Long Branch Land, LLC, Big Escambia Ventures, LLC, Tax Matters Partner ( 2022 )

United States Tax Court
T.C. Memo. 2022-2LONG BRANCH LAND, LLC, BIG ESCAMBIA VENTURES, LLC,
TAX MATTERS PARTNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 7288-19. Filed January 13, 2022.
—————
Michael Todd Welty, Lyle B. Press, Andrew W. Steigleder, and Kevin M.
Johnson, for petitioner.
Edward A. Waters, Stephen A. Haller, Christopher A. Pavilonis, and
Thomas F. Harriman, for respondent.
MEMORANDUM OPINION
LAUBER, Judge: This case involves a charitable contribution
deduction claimed by Long Branch Land, LLC (Long Branch), for a con-
servation easement. The Internal Revenue Service (IRS or respondent)
disallowed the deduction and determined penalties. Currently before
the Court is respondent’s motion for partial summary judgment address-
ing the question whether the IRS complied with section 6751(b)(1) with
respect to these penalties. 1
Section 6751(b)(1) requires that the “initial determination” of a
penalty assessment be personally approved (in writing) by the imme-
1 Unless otherwise indicated, all statutory references are to the Internal Rev-
enue 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.
Served 01/13/22
2
[*2] diate supervisor of the person making that determination. The
“initial determination” of the penalties was communicated to Long
Branch on February 6, 2019. Because the examining agent secured his
immediate supervisor’s approval before that date, respondent urges that
approval was timely. Conceding that the supervisor timely approved
the penalties, petitioner asserts that the supervisor lacked authority to
supply approval. Finding no merit in this argument, we will grant re-
spondent’s motion.
Background
The following facts are derived from the pleadings, the parties’
motion papers, and the exhibits and declarations attached thereto. Long
Branch had its principal place of business in Georgia when the petition
was timely filed.
Long Branch was formed as a Georgia limited liability company
in June 2014. For its short tax year beginning November 19 and ending
December 31, 2014, it was treated as a partnership for Federal income
tax purposes. Long Branch is subject to the TEFRA unified audit and
litigation procedures, 2 and petitioner Big Escambia Ventures, LLC, is
its tax matters partner (TMP). The TMP has filed petitions in 11 other
cases involving conservation easements.
In October 2014 Long Branch acquired roughly 260 acres of land
in Escambia County, Alabama. On December 4, 2014, Long Branch
granted to the National Wild Turkey Federation Research Foundation
(NWT) a conservation easement over the land. Three weeks later, Long
Branch donated a fee simple interest in the land to a passthrough entity
wholly owned by NWT.
Long Branch timely filed Form 1065, U.S. Return of Partnership
Income, for its short 2014 tax year. On that return it claimed a chari-
table contribution deduction of $10,425,000 for its donation of the ease-
ment. It also claimed a charitable contribution deduction of $3,475,000
for its donation of the fee simple interest.
The IRS selected Long Branch’s return for examination and as-
signed the case to Revenue Agent (RA) Guy Lorient, a member of Team
1711 in the IRS Large Business & International Division. At that time
2 Before its repeal, TEFRA (the Tax Equity and Fiscal Responsibility Act of
1982, Pub. L. No. 97-248, §§ 401–407, 96 Stat. at 648–71) governed the tax treatment
and audit procedures for many partnerships.
3
[*3] Supervisory Revenue Agent Rachel Moore served as the acting
team manager of Team 1711. Mabeline Baldwin, the acting territory
manager for the region, had appointed Ms. Moore to that position in
March 2018.
Ms. Moore’s supervision of Team 1711, as reflected on Form
10247, Internal Revenue Service Designation, was initially set to expire
on July 7, 2018. However, on June 22, 2018, Ms. Baldwin informed
Team 1711 that Ms. Moore would continue to serve as acting team man-
ager for the remainder of the fiscal year ending September 30, 2018.
Charles Daniel succeeded Ms. Baldwin as acting territory man-
ager on June 25, 2018. He subsequently discovered that Ms. Baldwin
had not executed a new Form 11247, so he prepared one on August 7,
2018. The form confirmed that Ms. Moore’s appointment had already
taken effect and would continue until September 30, 2018.
Under Ms. Moore’s ongoing supervision, RA Lorient proceeded to
complete the Long Branch examination. In July 2018 he made the deci-
sion to assert penalties for gross valuation misstatement under section
6662(h) and (in the alternative) substantial valuation misstatement un-
der section 6662(e). He also decided to assert penalties under section
6662(b)(1) and (2) and section 6662A. His recommendations to this
effect were set forth in a Civil Penalty Approval Form, which Ms. Moore
signed on July 31, 2018, as the “Acting Team Manager.”
RA Lorient concurrently prepared a Supplemental Civil Penalty
Approval Form, which states that RA Lorient “made the initial de-
termination to assert . . . penalties.” RA Lorient signed that form on
July 31, 2018, and Ms. Moore signed it the same day as the “Examiner’s
Immediate Supervisor.” Six months later, on February 6, 2019, the IRS
issued a notice of final partnership administrative adjustment (FPAA)
disallowing the charitable contribution deduction for the easement, re-
ducing the deduction for the fee simple donation, and determining pen-
alties.
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. v. Commissioner, 98 T.C.
4
[*4] 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The sole question
presented at this juncture is whether the IRS complied with the require-
ments of section 6751(b)(1). We find that this question may be adjudi-
cated 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 in-
dividual making such determination.” In a TEFRA case such as this,
supervisory approval generally must be obtained before the FPAA is
issued to the partnership. See Palmolive Bldg. Inv’rs, LLC v. Commis-
sioner, 152 T.C. 75, 83 (2019). If supervisory approval was obtained by
that date, the partnership must establish that the approval was untime-
ly, i.e., “that there was a formal communication of the penalty before the
proffered approval” was secured. See Frost v. Commissioner, 154 T.C.
23, 35 (2020).
Respondent has supplied the penalty approval forms by which RA
Lorient recommended assertion of penalties against Long Branch. RA
Lorient’s acting team manager, Ms. Moore, signed the forms on July 31,
2018. The definite decision to assert penalties was communicated to
Long Branch more than six months later, in the FPAA dated February
6, 2019. Respondent thus contends that approval of these penalties was
timely secured. See ibid.; Belair Woods, LLC v. Commissioner, 154 T.C.
1, 15 (2020).
Petitioner does not allege that the IRS formally communicated to
Long Branch, before July 31, 2018, its decision to assert penalties. But
petitioner asserts that Ms. Moore lacked authority to supervise the ex-
amination and that her approval of the penalties on that date was
meaningless. That is so, petitioner contends, because Ms. Moore’s desig-
nation as acting team manager expired on July 7, 2018.
We disagree. Although Ms. Moore’s appointment was initially set
to expire on July 7, 2018, the IRS extended her appointment to Sep-
tember 30, 2018. Ms. Baldwin, the then-acting territory manager, com-
municated that decision to Team 1711 on June 22, 2018. Acknowledging
Ms. Baldwin’s action, petitioner asserts that she “did not have authority
to appoint Moore . . . for a period that was to commence after Baldwin’s
authority to serve as Acting Territory Manager had expired [on June 23,
2018].” But Ms. Moore’s appointment did not “commence” after Ms.
Baldwin stepped aside. Ms. Moore was already serving as acting team
5
[*5] manager, and her period of service was simply extended to the end
of the fiscal year.
There is no evidence to suggest that Ms. Moore lacked supervisory
authority on July 31, 2018, when she approved RA Lorient’s penalty
recommendations. At no point did RA Lorient or any other team mem-
ber question Ms. Moore’s supervisory authority. To the contrary, RA
Lorient worked closely with her throughout the examination and, when
the examination neared completion, viewed her as the proper person to
review his penalty determinations. Ms. Moore agreed with his recom-
mendations and signed two penalty approval forms: one as the “acting
team manager” and the other as his “immediate supervisor.”
Petitioner relies heavily on the Form 10247 that Mr. Daniel pre-
pared on August 7, 2018, confirming Ms. Moore’s appointment through
September 30, 2018. Petitioner argues that Mr. Daniel’s completion of
this form reflects an “effort to cure unauthorized action by Government
employees through retroactive delegations of authority.” 3 But Mr. Dan-
iel did no such thing. He simply memorialized Ms. Baldwin’s June 22
delegation on Form 10247, thereby confirming that Ms. Moore had
served, and would continue to serve, as Team 1711’s acting manager
through September 30, 2018.
The “presumption of regularity” supports the actions of the IRS
officers in this case. “The presumption of regularity supports the official
acts of public officers and, in the absence of clear evidence to the con-
trary, courts presume that they have properly discharged their official
duties.” Pietanza v. Commissioner, 92 T.C. 729, 739 (1989), aff’d, 935
F.2d 1282 (3d Cir. 1991). Indeed, “[i]t is the settled general rule that all
necessary prerequisites to the validity of official action are presumed to
have been complied with.” Lewis v. United States, 279 U.S. 63, 73
(1929); see Mecom v. Commissioner, 101 T.C. 374, 388 (1993) (holding
that IRS officials “are presumed to have properly discharged their offi-
cial duties”), aff’d, 40 F.3d 385 (5th Cir. 1994).
3 Petitioner cites Timberland Paving & Construction Co. v. United States, 8 Cl.
Ct. 653 (1985), for the proposition that retroactive delegations are unlawful. That case
involved a Government contract dispute. The U.S. Claims Court interpreted
regulations issued under Title 41 of the U.S. Code and held that “[c]ontracting officers
. . . are not to be designated retroactively.” Id. at 660. Petitioner’s reliance on this case
is misplaced for several reasons, the most obvious one being that Title 41, which
governs public contract law, has no application to tax cases.
6
[*6] Petitioner has offered no “clear evidence” to overcome this pre-
sumption. Indeed, if Ms. Moore lacked authority to serve as acting team
manager, then Team 1711 would have had no manager for at least a
month. Congress enacted section 6751(b) “to prevent IRS agents from
threatening unjustified penalties to encourage taxpayers to settle.”
Chai v. Commissioner, 851 F.3d 190, 219 (2d Cir. 2017), aff’g in part,
rev’g in part T.C. Memo. 2015-42. Without Ms. Moore at the helm, all
members of Team 1711 (on petitioner’s theory) would have been com-
pelled to assert penalties on their own (and violate the statute) or cease
work indefinitely (and needlessly prolong the examination). We doubt
that Congress wished to create this sort of dilemma. Cf. S. Rep. No. 105-
174, at 65 (1998), 1998-3 C.B. 537, 601 (stating that proper supervision
would ensure that IRS agents assert penalties “where appropriate”).
In any event, under section 6751(b)(1), RA Lorient was required
to secure timely approval of the penalties from his “immediate super-
visor.” Although the Internal Revenue Code does not define the term,
we have held that the immediate supervisor is “the person who super-
vises the agent’s substantive work on an examination.” Sand Inv. Co.,
LLC v. Commissioner, 157 T.C. __, __ (slip op. at 11) (Nov. 23, 2021).
Petitioner does not dispute that Ms. Moore, who signed the Sup-
plemental Civil Penalty Approval Form as the “examiner’s immediate
supervisor,” in fact oversaw RA Lorient’s substantive work during the
examination. Thus, even if Ms. Moore somehow lacked authority to
serve as RA Lorient’s “acting team manager,” she properly approved the
penalty determinations as his “immediate supervisor.”
To reflect the foregoing,
An order will be issued granting respondent’s motion for partial
summary judgment.