Opinion
13533-20
04-24-2024
ESTATE OF RANDY GLASSMAN, DECEASED, STEVEN GLASSMAN, PERSONAL REPRESENTATIVE, AND STEVENGLASSMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Michael D. Flynn, Thomas F. DiLullo, and Nicholas G. Kokis, for petitioners. Erika B. Cormier, Marie E. Small and Marissa J. Savit, for respondent.
Michael D. Flynn, Thomas F. DiLullo, and Nicholas G. Kokis, for petitioners.
Erika B. Cormier, Marie E. Small and Marissa J. Savit, for respondent.
MEMORANDUM OPINION
LAUBER, Judge.
With respect to petitioners' Federal income tax for 2015, the Internal Revenue Service (IRS or respondent) determined a deficiency of $494,015 and an accuracy-related penalty of $98,803. Respondent has filed a Motion for Partial Summary Judgment under Rule 121, requesting a ruling that the IRS complied with the requirements of section 6751(b)(1) by securing timely supervisory approval of the penalty. Agreeing with respondent, we will grant his Motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following facts are derived from the pleadings, the parties' Motion papers, and the Exhibits and Declarations attached thereto. They are stated solely for purposes of deciding respondent's Motion and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Petitioners resided in Florida when their Petition was timely filed.
On their timely filed return for 2015 petitioners claimed a $1,470,019 deduction for a net operating loss (NOL). This NOL was carried forward in large part from their 2013 return, on which they reported a theft-loss deduction of $3,176,900 for jewelry allegedly stolen from them in that year.
The IRS selected petitioners' 2015 return for examination, and the case was assigned to Revenue Agent (RA) Cheryl Phen. At that time RA Phen's group manager was Supervisory RA Leigh Keaton. In May 2019, in anticipation of taking two weeks of leave, Ms. Keaton designated a fellow group member, RA Arceny Garcia, to serve as acting group manager in her absence. His service as acting group manager, as shown on Form 10247, Internal Revenue Service Designation, began on May 20, 2019, and ended on May 31, 2019.
As the examination neared completion RA Phen recommended assertion against petitioners of a 20% penalty for a substantial understatement of income tax or (in the alternative) for negligence. See § 6662(c) and (d). RA Phen's recommendations to this effect were set forth in a civil penalty approval form dated May 29, 2019, a copy of which is attached to respondent's Motion. RA Garcia signed the form the following day, indicating that he was approving the penalty recommendation in his capacity as RA Phen's "AGM," an abbreviation of "Acting Group Manager." Ms. Keaton has submitted a Declaration confirming that "RA Garcia, as Acting Group Manager, was the immediate supervisor of RA Phen" on May 29, 2019, the date on which RA Phen "made the initial determination" to assert the penalty, and also on May 30, 2019, the date on which RA Garcia approved the penalty.
On June 1, 2019, Ms. Keaton resumed her duties as group manager. On August 1, 2019, Ms. Keaton mailed to petitioners a packet of documents, including Form 4549-A, Report of Income Tax Examination Changes, which was superseded by a "corrected" version on February 4, 2020. The February 2020 version of Form 4549-A set forth proposed adjustments to petitioners' income and communicated the IRS's intention to assert the accuracy-related penalty as recommended by RA Phen and approved by RA Garcia in his capacity as AGM. This Form 4549-A constituted the first formal communication to petitioners that the IRS intended to assert the penalty. On August 28, 2020, more than six months after the corrected Form 4549-A was issued, the IRS mailed petitioners a notice of deficiency, disallowing most of the NOL carryforward deduction and determining a penalty. Petitioners timely petitioned this Court for redetermination.
On November 23, 2022, respondent filed a Motion for Partial Summary Judgment (first Motion) contending (among other things) that the IRS had complied with the requirements of section 6751(b)(1) by securing timely supervisory approval of the penalty. By Order served November 9, 2023, we denied respondent's first Motion, finding that the record as it then existed did not make clear who RA Phen's "immediate supervisor" was.
On January 19, 2024, respondent filed a second Motion for Partial Summary Judgment (second Motion), which is currently before the Court. This second Motion is supported by a Declaration from Ms. Kea-ton, which explains the facts as set forth above. In opposing the second Motion, petitioners dispute neither AGM Garcia's status as RA Phen's "immediate supervisor" nor the timeliness of his signature. Rather, they contend that AGM Garcia did not devote enough attention to the case to make his approval of the penalty meaningful.
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment regarding an issue as to which there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(a)(2); Sundstrand Corp., 98 T.C. at 520. 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 (here petitioners). Sundstrand Corp., 98 T.C. at 520. Where the moving party makes and properly supports a motion for summary judgment, "the nonmovant may not rest on the allegations or denials in that party's pleading" but must set forth specific facts, by affidavit or otherwise, showing that there is a genuine dispute for trial. Rule 121(d).
II. Analysis
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." In Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73, the U.S. Court of Appeals for the Eleventh Circuit held that "the IRS satisfies [s]ection 6751(b) so long as a supervisor approves an initial determination of a penalty assessment before [the IRS] assesses those penalties." The court interpreted the phrase "initial determination of [the] assessment" to refer to the "ministerial" process by which the IRS formally records the tax debt. See id. at 1278. Absent stipulation to the contrary, this case is appealable to the Eleventh Circuit, and we thus follow its precedent. See § 7482(b)(1)(A); Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
Under a literal application of the standard enunciated in Kroner, supervisory approval could seemingly be secured at any moment before actual assessment of the tax. But the Eleventh Circuit left open the possibility that supervisory approval in some cases might need to be secured sooner, i.e., before the supervisor "has lost the discretion to disapprove" the penalty determination. See Kroner v. Commissioner, 48 F.4th at 1279 n.1; cf. Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1074 (9th Cir. 2022) (treating supervisory approval as timely if secured before the penalty is assessed or "before the relevant supervisor loses discretion whether to approve the penalty assessment"), rev'g and remanding 154 T.C. 68 (2020); Chai v. Commissioner, 851 F.3d 190, 220 (2d Cir. 2017) (concluding that supervisory approval must be obtained at a time when "the supervisor has the discretion to give or withhold it"), aff'g in part, rev'g in part T.C. Memo. 2015-42.
Respondent has supplied a copy of the civil penalty approval form, which RA Garcia signed as "AGM," or "Acting Group Manager." Ms. Keaton was normally the manager of RA Phen's group and thus her immediate supervisor. But Ms. Keaton has supplied a Declaration and Form 10247 confirming that, on the date RA Phen recommended assertion of the penalty, RA Garcia was the acting group manager for RA Phen's group. We accordingly conclude that, at the relevant time, he was RA Phen's "immediate supervisor" within the meaning of section 6751(b)(1). See Sand Inv. Co. v. Commissioner, 157 T.C. 136, 142 (2021).
The penalty at issue in this case was recommended by RA Phen on May 29, 2019, and approved by AGM Garcia the following day. The initial Form 4549-A was not mailed to petitioners until August 2019; the "corrected" Form 4549-A was not mailed to them until February 2020; and the notice of deficiency was not issued to them until August 28, 2020. As of May 30, 2019, therefore, the IRS examination remained at a stage where AGM Garcia had discretion to approve or disapprove the penalty recommendation. See Kroner v. Commissioner, 48 F.4th at 1279 n.1. Thus, under a reading of Kroner most favorable to petitioners, the IRS complied with the requirements of section 6751(b)(1).
Petitioners do not dispute that RA Phen was the examining agent who made the "initial determination" to assert a penalty. Nor do they dispute that AGM Garcia was RA Phen's "immediate supervisor" on May 29 and 30, 2019. Instead, petitioners contend that AGM Garcia, because of his limited involvement in the examination, could not have devoted sufficient time or effort to supply meaningful "approval." Given the asserted "complexity of the underlying audit issues," petitioners urge that "appropriate 'approval' would require greater involvement and a more detailed supervisory review."
We have repeatedly rejected this argument, demurring to any suggestion that a penalty approval form must "demonstrate the depth or comprehensiveness of the supervisor's review." Belair Woods, LLC v. Commissioner, 154 T.C. 1, 17 (2020). Faced with assertions that IRS officers gave insufficient consideration to the matters before them, we have ruled such lines of inquiry "immaterial and wholly irrelevant to ascertaining whether respondent complied with the written statutory approval requirement." Patel v. Commissioner, T.C. Memo. 2020-133, 120 T.C.M. (CCH) 211, 214 (quoting Raifman v. Commissioner, T.C. Memo. 2018-101, 116 T.C.M. (CCH) 13, 27-28); see Estate of Morrissette v. Commissioner, T.C. Memo. 2021-60, 121 T.C.M. (CCH) 1447, 1474.
Section 6751(b)(1) does not inquire into the time or effort the examiner and the supervisor devote to their respective tasks. Rather, "[t]he written supervisory approval requirement . . . requires just that: written supervisory approval." Pickens Decorative Stone, LLC v. Commissioner, T.C. Memo. 2022-22, 123 T.C.M. (CCH) 1127, 1130 (quoting Raifman, 116 T.C.M. (CCH) at 28). We do not second-guess the extent of the RA's or the supervisor's deliberations about whether penalties should be imposed. See Cattail Holdings, LLC v. Commissioner, T.C. Memo. 2023-17, at *11. We reiterate that the signature of a group manager on a penalty approval form-or the signature of the acting group manager, as here-is sufficient, without more, to satisfy the statutory requirements. See Belair Woods, 154 T.C. at 17.
Petitioners assert that "there can be no managerial 'approval' of an 'initial determination' if there is no true 'determination,'" and urge that a determination, "as the resolution of a question by argument or reasoning, requires knowledge of the underlying facts that would lead to deliberation and conclusion." But the "initial determination" of the penalty was made by RA Phen. Petitioners do not explain the basis for their assertion that RA Phen, the examining agent, lacked sufficient "knowledge of the underlying facts."
To defeat a motion for summary judgment, petitioners "must respond, setting forth specific facts and supporting those facts . . . to show that there is a genuine dispute of fact for trial." Rule 121(d). Petitioners have set forth no "specific facts" to dispute the existence or timeliness of the written supervisory approval in this case. There being no genuine dispute of material fact on these points, we will grant respondent's Motion.
To reflect the foregoing, An order will be issued granting respondent's Motion for Partial Summary Judgment.