Opinion
12472-20 12482-20 12483-20 13758-20
07-10-2023
ROCK CLIFF RESERVE, LLC, FIVE RIVERS CONSERVATION GROUP, LLC, TAX MATTERS PARTNER, ET AL Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph W. Nega, Judge.
These consolidated cases are presently calendared for trial at the special session of the Court scheduled to commence on Monday, October 30, 2023, in Atlanta, Georgia. On April 20, 2023, respondent filed a Motion for Partial Summary Judgment and an accompanying Memorandum in Support of Motion for Partial Summary Judgment (collectively, the motion); on May 25, 2023, petitioner filed a Response to Motion for Partial Summary Judgment (response).
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.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.
In the motion, respondent seeks summary judgment on the issue of whether he complied with the requirements of section 6751(b)(1) as to the various penalties at issue in this case. In their response, petitioners oppose summary judgment on two grounds, asserting that (1) there is a fact issue with respect to the timeliness of supervisory approval on the determination of certain penalties and (2) respondent failed to comply with section 6751(b)(1) at all because the immediate supervisor "did not meaningfully review the penalty determinations."
As petitioner correctly notes, the motion is essentially moot with respect to the effect of the Commissioner's compliance with section 6751(b)(1) in assessing section 6662A penalties. See Green Valley Invs., LLC v. Commissioner, 159 T.C. No. 5, slip op. at 23 (Nov. 9, 2022) (holding that IRS Notice 2017-10, which identified syndicated conservation easements as listed transactions for purpose of section 6662A, was improperly issued outside notice-and-comment process and thus should be set aside under 5 U.S.C. § 706(2)).
Recognizing that this second contention is directly contrary to this Court's precedents, see Thompson v. Commissioner, 155 T.C. 87, 93 (2020); Belair Woods, LLC v. Commissioner, 154 T.C. 1, 16-17 (2020) (citing Raifman v. Commissioner, T.C. Memo. 2018-101, at *60-61), petitioners note that their opposition on this ground is intended to preserve their position on appeal.
I. Background
All four petitioners are limited liability companies (LLCs) formed under Georgia state law and treated as TEFRA partnerships for federal income tax purposes. On their 2015 Forms 1065, U.S. Return of Partnership Income, each petitioner reported (1) a charitable contribution deduction and (2) an amount on the "Other Deductions" line.
The Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 402(a), 96 Stat. 324, 648-71.
Respondent selected petitioners' 2015 returns for examination; Revenue Agent Dean Paikos conducted the examination of petitioners. On February 2 and 4, 2020, Jill Sullivan, the immediate supervisor of Mr. Paikos, digitally signed penalty approval forms, which listed the following penalties: (1) a section 6662(h) gross valuation misstatement penalty; (2) a section 6662A accuracy-related penalty on understatements with respect to reportable transactions; (3) a section 6662(e) substantial valuation misstatement penalty; (4) a section 6662(d) substantial understatement penalty; and (5) a section 6662(c) negligence penalty. These penalties corresponded to the downwards adjustment of the amount of charitable contribution deductions claimed by petitioners. On March 24, 2020, Ms. Sullivan digitally signed Partnership Procedures Check Sheets, which listed the following proposed penalties: "6662(h), 6662A, 6662(c), (d), and (e), 6662(a), (b)(1) and (b)(2)."
On three of the four sheets, Ms. Sullivan's signature was accompanied by a digital timestamp generated by a PDF program. In the sheet corresponding to Dkt. #13758-20, the signature field is left blank and was unsigned by Ms. Sullivan.
On July 9, 2020, Ms. Sullivan digitally signed a second set of penalty approval forms, which listed a section 6662(a) accuracy-related penalty on the basis of both negligence or disregard of rules or regulations and substantial understatement of income tax. These penalties corresponded to the downward adjustment of the amount of other deductions claimed by petitioners.
In August 2020 respondent issued Notices Of Final Partnership Administrative Adjustment (FPAAs) to Five Rivers Conservation Group, LLC, the tax matters partner (TMP) for each taxpayer. In the FPAAs, respondent determined to adjust downwards the amounts of charitable contribution deductions and other deductions claimed by petitioners. Petitioners timely filed Petitions with this Court, disputing the adjustments in the FPAAs.
II. Discussion
A. 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 (1998). The Court 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); 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 draw inferences therefrom in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. However, the nonmoving party may not rest upon mere allegations or denials of his pleadings but, rather, must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
B. Section 6751(b)(1) Compliance
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 Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73, the U.S. Court of Appeals for the Eleventh Circuit held that "the IRS satisfies [s]ection 6751(b) so long as a supervisor approves an initial determination of a penalty assessment before [the IRS] assesses those penalties." The Eleventh Circuit interpreted the phrase "initial determination of [the] assessment" to refer to the "ministerial" process by which the IRS formally records the tax debt. See id. at 1278. Absent stipulation to the contrary, this case is appealable to the Eleventh Circuit, and we thus follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
At the time the Petitions were filed, the principal place of business of each petitioner was in Georgia. See § 7482(b)(1)(E).
Respondent contends that supervisory approval was timely obtained prior to assessment of the penalties at issue and that he is thus entitled to summary judgment on this issue. Subject to reservation of their "meaningful review" contentions for appeal, petitioners essentially concede that respondent complied with section 6751(b)(1), as interpreted by this Court, with respect to some of the penalties relating to the adjustments to their charitable contribution deductions. Accordingly, petitioner's contention is that summary judgment is inappropriate as to whether respondent complied with section 6751(b)(1) with respect to the penalties relating to the adjustments to their other deductions (and the charitable contribution deduction in Dkt. No. 13758-20). Petitioners argue that, absent a digital timestamp on the penalty approval forms or metadata authenticating when the approval forms were transmitted, a fact issue exists as to whether supervisory approval was timely. Essentially, petitioners seek to draw a negative inference from the absence of PDF-generated timestamps on several of the penalty approval forms, speculating that Ms. Sullivan might actually have signed the forms on a different date.
With respect to Dkt. No. 13758-20 alone, petitioners assert that a fact issue exists as to the timeliness of the penalty approval form relating to the charitable contribution deduction adjustment, due to the fact that Ms. Sullivan did not sign the Partnership Procedures Check Sheet.
We conclude that respondent is entitled to partial summary judgment. The record demonstrates that Ms. Sullivan was Mr. Paikos's "immediate supervisor" within the meaning of section 6751(b)(1). See Sand Inv. Co., LLC v. Commissioner, 157 T.C. 136, 141-42 (2021). Both penalty approval forms were electronically signed by Ms. Sullivan before the issuance of the FPAAs to the TMP of petitioners, at a time when Ms. Sullivan still possessed the discretion to withhold approval. See Kroner v. Commissioner, 48 F.4th at 1279 n.1; Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir. 2022), rev'g and remanding 154 T.C. 68 (2020). As this Court has repeatedly held, "a manager's signature on a civil penalty approval form, without more, is sufficient to satisfy the statutory requirements" of section 6751(b)(1). See Salacoa Stone Quarry, LLC v. Commissioner, T.C. Memo. 2023-68, at *6.
Petitioners' attempt to conjure up a fact issue as to when Ms. Sullivan signed the penalty approval forms relies entirely on speculation. Absent clear evidence to the contrary, we presume that public officials like Ms. Sullivan properly discharge their official duties. See, e.g., Long Branch Land, LLC v. Commissioner, T.C. Memo. 2022-2, at *5 (applying presumption of official regularity to act of supervisory approval (citing Pietanza v. Commissioner, 92 T.C. 729, 739 (1989), aff'd, 935 F.2d 1282 (3d Cir. 1991))). That presumption is bolstered here by Mr. Paikos's declarations, under penalties of perjury, that Ms. Sullivan "personally approved my initial determination of the penalties for other deductions taken by the taxpayer in writing on July 9, 2020." When a public official affixes a signature and date to a document and another official attests to its factual accuracy, we do not lightly infer impropriety. See, e.g., Harrington v. Commissioner, T.C. Memo. 2021-95, at *23 (rejecting taxpayer's argument that IRS supervisor backdated penalty approval form in light of presumption of regularity), aff'd, No. 22-9000, 2022 WL 17333080 (10th Cir. Nov. 30, 2022). On the facts of these cases, even viewed in the light most favorable to petitioners, the absence of a PDF-generated timestamp on the penalty approval forms (which otherwise bear both a signature by an immediate supervisor and a signature date) is not by itself sufficient to generate a fact issue, given the presumption of official regularity. In opposing summary judgment, petitioners have pointed to no specific facts that could be viewed as factually supporting their untimeliness theory. See Rule 121(d); see also Nassau River Stone, LLC v. Commissioner, T.C. Memo. 2023-36 at *10 (rejecting similarly speculative argument by taxpayer opposing summary judgment that dates of electronic signatures on penalty approval form were inaccurate).
In this context, this presumption of official regularity is better regarded as "less a rule of evidence than a general working principle." Nat'l Archives & Recs. Admin. v. Favish, 541 U.S. 157, 174 (2004).
Petitioners point us to a case currently pending before another division of this Court, Lakepoint Land II, LLC (Dkt. No. 13925-17), in which the taxpayer has moved for reconsideration and sanctions on the grounds that the Commissioner's personnel improperly backdated a penalty approval form. The possibility that backdating may have occurred in another instance does not raise any suggestion of impropriety on the record before us.
We conclude that no genuine issue of material fact exists as to respondent's compliance with section 6751(b)(1). We will grant respondent's motion.
Accordingly it is ORDERED that respondent's Motion for Partial Summary Judgment, filed April 20, 2023, is granted.