The Tax Court in Brief November 22 – November 26, 2021

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The Tax Court in Brief November 22 – November 26, 2021

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of November 22 – November 26, 2021

Tax Court Case:

901 S. Broadway v. Comm’r, No. 14179-17, T.C. Mom 2021-132

November 23, 2021 | Halpern | Dkt. No. 14179-17

Short Summary:  This case focuses on a fairly narrow provision of § 170 of the Internal Revenue Code – namely § 170(h)(5)(A) – which requires, for a contribution to be considered a “qualified conservation contribution” under § 170(f)(3)(B)(iii), that such contribution be “exclusively for conservation purposes.”  The Court ultimately found that the requirement was not satisfied because the conservation purpose was not “protected in perpetuity”.

Key Issues:

Facts and Primary Holdings

Key Points of Law:

InsightMany rights to tax deductions – particularly charitable deductions – are subject to multiple, detailed restrictions that must be closely adhered to.  This case presents just one narrow, but stark, reminder that failure to adhere to all such restrictions can lead to the denial of a deduction.  Undoubtedly, those effecting the contribution did so with the expectation of a substantial tax deduction – one that ultimately did not materialize.

Tax Court Case:

Sand Inv. Co. v. Comm’r; 157 T.C. Memo. 11, 2021

November 23, 2021 Lauber, J. | Dkt. No. 7307-19

Short Summary: Taxpayer challenged examination determination and assessment of accuracy-based penalties on the grounds that the initial determination of a penalty assessment was not approved by the “immediate supervisor” of the person making that determination, as required by section 6751(b)(1). The revenue agent (RA) was supervised by her team manager (TM1); during the examination, RA was promoted and transferred to a different team with a different team manager (TM2). The question posed: who was the agent’s “immediate supervisor” for this examination? Interpreting the “immediate supervisor” practically, the court rejected the taxpayer’s arguments. For example, the taxpayer argued that revenue agent (RA) “immediate supervisor” should be determined by looking at an organization chart. The court observed that “formalistic interpretation does not align with the statutory context (penalty approval) or with Congress’ intent. Put simply, the person who approves time off is not necessarily the person who should be approving penalty determinations. The person who actually supervises the agent’s work during the examination–including ‘the development of all penalty issues,’ IRM pt.–is the person to whom Congress is most logically viewed as having entrusted this responsibility.”

Key Issues: How to interpret “immediate supervisor” for purposes of section 6751(b)(1), which does define this term. Nor does the IRS employ the term uniformly.

Primary Holdings: 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. The team manager who oversaw the agent’s work throughout the case that “immediate supervisor.” Because that manager timely approved the agent’s penalty determinations, the requirements of I.R.C. sec. 6751(b)(1) were satisfied.

Key Points of Law:

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. 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.

Insight: When in doubt, take the belt-and-suspenders approach. Whether because of the uncertainty of the term “immediate supervisor” or because of the uncertainty caused by staff reassignments, the reviewing agent took the prudent course. As the court observed: The Supplemental Civil Penalty Approval Form lists “the ‘examiner’ as RA Cooper and the ‘examiner’s immediate supervisor” as “Gregory P. Burris/William H. Wilson.’ And the form includes three signature lines: one for the ‘examiner’ (where RA Cooper signed); one for the ‘case & issue supervisor’ (where Mr. Burris signed); and one for the ‘immediate supervisor’ (where Mr. Wilson signed). Because of the ever-changing landscape created by evolving judicial interpretations of this ambiguous statute, RA Cooper evidently took a belt-and-suspenders approach. We decline to penalize her for doing more than the statute required.”


Tax Court Litigation Attorneys

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, and many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.