Opinion
12663-21
04-30-2024
I-20 OCONEE, LLC, I-20 OCONEE LIMITED, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth Crewson Paris Judge
This case involves respondent's disallowance of petitioner's 2014 charitable contribution deduction for its donation of a conservation easement under section 170.This Order addresses respondent's Motion for Partial Summary Judgment, filed December 28, 2023, docket entry 23. Respondent moves for summary judgment on the sole issue of whether he complied with the supervisory approval requirements of section 6751(b) with respect to the penalties asserted.
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.
On June 28, 2021, docket entry 1, petitioner filed a Petition for Readjustment of Partnership Items set forth in a Notice of Final Partnership Administrative Adjustment (FPAA) issued March 30, 2021. The FPAA asserted accuracy-related penalties under section 6662 for gross valuation misstatement (section 6662(h)) and, in the alternative, substantial valuation misstatement (section 6662(b)(3)), substantial understatement of income tax (section 6662(b)(2)), and negligence (section 6662(b)(1)).
On December 28, 2023, docket entry 23, respondent filed a Motion for Partial Summary Judgment on the grounds that respondent complied with the supervisory approval requirements of section 6751(b)(1) as they apply to: (1) the gross valuation misstatement penalty under section 6662(h); (2) the substantial valuation misstatement penalty under section 6662(b)(3); (3) the substantial understatement penalty under section 6662(b)(2); and (4) the negligence penalty under section 6662(b)(1). Attached to the Motion for Partial Summary Judgment were Exhibit A, Declaration of James W. Tindall (with supporting Exhibits 1 through 3), and Exhibit B, Declaration of Jacqueline Maloney (with supporting Exhibits 1 and 2) (Maloney Declaration).
On March 14, 2024, docket entry 26, petitioner filed a Response to Motion for Partial Summary Judgment.
Background
The following facts are drawn from the parties' pleadings, motion papers, declarations, and exhibits 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).
I-20 Oconee, LLC (Oconee), is a Georgia limited liability company whose principal place of business is in Georgia. Oconee was classified as a partnership for federal income tax purposes subject to TEFRA for tax year 2014. I-20 Oconee Limited, LLC, is the tax matters partner of Oconee.
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324, 648-71 (repealed by the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 1101(a), 129 Stat. 584, 625).
Petitioner's 2014 return was selected for examination, and Revenue Agent James W. Tindall (RA) was assigned as the examiner. During the course of petitioner's audit, Jacqueline Maloney (Acting Team Manager) was designated as the Acting Team Manager of Exam Team #1051 from August 20, 2017, through December 9, 2017. During this period, the Acting Team Manager was the direct supervisor of RA.
The Maloney Declaration states that Ms. Maloney was "on a detail as the Acting Team Manager of Exam Team #1051 from on or about August 20, 2017 through July 22, 2018." However, the Personnel Action Request attached as Exhibit 1 to the Maloney Declaration reflects only that Ms. Maloney was designated as the Acting Team Manager from August 20, 2017, through December 9, 2017. Therefore, the documentation submitted with the Maloney Declaration indicates that, at a minimum, Ms. Maloney was the Acting Team Manager from August 20, 2017, through December 9, 2017.
During the examination, RA made an initial determination that the following penalties were applicable to petitioner's 2014 tax year at the partnership level: (1) the gross valuation misstatement penalty under section 6662(h); (2) the substantial valuation misstatement penalty under section 6662(b)(3); (3) the substantial understatement penalty under section 6662(b)(2); and (4) the negligence penalty under section 6662(b)(1). On or about August 23, 2017, RA drafted a penalty workpaper memorializing his initial penalty determination, which included his analysis of the application of penalties to petitioner's tax year 2014.
On August 24, 2017, the Acting Team Manager personally approved in writing RA's initial determination of penalties applicable to petitioner's 2014 tax year by affixing her electronic signature to RA's penalty workpaper with the wording "approved."
Respondent did not communicate his intention to assert penalties until after obtaining the requisite supervisory approval, and Acting Team Manager approved the penalties before she lost the discretion to give or withhold her approval. To date, no penalties have been assessed. On September 20, 2017, respondent mailed to petitioner Form 4605-A, which contained a summary of the examination changes, including the assertion of penalties and other documents. A copy of the Form 4605-A and supporting documentation mailed to petitioner was hand delivered to petitioner's power of attorney with a cover letter (Letter 937) on September 21, 2017. Respondent issued petitioner the FPAA on March 30, 2021.
Discussion I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(a), the Court shall grant summary judgment when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. The Court may grant partial summary judgment if some but not all issues in a case can be disposed of summarily. Rule 121(a); Sundstrand Corp., 98 T.C. at 520. The moving party bears the burden of proving that no genuine dispute of fact exists. Sundstrand Corp., 98 T.C. at 520. However, the nonmoving party may not rest upon the allegations or denials in its pleadings but must set forth specific facts establishing that there is a genuine dispute of fact for trial. Rule 121(d); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment, the Court views the facts and inferences drawn from them in the light most favorable to the nonmoving party (here petitioner). Sundstrand Corp., 98 T.C. at 520.
II. Analysis
Respondent avers that he has satisfied the requirements of section 6751(b)(1) with respect to penalties asserted for petitioner's 2014 tax year and that there is no genuine dispute of material fact on this issue. Petitioner contends that respondent has not satisfied the requirements of section 6751(b)(1) because that section requires some meaningful review from the supervisor before approval of penalties asserted, and that no meaningful review occurred in this case.
Petitioner's Response to Respondent's Motion for Summary Judgment, filed March 14, 2024, docket entry 26, states that "Petitioner understands the Tax Court's applicable precedent does not require Respondent establish a certain level of review to satisfy [section 6751(b)(1)]." Therefore, petitioner "opposes Respondent's Motion solely to preserve its position on appeal that a mere rubber-stamping of a penalty determination is not sufficient to constitute a 'personal' review."
As a threshold matter, to assess penalties respondent must show that he complied with section 6751(b)(1). Section 6751(b)(1) provides that no 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." In this case, petitioner disputes only that respondent satisfied the "personal approval" requirement of section 6751(b)(1). Thus, to resolve respondent's Motion, this Court need only consider the issue of personal approval. Nonetheless, the Court will briefly analyze whether respondent has met the requirements of section 6751(b)(1).
The U.S. Court of Appeals for the Eleventh Circuit has held that if a supervisor approves the initial determination of a penalty before respondent assesses those penalties, then respondent has satisfied the requirements of section 6751(b)(1). Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73. The court defined "assessment" as "the act of recording a tax liability." Id. at 1277. Absent stipulation to the contrary, this case is appealable to the Eleventh Circuit, see § 7482(b)(1)(A), thus this Court will follow its precedent. Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd 445 F.2d 985 (10th Cir. 1971).
Respondent has provided sufficient evidence showing that he complied with the supervisory approval requirements of section 6751(b)(1). RA declares under penalty of perjury that he made the initial determination to assert penalties, which he memorialized in a penalty workpaper setting forth his analysis of the applicable penalties on or about August 23, 2027. From August 20, 2017, through at least December 9, 2017, Acting Team Manager was RA's direct supervisor. On August 24, 2017, Acting Team Manager affixed her electronic signature to the top right corner of the penalty workpaper with the wording "approved." Further, Acting Team Manager declares under penalty of perjury that she gave her "personal, written approval of [RA's] initial determination of [penalties]" with respect to petitioner's 2014 tax year by affixing her electronic signature upon the penalty workpaper. Acting Team Manager approved RA's initial determination before any assessment of penalties and over three years before the FPAA was issued on March 30, 2021.
Petitioner contends that respondent failed to comply with section 6751(b)(1) because RA's supervisor did not provide "personal approval." Petitioner's position is that respondent obtained mere "rubber-stamp" approval of the penalties at issue, not the "personal" approval required by section 6751(b)(1). Petitioner argues that the word "personally" requires the supervisor to "meaningfully review" the penalty determination before providing written approval.
This Court has explicitly refused "to read into section 6751(b)(1) the subtextual requirement that respondent demonstrate the depth or comprehensiveness of the supervisor's review." See Patel v. Commissioner, T.C. Memo. 2020-133, at *26 (quoting Belair Woods, LLC v. Commissioner, 154 T.C. 1, 17 (2020) (citation omitted) (internal quotations omitted)); Raifman v. Commissioner, T.C. Memo. 2018-101, at *60-61 (adequacy of manager's contemplation of a potential penalty defense irrelevant to whether respondent complied with the written supervisory approval requirement of section 6751(b)). Rather, "[t]he written supervisory approval requirement of section 6751(b)(1) requires just that: written supervisory approval." Raifman, T.C. Memo. 2018-101, at *61. Therefore, this Court has repeatedly held that the relevant supervisor's signature (to include an acting supervisor's signature) on a document setting forth the initial determination of penalties is sufficient to satisfy the statutory requirements of section 6751(b)(1). See, e.g., Belair Woods, 154 T.C. at 17 (finding sufficient manager's signature on penalty approval form); Palmolive Bldg. Investors, LLC v. Commissioner, 152 T.C. 75, 86 (2019) (finding sufficient supervisor's signature on a Form 5701, Notice of Proposed Adjustment, which referenced and attached two Forms 886A, Explanation of Items, which in turn proposed and provided justification for various penalties); Glassman v. Commissioner, T.C. Memo. 2024-51, at *6 (finding that the acting group manager was the relevant supervisor within the meaning of section 6751(b) and finding sufficient the acting group manager's signature on penalty approval form); Hoakison v. Commissioner, T.C. Memo. 2022-117, at *37 (finding sufficient a supervisor's signature on a 30-day letter which included an examination report explaining the determination of penalties).
Petitioner has not set forth any "specific facts" to dispute respondent's compliance with section 6751(b). Therefore, the Court concludes that the penalties at issue in this case were personally approved, in writing, by the immediate supervisor of RA in accordance with section 6751(b)(1).
On the basis of the foregoing, the Court finds that respondent has satisfied the supervisory approval requirements of section 6751(b)(1) as they apply to: (1) the gross valuation misstatement penalty under section 6662(h); (2) the substantial valuation misstatement penalty under section 6662(b)(3); (3) the substantial understatement penalty under section 6662(b)(2); and (4) the negligence penalty under section 6662(b)(1).
After due consideration, it is
ORDERED that respondent's Motion for Partial Summary Judgment, filed December 28, 2023, docket entry 23, is granted and that respondent has satisfied the supervisory approval requirements of section 6751(b)(1) as they apply to the penalties at issue on petitioner's Notice of Final Partnership Administrative Adjustment, dated March 30, 2021, for the partnership tax year ending December 31, 2014.