Opinion
13533-20
11-09-2023
ESTATE OF RANDY GLASSMAN, DECEASED, STEVEN GLASSMAN, PERSONAL REPRESENTATIVE, AND STEVEN GLASSMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge.
With respect to petitioners' 2015 Federal income tax return, the Internal Revenue Service (IRS or respondent) determined a deficiency of $494,015 and an accuracy-related penalty of $98,803. The bulk of the deficiency stems from a $1,416,319 downward adjustment to a $1,470,018 net operating loss (NOL) that petitioners (the Glassmans) carried forward from their 2013 joint return. This NOL carryforward is attributable to a deduction in excess of $3 million that petitioners claimed in 2013 for the theft of jewelry allegedly stolen from them in that year.
On November 23, 2022, respondent filed a Motion for Partial Summary Judgment under Rule 121, contending that the adjustment to the NOL carryforward was correct and that the IRS complied with the procedural requirements of section 6571(b)(1) by securing timely supervisory approval of the accuracy-related penalty. On January 23, 2023, petitioners filed an Objection to the Motion, contending that the IRS understated their basis in the jewelry and failed to comply with the requirements of section 6571(b)(1). Finding that genuine disputes of material fact exist with respect to both issues, we will deny the Motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. We round monetary amounts to the nearest dollar.
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). 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). Ibid. The Glassmans resided in Florida when their Petition was timely filed.
On July 28, 2013, the Glassmans reported to law enforcement authorities a theft of jewelry, including both insured and uninsured items. A contemporaneously-filed police report states that the total value of items stolen was $5,790,079. The Glassmans filed an insurance claim with their insurer, Chubb Insurance (Chubb), which paid them $2,560,908, the reported value of the items covered by the insurance policy. The Glassmans then reported on their 2013 income tax return a theft loss of $3,343,900, their alleged basis in the stolen items that were not insured. They used part of this loss deduction in 2013 and carried the balance forward to 2014 and 2015.
The IRS selected petitioners' 2015 return for examination. During the examination the Glassmans supplied a sworn statement of loss that they had presented to Chubb as part of their insurance claim. This statement divided the jewelry allegedly stolen into two categories, "itemized jewelry" with a reported value of $2,560,908 and "non-itemized jewelry" with a reported value of $3,176,900. Petitioners also supplied a spreadsheet captioned "Credit Card Jewelry Purch[ases]" (Jewelry Spreadsheet), which lists $1,946,375 of jewelry purchases from 2005 through the date of the theft, plus credit card statements allegedly documenting $167,000 of additional jewelry purchases. After completing the examination the IRS disallowed $1,397,525 of the claimed loss, i.e., the difference between $3,343,900 (the total loss claimed) and $1,946,375 (the total shown on the Jewelry Spreadsheet). This disallowance reduced to $53,699 the NOL carryforward remaining for use in 2015, resulting in the deficiency at issue here.
The IRS also determined that assertion of an accuracy-related penalty was appropriate. Included among the attachments to respondent's Motion is a civil penalty approval form dated May 29, 2019. It recommends assertion of a 20% penalty for substantial understatement of income tax or (in the alternative) a 20% penalty for negligence. See § 6662(a)-(d). The caption states that the form was completed by Cheryl Phen, an IRS examiner, and it was signed the following day by Arceny Garcia. Appearing beside Mr. Garcia's signature are the initials "AGM," which respondent represents stand for Acting Group Manager.
On August 1, 2019, Group Manager (GM) Leigh Keaton apparently mailed petitioners a letter requesting that they review a Form 4549-A, Report of Income Tax Examination Changes, that the exam team had completed. On February 4, 2020, petitioners were issued a "corrected" Form 4549-A communicating the IRS's decision to assert an accuracy-related penalty against them. On this "corrected" Form 4549-A, Mr. Garcia's name appears in the box captioned "Examiner's name."
On August 28, 2020, the IRS mailed petitioners "Steven M & Randy Glassman (Deceased)" a notice of deficiency determining the deficiency and accuracy-related penalty referenced above. Petitioners timely petitioned this Court for redetermination. Steven Glassman signed the Petition twice, once in his own capacity and once in his capacity as personal representative of the Estate of Randy Glassman. Due to an apparent clerical error that occurred during the docketing process, the case was erroneously captioned to show the Estate as the only petitioner. We will correct that error in this Order.
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 as to any 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). See Sundstrand Corp., 98 T.C. at 520.
II. Theft Losses
Section 165 allows a deduction for theft losses sustained during the taxable year and not compensated by insurance or otherwise. The amount of the allowable deduction is the lesser of (1) the fair market value (FMV) of the stolen property immediately before the theft or (2) the taxpayer's adjusted basis in the property. See Treas. Reg. §§ 1.165-7(b), 1.165-8(c).
Respondent urges that petitioners' allowable theft loss deduction for 2013 was limited to $1,946,375, the amount appearing on the Jewelry Spreadsheet. Petitioners disagree, contending that the Jewelry Spreadsheet does not account for all of the uninsured items that were stolen. In support of the $3,343,900 loss claimed on their 2013 return, petitioners rely on the sworn statement of loss they presented to Chubb, on the credit card statements referenced above, and on the declaration of Todd Marrazzo, the Glassmans' representative during the IRS examination. Mr. Marrazzo avers, under penalty of perjury, that he interviewed most of the jewelers who sold the uninsured jewelry items to the Glassmans and ascertained that those items cost at least $3,343,900. Petitioners also rely on letters from those same jewelers attesting to the relevant purchase prices. Petitioners represent that these jewelers would be available to testify about these matters at trial.
Finding that there currently exist genuine disputes of material fact regarding the Glassmans' cost basis in (and the FMV of) the uninsured stolen items, we will deny respondent's Motion on this point. A trial, which may include testimony from Mr. Glassman and the jewelers mentioned above, may assist the Court in determining the appropriate amount of loss. Petitioners will of course have the burden at trial to show that there is no double counting-i.e., that the jewelry items appearing on their credit card receipts and/or addressed by the jewelers' testimony were not among the items already listed on the Jewelry Spreadsheet or covered by Chubb's insurance payment.
III. Supervisory Approval of Penalty
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." Absent stipulation to the contrary this case is appealable to the Eleventh Circuit, and we thus follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
In his Motion respondent urges that the IRS complied with the procedural requirements of section 6751(b)(1) with respect to the accuracy-related penalty determined against petitioners. This Court has regularly decided penalty approval questions on summary judgment on the basis of IRS forms and records, confirmed by declarations supplied by IRS officers. See, e.g., Sand Inv. Co. v. Commissioner, 157 T.C. 136 (2021); Long Branch Land, LLC v. Commissioner, T.C. Memo. 2022-2. However, these forms and declarations must establish all elements needed to show timely supervisory approval.
Respondent contends that RA Phen was the person who conducted the examination, that her group manager was GM Keaton, and that Mr. Garcia signed the civil penalty approval form as acting group manager. But while respondent has supplied a civil penalty approval form bearing RA Phen's name, the record includes no declaration by any IRS officer confirming that she made the penalty determination. Arguably pointing in the other direction is the "corrected" Form 4549-A, where Mr. Garcia's name appears in the box captioned "Examiner's name." And assuming arguendo that RA Phen made the "initial determination," the identity of her "immediate supervisor"-as between Mr. Garcia and GM Keaton-is not entirely clear. Under these circumstances, prudence counsels the denial of summary judgment with respect to penalty approval.
In consideration of the foregoing, and for cause, it is
ORDERED that the caption of this case is amended to read: "Estate of Randy Glassman, Deceased, Steven Glassman, Personal Representative, and Steven Glassman, Petitioners v. Commissioner of Internal Revenue, Respondent." It is further
ORDERED that respondent's Motion for Partial Summary Judgment, November 23, 2022, is denied. It is further
ORDERED that the parties shall file, on or before December 8, 2023, a status report expressing their views as to the conduct of further proceedings in this case.