Opinion
12049-19
03-25-2022
POINT OF THE RIVER, LLC, PARKWAY SOUTH, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge
This case involves a charitable contribution deduction claimed by Point of the River, LLC (POTR), for a conservation easement. The IRS issued petitioner a notice of final partnership administrative adjustment (FPAA) disallowing POTR's deduction and determining penalties. Currently before the Court are the parties' cross-motions for partial summary judgment addressing the question whether the IRS complied with section 6751(b)(1) with respect to the penalties. We will grant respondent's motion and deny petitioner's.
All statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
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 the cross-motions 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). POTR had its principal place of business in Georgia when the petition was timely filed.
In September 2014 POTR acquired roughly 141 acres of land in Elmore County, Alabama. On December 4, 2014, POTR granted to the National Wild Turkey Federation Research Foundation (NWT) a conservation easement over the land. Three weeks later, POTR donated a fee simple interest in the land to a passthrough entity wholly owned by NWT. 1
POTR timely filed Form 1065, U.S. Return of Partnership Income, for its short 2014 tax year. On that return it claimed a charitable contribution deduction of $12,375,000 for the donation of the easement. It also claimed a charitable contribution deduction of $4,125,000 for its donation of the fee simple interest.
The IRS selected POTR's return for examination and in December 2015 assigned the case to Revenue Agent (RA) Pamela Stafford. In October 2018 RA Stafford neared completion of her examination. On October 5, 2018, she began drafting Form 5701, Notice of Proposed Adjustment.
On November 1, 2018, RA Stafford and Christipher Pavilonis, an attorney in the IRS Office of Chief Counsel, participated in a telephone conference with POTR's representative to discuss the "current status of the examination." (Catherine Brooks, RA Stafford's immediate supervisor, did not participate in the call.) During the call RA Stafford informed POTR's representative "what the adjustments would be" and indicated the "penalties that were currently under consideration." RA Stafford explained that, once she completed her work, she planned to recommend that the case be "closed to issue an FPAA instead of allowing [POTR] to go to Appeals." Because the case "w[as] extremely old," RA Stafford stated that the IRS would "go the FPAA route" without issuing a "summary report or F[orm] 886-A." RA Stafford did not provide POTR's representative, in conjunction with the call, any document setting forth her recommendations. Nor did she ask POTR's representative to sign any document.
That same day RA Stafford prepared a penalty lead sheet. This document reflects her recommendation that penalties be asserted against POTR under sections 6662 and 6662A. These included penalties for substantial and gross valuation mis-statement. See § 6662(e), (h).
RA Stafford took a few more steps before formally closing the examination. On November 7, 2018, she finalized her revenue agent report and "[p]repared [a] transmittal letter for case file closing." On November 9, 2018, she met briefly with her "manager . . . about potential penalties."
RA Stafford then sent the penalty lead sheet to Ms. Brooks, her immediate supervisor. Ms. Brooks signed the lead sheet on February 11, 2019. Two months later, on April 10, 2019, the IRS issued the FPAA disallowing the charitable contribution deduction for the easement, reducing the deduction for the fee simple donation, and determining penalties. The IRS attached to the FPAA a copy of the penalty lead sheet as executed by Ms. Brooks.
Discussion
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 of material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp., 98 T.C. at 520. The 2 sole question presented at this juncture is whether the IRS complied with the requirements of section 6751(b)(1). The parties have filed cross-motions for partial summary judgment on this question, and we find that it may be adjudicated summarily.
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 IRS issues an FPAA to the partnership. See Palmolive Bldg. Inv'rs, LLC v. Commissioner, 152 T.C. 75, 83 (2019). If supervisory approval is 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. Frost v. Commissioner, 154 T.C. 23, 35 (2020).
Respondent has supplied the penalty lead sheet by which RA Stafford recommended assertion of penalties against POTR. RA Stafford's immediate supervisor, Ms. Brooks, signed the lead sheet on February 11, 2019. The definite decision to assert penalties was formally communicated to POTR two months later, in the FPAA dated April 10, 2019. Respondent thus contends that approval of these penalties was timely secured.
Petitioner argues that the IRS communicated to POTR its decision to assert penalties five months earlier, i.e., on November 1, 2018, when RA Stafford participated in a telephone conference with POTR's representative. RA Stafford proposed that call to discuss "the current status of the examination." During the call she informed POTR's representative "what the adjustments would be" and indicated the "penalties that were currently under consideration." And she explained that, once she finished her work, the case would be "closed to issue an FPAA" because the case "w[as] extremely old."
RA Stafford did not provide POTR's representative-before, during, or immediately after the call-with any document setting forth her proposed adjustments or penalty recommendations. Nor did she ask POTR's representative to sign any formal or binding document, such as an RAR or a waiver of restrictions on assessment. Petitioner nevertheless argues that the penalty lead sheet manifested RA Stafford's "initial determination" to assert penalties and that this "determination" was communicated to POTR during the telephone conference. Petitioner thus contends that RA Stafford was obligated to secure her supervisor's approval for the penalties before convening the telephone call.
We rejected an identical argument in Oxbow Bend, LLC v. Commissioner, T.C. Memo. 2022-23, which is consolidated with the instant case and involves certain common issues of law and fact. There the examining agent convened a status conference with the taxpayer's representative and informed him that she intended to recommend assertion of penalties. In rejecting the taxpayer's argument, we noted that "[w]e have never found a telephone call . . . to embody an 'initial determination' within the meaning of section 6751(b)(1)." Id. at *8. We explained that the section 6751(b) "timeliness 3 inquiry" turns "on the timing of the first 'formal written communication' to the taxpayer against whom the penalties are being asserted." Ibid. (quoting Belair Woods, LLC v. Commissioner, 154 T.C. 1, 10 (2020)).
Here, as in Oxbow Bend, RA Stafford secured supervisory approval before issuing any "formal written communication" to POTR. Ibid. Although she mentioned the likelihood of penalties during the telephone conference on November 1, 2018, the first formal communication to POTR of penalties did not occur until April 10, 2019, when the IRS issued the FPAA. RA Stafford's supervisor approved her recommendation to assert penalties on February 11, 2019; her approval was thus timely.
For these reasons, and for the reasons more fully explained in Oxbow Bend, it is
ORDERED that petitioner's Motion for Partial Summary Judgment, filed December 1, 2021, is denied. It is further
ORDERED that respondent's Motion for Partial Summary Judgment, filed December 13, 2021, is granted. 4