Opinion
7045-19
12-01-2021
Picayune Pearl Aggregates, LLC, Picayune Pearl Aggregates Investors, LLC, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER
Courtney D. Jones Judge
This case involves a charitable contribution deduction claimed by Picayune Pearl Aggregates, LLC (Picayune Pearl), for the donation of a fee simple interest in property for the period ending December 31, 2015. On October 30, 2018, the Internal Revenue Service (IRS or respondent) issued two Forms 5701, Notice of Proposed Adjustment, to Picayune Pearl Aggregates Investors, LLC as the tax matters partner for Picayune Pearl. First, the Form 5701 (PICA-1 Fee Simple Interest Donation) disallowed the charitable contribution deduction. Second, the Form 5701 (PICA-2 Accuracy Related Penalty Assertion) proposed a penalty under section 6662(h), and in the alternative, a penalty under section 6662A, or section 6662(b)(1), (2), or (3) (the Asserted Penalties). Currently before the Court are the parties' cross-motions for partial summary judgment addressing whether the IRS complied with section 6751(b)(1) with respect to these penalties.
Unless otherwise indicated, all statutory 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.
Applying our recent holding in Sand Inv. Co., LLC v. Commissioner, 157 T.C. __ (Nov. 23, 2021) (Sand Investment), a case whose facts are strikingly similar to those in the instant case, we will deny petitioner's motion and grant respondent's cross-motion.
Background
There is no dispute as to the following facts which are drawn from the petition, the parties' motion papers, and the associated declarations and exhibits. Picayune Pearl is a Delaware limited liability company that operated as a partnership for Federal income tax purposes during the taxable period at issue. Its principal place of business was in Louisiana when its petition was filed.
On December 28, 2015, Picayune Pearl donated 203 acres of real property located in Hancock County, Mississippi. Picayune Pearl filed a Form 1065, U.S. Return of Partnership Income, for the period ending December 31, 2015. On that return, it claimed a $170,000,000 charitable contribution deduction for the donation.
The IRS selected Picayune Pearl's 2015 return for examination and assigned the case to Revenue Agent (RA) Adrienne Cooper, a member of Team 1124 in the IRS Large Business & International Division (LB&I). Supervisory Revenue Agent Gregory Burris supervised all cases assigned to Team 1124, and he served as both the "case manager" and the "issue manager" for the examination of Picayune Pearl's return. As the case and issue manager, he supervised all aspects of the examination.
RA Cooper was promoted to Senior Revenue Agent on September 2, 2018. As a result of this promotion, she was transferred to a different team in LB&I, and William Wilson became her new supervisor. But because the Picayune Pearl examination was ongoing, the IRS authorized RA Cooper to continue her work with Team 1124 until that examination concluded. Although Mr. Wilson became responsible for approving RA Cooper's timesheets, leave requests, and other routine administrative matters, Mr. Burris remained the case and issue manager of the Picayune Pearl examination and continued to oversee all of RA Cooper's work on that examination.
Following her promotion RA Cooper proceeded with her examination of Picayune Pearl's return and made the decision to impose the Asserted Penalties. Her recommendations to this effect were set forth in a "Penalty Lead Sheet". Mr. Burris digitally signed this document on October 25, 2018, as the "Case/Issue Manager". RA Cooper concurrently prepared a Supplemental Civil Penalty Approval Form, which states that she "made the initial determination to assert * * * penalties". RA Cooper signed that form on October 24, 2018, and Mr. Burris digitally signed it the next day as the "Case & Issue Supervisor".
Though the Penalty Lead Sheet used by respondent does not explicitly refer to sec. 6662(b), we construe the approval of a penalty under subsections (c), (d), and (e) on the lead sheet to constitute approval of penalties under sec. 6662(b)(1), (2), and (3) by operation of the statute. See sec. 6662.
On October 30, 2018, RA Cooper issued the tax matters partner the Form 5701, which proposed the Asserted Penalties. Mr. Burris digitally signed Form 5701 on October 25, 2018.
On February 5, 2019, respondent issued a final partnership administrative adjustment (FPAA) disallowing the deduction in full because Picayune Pearl did not establish that the claimed deduction met all of the requirements of section 170. The FPAA also determined that Picayune Pearl was liable for the Asserted Penalties.
On May 6, 2019, the tax matters partner timely filed a petition in this Court for readjustment of the partnership items. The parties subsequently filed cross motions for partial summary judgment on the issue of whether the IRS complied with section 6751(b)(1) with respect to the penalties.
Discussion
I. Summary Judgment Standard
Summary judgment serves to "expedite litigation and avoid unnecessary and expensive trials". Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary judgment when there is no genuine dispute of material fact, and a decision may be rendered as a matter of law. Rule 121(b); 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 a light most favorable to the nonmoving party. Id. The nonmoving party may not rest upon mere allegations nor denials in their pleadings and 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).
The sole question presented at this juncture is whether the IRS complied with the requirements of section 6751(b)(1). Upon review of the parties' motion papers and associated declarations and exhibits, we conclude that this question may be adjudicated summarily.
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 a TEFRA case such as this, supervisory approval generally must be obtained before the FPAA is issued to the partnership. See Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 83 (2019). If supervisory approval was obtained by that date, the partnership must establish that the approval was untimely, i.e., "that there was a formal communication of the penalty before the proffered approval" was secured. See Frost v. Commissioner, 154 T.C. 23, 35 (2020). See also Patel v. Commissioner, T.C. Memo. 2020-133.
Respondent has supplied the Penalty Lead Sheet and the Supplemental Civil Penalty Approval Form by which RA Cooper recommended imposition of the Asserted Penalties against Picayune Pearl. RA Cooper's case and issue manager, Mr. Burris, signed both forms on October 25, 2018, and RA Cooper's new team leader, Mr. Wilson, signed them on November 1, 2018.
The parties agree that the first formal communication of the penalties was communicated to Picayune Pearl in Form 5701, on October 30, 2018. Relying upon Mr. Burris' signatures on the lead sheet and the approval form, respondent thus contends that timely approval of these penalties was secured. See Frost, 154 T.C. at 35; Patel, at *16. Petitioner contends that supervisory approval came too late because RA Cooper's "immediate supervisor" at that moment was Mr. Wilson. Because Mr. Wilson did not sign the penalty approval forms until November 1, 2018, petitioner urges that his approval was untimely.
In Sand Investment, we held that for purposes of I.R.C. sec. 6751(b)(1), the "immediate supervisor" is the individual who directly supervises the examining agent's work in an examination. 157 T.C. __ (slip op. at 11-12). In this case, as in Sand Investment, Mr. Burris was the "case manager" and the "issue manager" for the examination. Id. As the individual who oversaw RA Cooper's work throughout the examination, he was her "immediate supervisor". Id.
Though Mr. Wilson became RA Cooper's new supervisory revenue agent in September 2018, there is no evidence in this case (just as there was not in Sand Investment), that he had any authority to oversee her work on the Picayune Pearl examination. Id. at (slip op. 12). Accordingly, she had no obligation to obtain Mr. Wilson's approval of the Asserted Penalties. Id.
The record establishes that respondent satisfied the requirements of section 6751(b)(1) with respect to the Asserted Penalties. Mr. Burris signed the Penalty Lead Sheet, and the Supplemental Civil Penalty Approval Form on October 25, 2018--approving RA Cooper's initial determination of the Asserted Penalties--before Form 5701 was issued on October 30, 2018. If Mr. Burris had not made such approvals, then his signature on Form 5701 itself would have constituted valid approval. See Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. at 85; Flume v. Commissioner, T.C. Memo. 2020-80, at *34; Patel v. Commissioner, at *25.
We have considered all of the arguments made by the parties and, to the extent they are not addressed herein, we find them to be moot, irrelevant, or without merit.
Accordingly, it is
ORDERED that petitioner's Motion for Partial Summary Judgment, filed March 8, 2021 (docket entry no. 34), is denied. It is further
ORDERED that respondent's Motion for Partial Summary Judgment, filed April 22, 2021 (docket entry no. 40), is granted. It is further
ORDERED that, on or before December 30, 2021, the parties shall file a joint status report expressing their views as to the conduct of further proceedings in this case.