Opinion
17767-19
01-12-2023
THE HARBINDER S BRAR FLP V, BRAR PROPERTY MANAGEMENT INC., TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
ELIZABETH A. COPELAND, JUDGE
Petitioners filed Motions for Partial Summary Judgment in nine related cases. The docket numbers and dates of the relevant motion paper filings are:
Docket No.
Date Petitioners' Filed the Motion for Partial Summary Judgment
Date Respondent Filed His Objection to Petitioners' Motion
Date Petitioners Filed Their Reply to Respondent's Objection
21908-19
April 5, 2021
July 12, 2021
November 3, 2021
17776-19
April 29, 2021
October 29, 2021
17763-19
May 12, 2021
17766-19
17765-19
17767-19
17806-19
17790-19
17784-19
In these docket numbers and on the dates listed, Respondent also filed a Declaration of Tiffany Sim in Support of Objection to Motion for Partial Summary Judgment.
In all nine cases the filings are the same, i.e., in each case, Petitioners filed the same motion for partial summary judgment, Respondent filed the same objection, and Petitioners then filed the same reply. For the sake of efficiency and to conserve judicial resources, we will address all nine motions for partial summary judgment by issuing this Order in each of the nine cases.
Petitioners seek summary adjudication in their favor on the issue of whether Respondent complied with section 6751(b)(1) in determining penalties.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following background is derived from the pleadings and the parties' motion papers, including the supporting declarations filed therewith and exhibits filed thereto. It is stated solely for purposes of deciding the pending motions for partial summary judgment and not as findings of fact in these cases. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Petitioners in these nine cases are Harbinder and Barbara Brar and eight family limited partnerships (FLPs) that they directly and indirectly control. The Petitions in these nine cases relate to tax year 2015 (the year at issue). All eight FLPs are classified as partnerships subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). See I.R.C. §§ 6221-34 (as in effect for years before 2018). The Brars resided in California when the Petition in their case was filed, and the principal place of business for all eight FLPs was also in California when the Petitions in their respective cases were filed. Accordingly, these nine cases are appealable to the Court of Appeals for the Ninth Circuit. See I.R.C. § 7482(b)(1)(A) and (E).
I. The Brars
The Brars' 2015 income tax examination was conducted by Revenue Agent Helen Tran (RA Tran). On July 22, 2019, RA Tran mailed the Brars a Letter 5153 and attached Form 4549-A, Report of Income Tax Examination Changes (Unagreed and Excepted Agreed), which form is commonly known as a revenue agent report (RAR).
The RAR contains two schedules for penalties, one captioned "Civil Fraud Penalty under IRC 6663(a)" (section 6663 schedule), and another captioned "Accuracy-Related Penalties under IRC 6662" (section 6662 schedule). The section 6663 schedule calculated the civil fraud penalty to be $3,081,903. The section 6662 schedule calculated a 20% penalty of $31,469.20. The section 6662 schedule also contained a space below the 20% penalty calculation, where RA Tran could have asserted a 40% accuracy-related penalty. However, the underpayment to which any 40% penalty would apply was listed as zero, and the amount of the 40% penalty was also listed as zero. There is no indication anywhere in the RAR that a 40% penalty was being asserted as an alternative to the 20% penalty. The RAR was the first time the Internal Revenue Service (IRS) communicated its intention to assert penalties to the Brars.
On the same day that the RAR was mailed to the Brars, but before the RAR was actually mailed, RA Tran sent an e-mail to her immediate supervisor, Group Manager Tiffany Sim (GM Sim), requesting that she sign a Civil Penalty Approval Form (approval form). The approval form requested supervisor approval for the following penalties:
(1) a fraud penalty under section 6663;
(2) a penalty under section 6676(a) for erroneous claim for refund or credit;
(3) a 20% accuracy-related penalty under section 6662(a), (b)(1), and (b)(2); and
(4) a 40% accuracy-related penalty under section 6662(a) and (i).
GM Sim electronically signed the approval form and RA Tran then mailed the RAR to the Brars with the signed approval form attached thereto.
On October 8, 2019, the IRS issued a notice of deficiency to the Brars. The notice of deficiency contains the same penalty calculations as in the RAR. That is, there is a clear determination that a section 6663(a) civil fraud penalty is being asserted in the same amount as in the RAR. There is also a clear indication that the 20% accuracy-related penalty under section 6662(a) is being asserted in the same amount as in the RAR, but it is unclear whether the IRS is asserting the 40% penalty under section 6662(a) and (i) as there is no indication on the face of the notice of deficiency that such a penalty is being asserted, and the schedule for the 40% penalty calculates the penalty to be zero.
II. The FLPs
The TEFRA proceedings for all eight FLPs were also conducted by RA Tran. On February 13, 2019, RA Tran sent two e-mails to GM Sim. One e-mail requested supervisor approval to assert penalties against FLPs I through IV, and the other email requested the same approval for FLPs V through VIII. Each e-mail contained four approval forms, for a total of eight approval forms, one for each FLP. The penalties listed on all eight approval forms are the same. The next day, on February 14, 2019, GM Sim electronically signed all eight approval forms and returned the signed forms to RA Tran. The following penalties were approved:
(1) a fraud penalty under section 6663;
(2) a 20% penalty under section 6662(a), (b)(1), (b)(2), and (b)(6); and
(3) a 40% penalty under section 6662(a) and (i).
On July 10, 2019, the IRS issued eight notices of final partnership administrative adjustment (FPAAs), one to each of the eight FLPs. In all eight FPAAs, the IRS asserted a civil fraud penalty under section 6663 as to all of its adjustments. Alternatively, the IRS asserted a 40% penalty under section 6662(a) and (i) for adjustments resulting from the denial of captive insurance expense deductions, with a 20% penalty under section 6662(a) as an alternative to the 40% penalty; and a 20% penalty under section 6662(a) for adjustments resulting from the denial of deductions other than for captive insurance expense. These FPAAs were the first time the IRS communicated its intention to assert penalties to the FLPs.
Discussion
III. Summary Judgment
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). Generally, we 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. Rule 121(b); see also Sundstrand Corp., 98 T.C. at 520. A partial summary adjudication is appropriate if some but not all issues in the case may be decided as a matter of law, even though not all the issues in the case are disposed of. See Rule 121(b); Turner Broad. Sys., Inc. & Subs. v. Commissioner, 111 T.C. 315, 323-24 (1998). In deciding whether to grant such partial summary judgment relief, we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party, Respondent in this case. See Sundstrand Corp., 98 T.C. at 520 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, a nonmoving party may not rest upon the mere allegations or denials in its pleadings but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d), see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
After reviewing Petitioners' (i.e., the Brars and the FLPs) motions for partial summary judgment, we conclude that, for the reasons detailed below, Petitioners are not entitled to summary adjudication in their favor.
IV. Petitioners' Argument
Petitioners' sole contention is that the approval forms for both the Brars and the FLPs are invalid because GM Sim did not affix the appropriate electronic signature on those forms. Their argument begins with the Government Paperwork Elimination Act (GPEA), Pub. L. No. 105-277, §§ 1701-10 112 Stat. 2681, 2681-749 to 751, which statute they believe requires "[f]ederal agencies [to] provide for the use and acceptance of electronic signatures." From the GPEA, they turn to the Internal Revenue Manual, which mandates compliance with the GPEA. See Internal Revenue Manual (IRM) pt. 4.10.1.4.4 (Aug. 24, 2017). The IRM also states that "[e]xaminers and managers should use Adobe to create digital signatures that meet the requirements of GPEA.” Id. para. (3) (emphasis added).
We note that there is a more recent version of this part of the IRM. See IRM pt. 4.10.1.4.4 (Jul. 12, 2022). We use this version because it is the one cited by Petitioners in their motion papers.
Based on the provisions of the GPEA and the IRM, Petitioners attack the form of GM Sim's electronic signature. They believe that the approval forms are invalid because there is no digital certificate generated by Adobe next to her signature. To illustrate Petitioners' argument, the following image shows one of GM Sim's signatures on the approval forms (the others are identical except for the dates):
(Image Omitted)
Petitioners assert that signature above is invalid and that an appropriate signature is one similar to the following (taken from an approval form for a different tax year that is not at issue in these nine cases):
(Image Omitted)
Since there is no digital certificate next to GM Sim's signature, Petitioners argue that the signature is invalid. Thus, they argue, the approval forms are invalid and RA Tran failed to comply with section 6751(b)(1) in asserting penalties against Petitioners.
We disagree for the reasons that follow. First, Petitioners err in relying on the IRM. It is well-settled that the IRM does not have the force of law, is not binding on Respondent, and does not confer enforceable rights on taxpayers. Thompson v. Commissioner, 140 T.C. 173, 190 n.16 (2013); Barnes v. Commissioner, 130 T.C. 248, 255-56 (2008).
Second, and most importantly, Petitioners' argument is belied by the text of section 6751(b)(1) and our precedent. Section 6751(b)(1) does not require written supervisor approval to be in any particular form. Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 85-86 (2019). It does not even explicitly require a signature, just that the penalty be “personally approved (in writing).” I.R.C. § 6751(b)(1). Petitioners' argument adds requirements into the text of section 6751(b)(1) that are simply not there. We therefore reject their argument that GM Sim's signatures are invalid due to noncompliance with the GPEA and the IRM.
On the record before us, we find that Respondent complied with section 6751(b)(1). Accordingly, Petitioners are not entitled to partial summary judgment.
After due consideration, and for cause, it is
ORDERED that Petitioners' Motion for Partial Summary Judgment, filed on the applicable date listed in the table on the first page of this Order, is denied.