partner in each of these consolidated cases, we will collectively refer to the tax matters partner for the LLCs in the singular and as "petitioner" throughout this Order.
On December 3, 2021, the Commissioner of Internal Revenue (respondent) filed his third Motions for Partial Summary Judgment (Third Motions for Partial Summary Judgment), seeking summary adjudication in each of these consolidated cases on the issue of whether the IRS complied with the requirements of section 6751(b)(1) as applied to the gross valuation misstatement penalty under section 6662(h), the substantial valuation misstatement penalty under section 6662(c), the negligence penalty under section 6662(b)(1) and (c), and the reportable transaction penalty under section 6662A. Then, on December 14, 2021, petitioner in these consolidated cases filed Motions for Summary Judgment Regarding Penalties Under Sections 6662(h) and 6662A (Cross-Motions for Summary Judgment).
In each of these consolidated cases respondent has twice before moved for partial summary judgment.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts are rounded to the nearest dollar.
The tax year at issue for Green Valley Investors, LLC (Green Valley), Big Hill Partners, LLC (Big Hill), and Tick Creek Holdings, LLC (Tick Creek), is 2014, while the tax year at issue for Vista Hill Investments, LLC (Vista Hill), is 2015.
In the prior Cross-Motions for Summary Judgment, petitioner first argued the gross valuation misstatement penalties under section 6662(h) may not be assessed in these cases because the IRS did not comply with section 6751(b)(1) when it determined the penalty. Second, petitioner contended that penalties under section 6662A may not be asserted in these cases, since any assessment of them would be made retroactively after the issuance of Notice 2017-10, and furthermore, the issuance of Notice 2017-10 fails to comply with the notice-and-comment provisions of the Administrative Procedure Act (APA). Respondent contended that Notice 2017-10 was properly issued without notice-and-comment rulemaking, and consequently, respondent was entitled to partial summary judgment since he has demonstrated the IRS's compliance with the requirements of section 6751(b) in assertion of penalties in these cases.
In this Court's Opinion entitled Green Valley Invs., LLC v. Commissioner, Nos. 17379-19, 17380-19, 17381-19, 17382-19, 159 T.C. No. 5 (Nov. 9, 2022), we considered and decided, in part, petitioner's Cross-Motions for Partial Summary Judgment, and in part, respondent's Third Motions for Partial Summary Judgment. In an Order served on November 16, 2022, we did the following:
i) denied respondent's Third Motions for Partial Summary Judgment dated December 3, 2021;
ii) denied, in part, petitioner's Cross-Motions for Partial Summary Judgment dated December 14, 2021, as to the issue of whether the IRS has complied with section 6751(b)(1) related to section 6662(h) penalties in these cases, and
iii) granted, in part, petitioner's Cross-Motions for Partial Summary Judgment dated December 14, 2021, setting aside Notice 2017-10 and prohibiting the imposition of section 6662A penalties in these cases.
On September 5, 2023, petitioner filed a Motion for Partial Summary Judgment Regarding Penalties Under Sections 6662(b)2, 6662(c), 6662(e) and 6662(h). On October 5, 2023, respondent filed a response to petitioner's Motion. We are now prepared to rule on this pending motion.
Background
The following facts are drawn petitioner's Motion for Partial Summary Judgment Regarding Penalties under Sections 6662(b)2, 6662(c), 6662(e) and 6662(h), declarations and exhibits thereto, and respondent's response thereto. These facts are stated solely for the purpose of ruling on the pending motion.
By deed recorded on December 31, 2014, Green Valley, Big Hill, and Tick Creek each granted a conservation easement to Triangle Land Conservancy (TLC). On December 3, 2015, Vista Hill did the same. Green Valley, Big Hill, and Tick Creek each timely filed Forms 1065, U.S. Return of Partnership Income, for tax year 2014, and Vista Hill timely filed Form 1065 for tax year 2015. On its Form 1065 Green Valley deducted $22,559,000 for its charitable easement contribution to TLC for the tax year 2014. Similarly, Big Hill and Tick Creek deducted contributions of charitable easements of $22,626,000 and $22,605,000, respectively. Vista Hill deducted $22,498,000 on its Form 1065 for its charitable easement contribution for tax year 2015.
The IRS conducted examinations of Green Valley's, Vista Hill's, Big Hill's, and Tick Creek's respective Forms 1065. Pursuant to Supervisory Internal Revenue Agent Charles S. Philipp's declaration, it was Revenue Agent (RA) Joy Bradley who made the initial determinations that the gross valuation misstatement penalty under section 6662(h), and in the alternative, the accuracy-related penalties for negligence and substantial valuation misstatement penalties under section 6662(c) and (e), respectively, are applicable to the LLCs' respective Forms 1065. Also, according to the declaration, Mr. Philipp approved RA Bradley's initial determination in writing on April 4, 2017, when he signed Forms 5701, Notice of Proposed Adjustments, with attached Forms 886-A, Explanation of Items. In prior motions, respondent avers the LLCs were first informed of the IRS's initial determination to assert the gross valuation misstatement penalty under section 6662(h), and in the alternative, the accuracy-related penalties for negligence and substantial valuation misstatement penalties under section 6662(c) and (e), respectively, on April 19, 2017.
In the FPAAs issued to the LLCs on June 24, 2019, the IRS disallowed the noncash charitable contribution deductions because the LLCs (a) did not establish that the deductions met all the requirements of section 170, and (b) failed to establish that the value of the property interest contributed exceeded zero. In addition, each FPAA determined the gross valuation misstatement penalty under section 6662(h), the substantial valuation misstatement penalty under section 6662(e), the negligence penalty under section 6662(b)(1) and (c), and the substantial understatement penalty under section 6662(b)(2) and (d).
On September 20, 2019, petitioner timely petitioned this Court challenging the FPAA determinations. At the time the petitions were filed, the LLCs' principal places of business were located in North Carolina.
Discussion
I. Summary Judgment
A party may move for summary judgment regarding all or any part of the legal issues in controversy. See Rule 121(a); Wachter v. Commissioner, 142 T.C. 140, 145 (2014). We may grant summary judgment if the pleadings, stipulations and exhibits, and any other acceptable materials show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law. See Rule 121(a) and (b); see also CGG Americas, Inc. v. Commissioner, 147 T.C. 78, 82 (2016); Elec. Arts, Inc. & Subs. v. Commissioner, 118 T.C. 226, 238 (2002). We construe the facts and draw all inferences in the light most favorable to the nonmoving party to decide whether summary judgment is appropriate. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The moving party has the burden of proving that there is no genuine issue of material fact. Naftel v. Commissioner, 85 T.C. 527, 529 (1985). However, the nonmoving party may not rest upon the mere allegations or denials in its pleadings but instead must "set forth specific facts showing that there is a genuine dispute for trial." Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
II. Supervisory Approval
Section 6751(b)(1) provides that "[n]o penalty under this title 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."
This Court has found: "[T]he 'initial determination' of a penalty assessment . . . is embodied in the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties." Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020) (citation omitted); see Belanger v. Commissioner, T.C. Memo. 2020-130, at *27-*28; accord Clay v. Commissioner, 152 T.C. 223, 248-49 (2019). We have explicitly distinguished such "a communication with a high degree of concreteness and formality," Belair Woods, LLC, 154 T.C. at 15, from the "subjective" decision of the IRS officer that is ultimately embodied in the notice issued to the taxpayer, id. at 14.
In Kroner v. Commissioner of Internal Revenue, 49 F. 4th 1272 (11th Cir. 2022) rev'g and remanding, T.C. Memo. 2020-73 (2020) and Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066 (9th Cir. 2022), rev'g and remanding, 154 T.C. 68 (2020), both the U.S. Courts of Appeals for the Eleventh and Ninth Circuits have overruled our interpretation of section 6751(b)(1), determining it "has no basis in the text of the statute," Laidlaw's at 1072, and ultimately held "that § 6751(b)(1) requires written supervisory approval before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment." Id. at 1074. Here, however, appeal of these cases would most likely be to the U.S. Court of Appeals for the Fourth Circuit.
A. Assertion of Penalties in the FPAAs
In the prior opposition to respondent's Motions for Partial Summary Judgment and in the Cross-Motions for Partial Summary Judgment, petitioner did not dispute that the IRS formally communicated with himself (as tax matters partner), the LLCs, or their representatives before April 19, 2017, the date the IRS made its decision to assert the penalties found in the FPAAs.
Rather, in prior filings petitioner contended that it was Mr. Philipp (not RA Bradley) who initially decided to assert the gross valuation misstatement penalty (and potentially other penalties); therefore, there is no evidence regarding timely approval by Mr. Philipp's immediate supervisor. We previously ruled, based on our review of the declarations submitted by the parties, that there are genuine disputes as to material facts. Therefore, in our Order served on November 16, 2022, we said it would be inappropriate for us to decide by summary adjudication the issue of whether the IRS complied with section 6751 when asserting penalties found in the FPAAs and denied respondent's Third Motions for Partial Summary Judgment.
Petitioner has now filed a Motion for Partial Summary Judgment Regarding Penalties under Sections 6662(b)2, 6662(c), 6662(e) and 6662(h), seeking a favorable ruling on these same matters; however, petitioner now cites us to metadata received from respondent's counsel in discovery. Attached to petitioner's Motions are Declarations of Alberto Ascencio and Adam R. Young. The Declarations compile metadata received and summarize the electronic authors of several important documents in these consolidated cases, including the Penalty Lead Sheet and Form 5701. Petitioner contends that these Declarations show RA Bradley did not prepare the relevant documents, nor were the documents in question signed by her immediate supervisor Mr. Philipp. The Declarations reflect how the metadata shows the authors of these documents are "D3YHB", "Examining Officer" and "North-South Carolina District."
Respondent counters by noting that the author identification found in this metadata "is imperfect for this analysis" and cannot be relied upon by this Court to determine the authors of these documents. Respondent goes on to cite us to contemporaneous emails between RA Bradley and by her immediate supervisor Mr. Philipp as being the most helpful and specific evidence of respondent's compliance with section 6751(b). Respondent goes on to note how our decision in Clay v. Commissioner, 152 T.C. 223 (2019) has been reversed in three U.S. Courts of Appeals, including the Ninth, Tenth, and Eleventh Circuit Courts of Appeal, and that we should abandon our prior decision in Clay and apply these circuit decisions going forward as to the interpretation of section 6751(b). Lastly respondent contends how - at a minimum - there is a dispute of material fact precluding summary judgment.
We agree with respondent's last argument and find there are material facts in dispute precluding summary judgment. We decline to decide the other matters raised by the parties herein and will reserve ruling on these issues until trial. Accordingly, we will deny petitioner's Motion for Partial Summary Judgment.
Upon due consideration of the foregoing, it is
ORDERED that petitioner's Motion for Partial Summary Judgment Regarding Penalties under Sections 6662(b)2, 6662(c), 6662(e) and 6662(h), filed on September 5, 2023, is denied.