17 F.4th 78
11th Cir.2021Background
- AHG Investments LLC reported a small partnership loss on its return, but partner Alan Ginsburg reported a $10,069,505 loss on his individual 2001 return, producing a large refund claim.
- The IRS issued a TEFRA partnership-level notice disallowing the partnership losses and proposing a 40% gross valuation-misstatement penalty; the tax court found the partnership a sham and held the penalty applicable to the partnership (subject to partner-level defenses).
- After the partnership-level decision became final, the IRS made partner-level computational adjustments, assessed tax, penalty, and interest, and sent Ginsburg a notice directing him to pay and file an administrative refund claim to pursue partner-level defenses.
- Ginsburg paid, filed an administrative refund claim (which did not mention 26 U.S.C. §6751(b)(1) supervisory approval), then sued for refund in district court arguing both good-faith reliance and that the penalty was void because the IRS lacked the written approval required by §6751(b)(1).
- The district court granted summary judgment for the government, holding Ginsburg failed to exhaust the §6751(b)(1) argument administratively and that §6751(b)(1) was a partnership-level issue that had to be raised in the partnership-level proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the IRS must have written supervisory approval under §6751(b)(1) proved in the partner-level refund suit without prior administrative exhaustion | Ginsburg: §7491(c) places burden on government in court, so IRS must prove supervisory approval in the refund lawsuit despite administrative claim content | Government: §7422(a) requires exhaustion; Ginsburg failed to raise §6751(b)(1) in his refund claim | Court: Exhaustion required; Ginsburg’s §6751(b)(1) claim was not in his administrative claim and cannot be raised first in the refund suit |
| Whether §6751(b)(1) noncompliance is a partnership-level or partner-level defense under TEFRA | Ginsburg: §6751(b)(1) is an element of the government’s burden in court (implicitly argued as litigable at partner level) | Government: §6751(b)(1) affects applicability of the penalty to the partnership and must be raised at partnership level | Court: §6751(b)(1) is a partnership-level defense (applies to all partners) and had to be raised during partnership-level proceedings |
| Whether §7491(c) ’s “notwithstanding” clause overrides administrative exhaustion in §7422(a) | Ginsburg: §7491(c) applies notwithstanding other provisions and therefore trumps exhaustion requirement | Government: No conflict; §7491(c) governs burdens in court after exhaustion; §7422(a) governs administrative condition precedent | Court: No conflict; §7422(a) administrative exhaustion remains a condition precedent to suit; §7491(c) applies to litigated issues after exhaustion |
Key Cases Cited
- United States v. Woods, 571 U.S. 31 (2013) (explains TEFRA’s two-stage partnership-level then partner-level framework and that applicability of penalties is determined at partnership level)
- Mellow Partners v. Commissioner, 890 F.3d 1070 (D.C. Cir. 2018) (holds §6751(b)(1) challenge could and should be raised at partnership level)
- Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (distinguishable; taxpayer had raised §6751(b)(1) in tax-court posttrial brief)
- Rogers v. Commissioner, 9 F.4th 576 (7th Cir. 2021) (tax-court/appeals reasoning that §6751(b) noncompliance is a partnership-level defense)
- Charter Co. v. United States, 971 F.2d 1576 (11th Cir. 1992) (taxpayer must file administrative refund claim and litigation is limited to grounds fairly contained in that claim)
- Cisneros v. Alpine Ridge Group, 508 U.S. 10 (1993) (interpretation of “notwithstanding” clauses — they override conflicting provisions, not all other provisions)
- United States v. Williams, 514 U.S. 527 (1995) (distinguishes administrative-exhaustion requirements from burdens applicable in court)