John Thomas Minemyer v. Commissioner , 2020 T.C. Memo. 99 ( 2020 )

T.C. Memo. 2020-99UNITED STATES TAX COURT
JOHN THOMAS MINEMYER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22182-10. Filed July 1, 2020.
John Thomas Minemyer, pro se.
Daniel Charles Brauweiler and Paul Cooperman Feinberg, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: Respondent determined deficiencies of $140,651 and
$56,944 and penalties of $105,421 and $42,708 under section 6663 for 2000 and
2001, respectively.1 Unless otherwise indicated, all section references are to the
1
Respondent also determined, in the alternative, that petitioner was liable for
(continued...)
-2-
[*2] Internal Revenue Code in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
Respondent moved for partial summary judgment on the 2000 and 2001
deficiencies and on the section 6663 penalty for 2000, and we granted
respondent’s motion. The issue remaining for our consideration is whether
petitioner is liable for a fraud penalty pursuant to section 6663(a) for tax year
2001.
FINDINGS OF FACT
Some facts have been stipulated and some facts have been deemed
stipulated pursuant to Rule 91(f). The stipulated facts and attached exhibits are
incorporated in our findings by this reference. When the petition was timely filed,
petitioner was incarcerated in Colorado and claimed residency in Wyoming.
In July 1998 petitioner and a business associate, John Breaker, formed
Lozon, LLC (Lozon), to provide a molded polymer coupler--a device that connects
pipes that hold underground fiber optic cables--to the telecommunications
1
(...continued)
accuracy-related penalties under sec. 6662(a) for 2000 and 2001. Respondent has
conceded the accuracy-related penalty for 2001.
-3-
[*3] industry. Lozon was organized as an LLC and taxed as a partnership, with
petitioner as a 50% member.
On April 8, 2008, the United States filed an indictment against petitioner in
the U.S. District Court for the District of Colorado charging him with two counts
of income tax evasion under section 7201, the first count for 2000 and the second
count for 2001. The indictment accused petitioner of filing false and fraudulent
income tax returns for 2000 and 2001, alleging that he had substantially
understated his income by knowingly omitting passthrough income from Lozon.
On February 4, 2009, petitioner pleaded guilty to income tax evasion for 2000.
Pursuant to the plea agreement, petitioner pleaded guilty to count 1 for 2000 and
the United States dismissed count 2 of the indictment for 2001. Petitioner paid
respondent $200,918 in restitution consistent with the plea agreement at the time
he was sentenced to prison.
On March 4, 2010, a revenue agent visited petitioner in prison and provided
him a Form 4549, Income Tax Examination Changes, for 2000 and 2001. No
letter from respondent was attached to the report. Petitioner signed the Form 4549
agreeing to deficiencies and penalties but later requested that the agreement be
withdrawn.
-4-
[*4] Upon petitioner’s request, respondent withdrew and disregarded the Form
4549 that petitioner signed on March 4, 2010. On May 17, 2010, a Letter 950,
commonly referred to as a 30-day letter, was sent to petitioner. Leland Deering,
the immediate supervisor of the revenue agent, signed the 30-day letter as group
manager. A Form 4549-A, in which respondent asserted that petitioner was liable
for a section 6663 fraud penalty of $42,708 for 2001, was included with the 30-
day letter. The Form 4549-A included the words “corrected report” at the top of
both pages of the form. The revenue agent signed the Form 4549-A, dated May 7,
2010. Above the revenue agent’s signature the following statement was included:
“This Report supersedes the report issued 3/4/2010.”
Respondent issued petitioner a notice of deficiency on August 19, 2010,
determining deficiencies in income tax and section 6663 fraud penalties for tax
years 2000 and 2001. On August 11, 2010, the revenue agent’s immediate
supervisor, Mr. Deering, executed a Civil Penalty Approval Form which approved
the fraud penalty pursuant to section 6663.
OPINION
The Commissioner’s burden of production under section 7491(c) with
respect to the section 6663 fraud penalty includes introducing sufficient evidence
to establish compliance with the supervisory approval requirement of section
-5-
[*5] 6751(b)(1). See Graev v. Commissioner, 149 T.C. 485, 493 (2017),
supplementing and overruling in part 147 T.C. 460 (2016). 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.” We have interpreted this provision
to require approval before the penalty determination is communicated to the
taxpayer. Palmolive Bldg. Inv’rs, LLC v. Commissioner, 152 T.C. 75, 84, 89
(2019).
In Clay v. Commissioner, 152 T.C. 223, 249 (2019), we held that the “initial
determination” occurs no later than “when those proposed adjustments are
communicated to the taxpayer formally as part of a communication that advises
the taxpayer that penalties will be proposed and giving the taxpayer the right to
appeal them with Appeals”. Recently, in Belair Woods, LLC v. Commissioner,
154 T.C. ___, ___ (slip op. at 24-25) (Jan. 6, 2020), we concluded that the “initial
determination” of the 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.”
-6-
[*6] Section 6751(b) does not require approval by a specific person or in a
particular manner. See Palmolive Bldg. Inv’rs, LLC v. Commissioner, 152 T.C. at
85-86. Rather, the statute provides that the initial determination of a penalty
assessment must be approved in writing “by the immediate supervisor of the
individual making such determination”. Sec. 6751(b)(1); see also Belair Woods,
LLC v. Commissioner, 154 T.C. at __ (slip op. at 25). In Carter v. Commissioner,
T.C. Memo. 2020-21, at *31, we concluded that an examination report and
accompanying Letter 5153 instructing the taxpayers to respond to the report by
either paying the tax, calling to discuss payment options, or agreeing to extend the
period of limitations on assessment communicated to the taxpayers an “initial
determination” of a penalty.
Respondent contends that section 6751(b) requires supervisory approval for
the “initial determination” of a penalty and not a preliminary determination.
Respondent further contends that the 30-day letter satisfies respondent’s burden of
production. However, we cannot conclude from the evidence that the 30-day letter
was the “document by which the Examination Division formally notifie[d] the
taxpayer, in writing, that it ha[d] completed its work and made an unequivocal
decision to assert penalties”. Belair Woods, LLC v. Commissioner, 154 T.C. at __
(slip op. at 24-25).
-7-
[*7] In Frost v. Commissioner, 154 T.C. ___, ___ (slip op. at 21-22) (Jan. 7,
2020), we held that “the Commissioner’s introduction of evidence of written
approval of a penalty before a formal communication of the penalty to the
taxpayer is sufficient to carry his initial burden of production under section
7491(c) to show that he complied with the procedural requirement of section
6751(b)(1).” As in Frost, respondent here introduced evidence of written approval
of the penalty before a formal communication (i.e., the 30-day letter). Also as in
Frost, petitioner has not claimed that there was a prior initial penalty
determination. Unlike Frost, our record does support the conclusion that
respondent may have formally communicated his initial penalty determination to
petitioner before the 30-day letter. Cf. Frost v. Commissioner, 154 T.C. at ___
(slip op. at 23) (“[P]etitioner has not claimed, nor does the record support a
conclusion, that respondent formally communicated his initial penalty
determination to petitioner before the date that the examining agent’s manager
signed the Civil Penalty Approval Form.” (Emphasis added.)).
When the revenue agent visited petitioner in prison, he provided petitioner a
Form 4549, which petitioner signed. Petitioner contends that he was under duress
to sign the Form 4549 and for that reason he withdrew his consent. During
respondent’s counsel’s opening statement at trial he contended that petitioner
-8-
[*8] received a preliminary form before the formal communication in the 30-day
letter and that petitioner signed it, agreeing to the fraud penalty for 2001. This
statement is an acknowledgment that the Form 4549 communicated an intention to
impose a penalty.
Respondent did not offer this Form 4549 into evidence. Therefore, we
cannot determine whether the Form 4549 or the 30-day letter was the initial
determination for the purpose of section 6751(b). Without the Form 4549 we
cannot determine whether that form clearly reflected the revenue agent’s
conclusion that petitioner should be subject to a penalty. See Carter v.
Commissioner, at *30. If the Form 4549 was the initial determination of the fraud
penalty for 2001, there is no evidence of its timely written approval.
Accordingly, we conclude respondent has not met the burden of production
for the determination of the section 6663(a) fraud penalty for 2001. Therefore,
petitioner is not liable for the fraud penalty for 2001.
To reflect the foregoing,
An appropriate decision will
be entered.