Opinion
13400-18
11-30-2021
Leigh C. Fairbank & Barbara J. Fairbank, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Christian N. Weiler, Judge.
This case is before the Court on respondent's motion for partial summary judgment filed on October 13, 2021, pursuant to Rule 121. By order dated October 14, 2021, this Court ordered that on or before November 5, 2021, petitioners shall file a response to the motion for partial summary judgment. Subsequently on November 4, 2021, petitioners filed a response to respondent's motion for partial summary judgment.
All section 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.
This case is calendared for trial at a date and time certain of December 16, 2021, during the remote session of the Court where Jacksonville, Florida is the place of trial for administrative purposes.
Respondent is seeking favorable adjudication on the issue of whether respondent complied with the requirements of section 6751(b)(1), thereby meeting his initial burden of production, as they apply to the penalties at issue in this case under section 6662(a), (b)(1), (c).
This case concerns tax years 2003-9 and 2011. The main issues involve passive foreign investment company (PFIC) income pursuant to sec. 1291, interest income, capital gains and losses, and other computational adjustments. At this time, these issues remain in dispute.
Considering the pleadings and motion papers of the parties and for the reasons detailed below, the Court finds that there are no genuine disputes as to material facts and respondent is entitled to partial summary judgment as a matter of law. Accordingly, we will grant respondent's motion for partial summary judgment.
Background
The following facts are drawn from the parties' pleadings and motion papers. The facts stated are not findings of fact by this Court and are stated herein solely for the purpose of ruling on respondent's motion for partial summary judgment.
In support of the motion for partial summary judgment, respondent is relying upon declarations attached to the motion. Respondent attached a declaration from Criminal Investigator Fabiana Brown (Ms. Brown) and a declaration from Supervisory Internal Revenue Agent Gary Yingst, Retired (Mr. Yingst).
While employed as a revenue agent, Ms. Brown performed an examination of petitioners for tax years 2003-11 and subsequently proposed accuracy-related penalties under section 6662(a), (b)(1), (c). After her initial determination, Ms. Brown prepared Form 4549-A, Income Tax Examination Changes (NOPA), which she signed on April 19, 2016, and also prepared the accompanying Form 5278, Statement - Income Tax Changes, and Form 886-A, Explanation of Items.
At the time of signing the NOPA, Ms. Brown's immediate supervisor was Mr. Yingst. The cover letters (IRS Letter 950 and IRS Letter 937) both dated April 22, 2016, were electronically signed by Mr. Yingst as "Supervisory Internal Revenue Agent", notifying petitioners and their attorney Robert S. Williams of the attached NOPA.
Petitioners' case was then closed out by IRS Examination and mailed to the IRS Office of Appeals (Appeals).
On July 1, 2019, Congress renamed the IRS Office of Appeals the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001(a), 133 Stat. at 983 (2019). The events in this case largely predate that change, so we use the name in effect at the times relevant to this case, i.e., the Office of Appeals.
Discussion
I. Summary Judgment
A. Background
In respondent's motion for partial summary judgment, respondent is seeking favorable adjudication on the issue of whether respondent complied with the requirements of section 6751(b)(1) as they apply to the accuracy-related penalties at issue in this case. Respondent argues that the 30-day letter was signed by the manager, Mr. Yingst, and had the examination report enclosed, consisting of the Forms 4549-A, Forms 5278, and Forms 886-A, for each issue, including a penalty (if asserted in the exam).
In their response, petitioners contend that the requirements of section 6751(b)(1) have not been met, as Mr. Yingst's electronic signature on IRS Letters 950 and 937 do not amount to the supervisor's personal written approval of the initial assessments as required by section 6751(b)(1). Petitioners argue that respondent's declarations are hearsay, and based on the exhibits respondent attached to their motion for partial summary judgment it is unclear what date the cover letters were actually signed. Petitioners point out that Mr. Yingst declares that he signed the cover letters on April 22, 2016, however his electronic signatures are dated April 21, 2016. Petitioners further argue that because the cover letters are boilerplate in nature and because Mr. Yingst did not sign the exam reports themselves, it is unclear whether Mr. Yingst personally approved the initial assessments in writing as he did not write the cover letters nor sign anything describing the assessments. Petitioners aver that Mr. Yingst's signature could have been entered on the cover letters prior to him seeing the initial assessment proposed on Ms. Brown's examination report.
B. Standard of Review for 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 also Sundstrand Corp. v. Commissioner, 98 T.C. at 520.
II. Asserted Penalties
Under section 7491(c), the Commissioner carries "the burden of production in any court proceeding with respect to the liability of any individual for any penalty". This burden requires the Commissioner to come forward with sufficient evidence indicating that imposition of the penalty is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The Commissioner's burden of production under section 7491(c) includes establishing compliance with section 6751(b)(1). See Chai v. Commissioner, 851 F.3d 190, 217, 221-222 (2nd Cir. 2017), aff'g in part, rev'g in part T.C. Memo. 2015-42; Graev v. Commissioner, 149 T.C. 485 (2017), supplementing and overruling in part 147 T.C. 460 (2016).
Section 6751(b)(1) provides that "[n]o 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". To show compliance with this provision, respondent must show (1) the identity of the individual who made the "initial determination", (2) an approval of the penalty "in writing", (3) the identity of the person giving approval and his or her status as the "immediate supervisor", and (4) evidence that the supervisory approval was obtained no later than the issuance to petitioners of the initial formal communication of proposed adjustments that includes penalties and provides the taxpayer the right to protest those proposed adjustments, such as a 30-day letter or Letter 525. See sec. 6751(b)(1); Clay v. Commissioner, 152 T.C. 223, 249 (2019).
We recently held that the "initial determination" of a penalty, for purposes of section 6751(b)(1), must be a "formal act" that resembles a determination. Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020). We also concluded that in a deficiency context "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" would embody the initial determination of those penalties. Id. at 24-25; see Clay v. Commissioner, 152 T.C. at 249.
A. Penalty Assertion by the IRS
The NOPA recommending the assertion of penalties against petitioners shows that Ms. Brown's supervisor, Mr. Yingst, approved the recommendation by affixing his electronic signature on April 21, 2016. Section 6751(b)(1) does not require that approval be indicated by a wet signature, rather, respondent need only show written evidence that timely supervisory approval was obtained prior to the first formal communication to the taxpayer demonstrating that an initial determination of the penalties had been made. See Chadwick v. Commissioner, 154 T.C. 94 (citing Blackburn v. Commissioner, 150 T.C. 218, 223 (2018)). The NOPA meets this standard in the immediate case. We therefore conclude the record establishes that respondent's supervisory approval was properly secured in accordance with the requirements of section 6751(b)(1) for the assertion of penalties at issue in this case under section 6662(a), (b)(1), (c).
While we recognize the discrepancy between the date on the declaration documents attached to respondent's motion (April 22, 2016) and the date of Mr. Yingst's electronic signature (April 21, 2016), both of the dates are acceptable under sec. 6751(b)(1) as in either case approval was obtained before formal communication of the penalties to petitioners.
Furthermore, we are not compelled by petitioners' arguments distinguishing their circumstances from those in Legg v. Commissioner, 145 T.C. 344 (2015). As we have previously ruled, there is no specific form or methodology for compliance with section 6751. See Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 85-86 (2019) (citing PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 213 (5th Cir. 2018) ("The plain language of section 6751(b) mandates only that the approval of the penalty assessment be 'in writing' and by a manager".)) Accordingly, we find Mr. Yingst's electronic signature and approval to be adequate to establish that the requisite supervisory approval was obtained in this case in compliance with section 6751(b)(1).
This order only concludes that respondent met the requirements of sec. 6751(b)(1) and his initial burden of production; it does not, however, conclude that petitioners are liable for the accuracy-related penalties under sec. 6662(a), (b)(1), (c).
Upon due consideration of the foregoing, it is ORDERED that respondent's motion for partial summary judgment filed on October 13, 2021, is granted.