Opinion
9152-21
11-08-2023
TOP ROCK BBS, LLC, BARNETT PROPERTIES, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge.
This case involves a charitable contribution deduction claimed by Top Rock BBS, LLC (Top Rock) on its 2017 tax return for a conservation easement. The Commissioner issued a Final Partnership Administrative Adjustment (FPAA), in which he disallowed Top Rock's deduction and asserted corresponding penalties. [Doc. 1 at 32-38.]
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. "Doc." references are to the documents in the record for this case as compiled by the Clerk of this Court, using .pdf pagination.
Currently before the Court is Top Rock's motion for partial summary judgment, which asserts that the Commissioner failed to obtain the appropriate written approval required by section 6751(b). [Doc. 48 at 2-4.] The Commissioner responds that he fulfilled the plain language of this provision by obtaining the written approval of the immediate supervisor of the revenue agent who determined the penalties. [Doc. 56.] We will deny Top Rock's motion for partial summary judgment and grant partial summary judgment to the Commissioner pursuant to Rule 121(g).
Background
The following facts are derived from the parties' pleadings, motion papers, and declarations and exhibits attached thereto. They are stated solely for the purpose of deciding the motion before us and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
On January 30, 2020, the IRS's Large Business and International Division (LB&I) notified Top Rock that its 2017 tax return had been selected for examination. [Doc. 48 at 62.] Revenue Agent Paula Moyer (RA Moyer) and Revenue Agent Sungwook Choi (RA Choi), conducted the examination, with Supervisory Revenue Agent Paul Martineau (SRA Martineau) acting as their team manager and immediate supervisor. [Id. at 67; Doc. 56 at 16, 21-22.]
On January 5, 2021, RA Moyer emailed a completed penalty lead sheet to SRA Martineau (with RA Choi copied), requesting his approval. [Doc. 48 at 82-84.] The next day, SRA Martineau responded with signed copies of the penalty lead sheets with the message "[s]igned - [t]hanks." [Id. at 90-92.] The lead sheets reflected penalties under sections 6662(b)(1)-(3), 6662(h), 6662A, and 6707A. [Id. at 83-84.] Two months later, the Commissioner issued an FPAA denying Top Rock's conservation easement deduction and asserting a variety of penalties, all of which were included on the signed penalty lead sheet. [Doc. 1 at 32-38.]
During all times pertinent to the resolution of the pending motion, a provision in the Internal Revenue Manual (IRM) relating to LB&I stated that, "[f]or a tax shelter case involving a listed transaction, the decision to impose or not impose an accuracy-related penalty must be approved by the respective Director of Field Operations (DFO)." I.R.M. 20.1.5.2.1(3) (Apr. 22, 2019). In November 2020, the DFOs for the Eastern Compliance and Enterprise Activities Practice Areas issued a blanket approval "of the assertion or non-assertion of accuracy-related penalties under IRM 20.1.5.2.1(3)" for conservation easement cases assigned to LB&I, noting (1) that no such requirement applied to "virtually identical" conservation easement cases assigned to other IRS divisions, (2) the need to treat similarly situated taxpayers the same, and (3) the highly coordinated nature of such cases. [Doc. 48 at 13-14.]
The IRM has since removed this language.
Discussion
I. Summary Judgment Standard
We may grant partial summary judgment if there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(a); see also Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). The moving party bears the burden of proving that there is no genuine issue of material fact, and we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. When a motion for summary judgment is made and properly supported, the adverse party may not rest upon mere allegations or denials of the pleadings but must set forth specific facts showing that there is a genuine issue for trial. Rule 121(d).
II. Section 6751(b)
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 or such higher level official as the Secretary may designate." "[T]he 'initial determination' of a penalty assessment . . . is embodied in the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties." Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020) (citation omitted); see also Belanger v. Commissioner, T.C. Memo. 2020-130, at *27-28; accord Clay v. Commissioner, 152 T.C. 223, 248-49 (2019). In this case, RAs Moyer and Choi received written approval from their immediate supervisor, SRA Martineau, before the initial determination of penalties was communicated to Top Rock via the FPAA. The Commissioner thus has demonstrated compliance with section 6751(b).
Absent stipulation to the contrary, this case is appealable to the U.S. Court of Appeals for the Eleventh Circuit, and we follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971). In Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73, 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 court 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. But the Eleventh Circuit left open the possibility that supervisory approval in some cases might need to be secured sooner, i.e., before the supervisor "has lost the discretion to disapprove" the penalty determination. See id. at 1279 n.1. The Commissioner here has satisfied the requirements of section 6751 even without respect to the more generous time frame contemplated in Kroner.
Top Rock, however, points out that the section 6751(b)(1) contemplates approval "by the immediate supervisor . . . or such higher level official as the Secretary may designate," and argues that the IRM's DFO approval requirements represents a delegation of the authority by the Commissioner that displaces the immediate supervisor. This argument is wrong for any number of reasons that we will not go into given that trial begins in less than a week. Suffice to say that the word "or" as used in section 6751(b) permits approval by either of two types of officials, and the requirement here was satisfied by SRA Martineau's written sign-off as the immediate supervisor. See United States v. Woods, 571 U.S. 31, 45 (2013) (The word "or" has an "ordinary use [that] is almost always disjunctive."); see also United States v. Gruezo, 66 F.4th 1284, 1291 (11th Cir. 2023).
While "statutory context can overcome the ordinary, disjunctive meaning of 'or,'" Encino Motorcars, LLC v. Navarro, 138 S.Ct. 1134, 1141 (2018), Top Rock does not provide us with any such context here. Top Rock instead suggests that the Commissioner is bound to the restrictions he set forth in the IRM. [Doc. 63 at 4-5.] As we have stated oft before, the IRM neither has the force of law nor bestows substantive rights on taxpayers. Weiss v. Commissioner, 147 T.C. 179, 196 (2016), aff'd, 2018 WL 2759389 (D.C. Cir. 2018); see also United States v. Rum, 995 F.3d 882, 893 (11th Cir. 2021). Even if DFO approval were necessary, we would find that the blanket approval provided in the memorandum would be sufficient.
The Commissioner urged in his response to the motion for partial summary judgment that we grant partial summary judgment in his favor under Rule 121(g) on the grounds that Top Rock's "motion sets forth the undisputed facts necessary for the Court to decide to grant partial summary judgment [to him]." [Doc. 56 at 13.] As relevant here, Rule 121(g) permits us to grant summary judgment to a nonmovant "[a]fter giving notice and a reasonable time to respond." We believe that the Commissioner's response gave adequate notice of the possibility that we might grant partial summary judgment to the Commissioner, and Top Rock had time to submit a vigorous reply to the Commissioner's positions. [Doc. 63.] We will accordingly grant partial summary judgment to the Commissioner pursuant to Rule 121(g).
Accordingly it is, ORDERED that Top Rock's motion for partial summary judgment [Doc. 48], filed September 11, 2023, is denied. It is further
ORDERED that, pursuant to Rule 121(g)(1), we grant partial summary judgment to the Commissioner, in that the Commissioner satisfied the supervisory approval requirement embodied in section 6751(b) with respect to the penalties asserted in this case.